TPT March 2009

From the Americas

The US economy Analysts try calculating the odds: Depression? Recovery? Or a period of anaemic growth? Shortly before the inauguration of US President Barack Obama on 20 January, economic reporter Robert Gavin of the Boston Globe recalled a grim episode from the past: “The speed of the economy’s deterioration has stunned economists and led to comparisons with the Great Depression, when a financial panic dried up credit, destroyed confidence, and led to sharp declines in consumer and business spending.” To stem the slide this time, Mr Obama has proposed enormous government outlays for tax cuts, state aid, and public works projects, in a massive stimulus package to be taken up in Congress in the new term. In the view of economists and analysts consulted by Mr Gavin, on its success or failure may depend whether the nation finds a path to recovery or spirals into a depression that could last years ( ‘Critical choices ahead,’ 11 January). Christian Weller, public policy professor at the University of Massachusetts (Boston), told the Globe, “A big stimulus has the potential to be a game changer.” The bright scenario was sketched by Mark Zandi, chief economist at Moody’s Economy.com: A quick passage of a stimulus package of $800 billion or more; tax cuts for lower-income families; benefits extended or even increased for the unemployed, who are also likely to spend the money quickly. What might follow on the initial lift provided by this spending was outlined by Mr Gavin: “Hundreds of billions of dollars goes to states to avoid deep budget cuts and layoffs, and pay for public works projects that create jobs, putting a floor under the eroding labour market. Big, bold, and decisive action by the new president and Congress gives confidence to consumers and businesses that worst will soon be over.” On this model, an economic rebound begins to take shape by the second half of the year. In expectation of a recovery in consumer spending, businesses take advantage of low interest rates to buy equipment and expand plants. Workers are retained, and more are hired. Unemployment, peaking just short of 8 per cent, starts back down. But most of the analysts consulted by the Globe were cautious about entertaining such high hopes for the Obama initiative. Their view, as summarized by Mr Gavin, is that the stimulus package will merely keep the US economy ‘in the game’ . Massive government spending will help stem the rapid deterioration; but any economic growth in the second half will not amount to much. Allen Sinai, chief economist at Decision Economics, a Boston financial market advisory firm, was among the skeptics. He estimated the chances of a depression at 15 to 20 per cent. Not, he commented, ‘a trivial possibility’ . ‘A dark scenario’ During the campaign leading up to his election, Mr Obama was credited by one commentator with having a first-class temperament

as well as a first-class mind. He will need both if his economic stimulus plan is to succeed. In the view of some economists interviewed by the Globe, failure would begin with a dickering, delaying Congress that delivers a smaller package filled with special-interest sweeteners. Their confidence shaken anew, consumers cut spending, thus hurting corporate profits and leading to more layoffs and even tighter purse- strings. The housing market plunges still further, leading to more foreclosures and undermining the already weakened financial and credit markets. Banks stop lending. It is probably unnecessary to go further, but Mr Gavin of the Globe does. Businesses slash prices to attract buyers, who hold out for better bargains. Inventories build up; businesses cut production; more workers lose their jobs. Consumers cut spending yet again, and the cycle repeats. The downturn deepens for two more years. Employers cut 3 million jobs this year, and millions more in 2010. Unemployment hits double digits; 12, 13, 14 per cent. Nearly 20 million Americans are out of work, compared with about 11 million when Mr Obama took office. The analysts said such a long, deep, and sustained downturn would qualify as a depression. Mr Zandi, the Moody’s economist who looked first at the bright side, concurs. It is, he said, ‘not hard to get to a dark scenario’ . And yet . . . The US has bidden goodbye to a man who is already being called the worst president in the history of the republic. In its first post- election issue, the Onion, a satirical newspaper whose coverage of fictitious events has often tripped up the mainline media, played it straight. The headline read, ‘Black man given nation’s worst job’ . The new president, said the Chicago-based editors, will have “to spend four to eight years cleaning up the messes other people left behind” . On 18 January, New York Times op-ed columnist Frank Rich acknowledged the extent of these messes: “enormous, bigger than Washington, bigger than race, bigger than anything most of us have ever seen”. But cautious hope could be detected in his last piece before the inauguration of Barack Obama as the 44th president of the United States. Mr Rich wrote, some ten weeks after Election Day, “It remains astonishing that the American people have entrusted the job to a young black man who seemed to come out of nowhere looking for that kind of work just as we most needed him.”

Automotive The thorny issue of dealerships that decline to go quietly pits producers against their own retailers

Reporting from the North American International Auto Show on opening weekend, business writer Katie Merx of the Detroit Free Press directed her attention first to a particular set of exhibitors: the car dealers at the huge (800,000 attendees) two-week event. The dealers, she wrote, are “at the centre of the toughest, most political – and potentially litigious – battle that Detroit’s auto

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M arch 2009

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