Jeremy Hobson: Now let’s get to Washington where it appears congressional negotiators have struck a deal to extend the payroll tax cut through the end of the year. The deal would also extend unemployment benefits and maintain the pay of doctors who accept Medicare. All of that means more money will go into more people’s pockets and perhaps they’ll go out and spend that. You might call it… a stimulus package.
For more, let’s bring in our regular Wednesday guest, Josh Brown of Fusion Analytics who is with me live in the studio this morning. Hi Josh.
Josh Brown: Hi Jeremy.
Hobson: So is this stimulus?
Brown: Well, I guess it’s a preservation of the status quo and it would have probably been a negative had they not passed this. So it’s not a bad thing but I don’t see it leading to any kind of sea change in the economy or the way people are spending money.
Hobson: But it is more money into people’s pockets -- this payroll tax extension -- which would mean, if it is stimulus or at least not non-stimulus. This is four years we’ve been trying to boost the economy with government spending -- is it working?
Brown: The most important thing for people to understand about what’s happening, and what’s been happening, is that this is a balance sheet recession. So you can give money to people but you can’t make them spend it, especially when they’re in deleveraging mode. This is not something that wraps up in two or three years; it takes a very long time. There aren’t a lot of examples of it but no one should expect an extra $50 on someone’s paycheck to lead to some kind of massive increase in spending.
Hobson: Deleveraging mode by the way -- you mean people are trying to get out of debt.
Brown: People are bringing down the level of debt they have, they are building back up their savings. And spending is a tertiary priority.
Hobson: All right, well let’s talk about debt in Europe. The European debt crisis, another big story today. The big meeting that was supposed to decide if Greece was going to get more bailout money -- pushed back. Another missed deadline. How closely are you watching this?
Brown: Jeremy, I would really be scared if they actually made a meeting on time. I think the way to look at Europe is, obviously, the risks are very well known. If a major bank there blows up, it could be a big problem for banks around the world and maybe force businesses to rein in what their plans were. But barring that, nobody should look at this as something that can either be resolved or blow up in one day.
I think this is just going to be a continual albatross around everyone’s neck, but it seems to matter less and less as U.S. businesses pick themselves up off the pavement and start to do more. In fact, we saw that this morning in the Empire Manufacturing Survey, which is 175 manufacturing companies from around New York state -- and it’s pretty significant because it’s the third increase in a row and it’s a huge jump in February over January.
Hobson: Josh Brown of Fusion Analytics. Thanks so much as always and thank you for coming in.
Brown: Thank you, my pleasure, Jeremy.
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