Goldman: Understanding the Exhausted US Economy

The dreadful jobs number in December was the first signal that the U.S. economy is dead in the water, argues David Goldman @ PJMedia. The second signal came this week when "the Institute for Supply Management reported the steepest drop in manufacturing orders since December 1980." A Republican, Goldman presents some unusual ideas to resuscitate the exhausted economy. He begins by showing "two disastrous underlying trends."

One is the decline of real median household income.

The other is the collapse of the labor force participation rate, which is the flip side of the coin: if fewer adults are working, median household income will be lower.

Then there are the problems of business and the Fed:

Business won’t invest in brick, mortar, equipment and labor. Part of this is due to the Obama administration’s regulatory reign of terror. Part of this is due to Obamacare, which adds to business costs. Part of this is due to secular trends–what Nobel laureate Edmund Phelps calls a “structural slump.” We no longer have high-tech companies: we have instead aging monopolies run by patent lawyers.  ...

The Fed’s unprecedented provision of liquidity cheered the stock market, but it did not persuade lenders to lend or borrowers to borrow. The growth rate in total bank credit is close to zero, something we have seen before only in recession periods. The Fed has insisted throughout that the treatment was working and the patient was getting better. Americans know better: in late January, 74% of respondents to a Fox News poll said the country still was in recession.

What to do about it?

The problem is NOT government spending, contrary to the well-meaning obsession of the Tea Party. That will BECOME the problem a decade or two from now. The problem now is obstacles to investment: the highest corporate tax rate in the world, onerous regulation, the crazyquilt uncertainty of Obamacare. America needs aggressive tax cuts and regulatory rollback.

It also needs to spend more on infrastructure, which is becoming a major obstacle to growth. It needs to spend more on R&D, particularly on cutting-edge military R&D. The way to do this, I’ve argued for years, is to emulate Roosevelt’s alphabet-soup federal agencies and put unemployed Americans to work repairing infrastructure at $20 an hour, rather than paying $50 an hour to the construction unions. That’s heresy from a free-marketeer like me, but it makes economic sense and will drive the Democrats crazy.

In 2012, Americans "blamed Republicans as much as the Democrats for the economic mess," and they "chose economic dependency over enterprise, because enterprise — in the form of the Internet and housing bubbles — hadn't gotten them anywhere," concludes Goldman. "We Republicans have a lot of explaining to do and we had better get down to it."