Economic Growth

You may have seen the news, "Swiss topple U.S. as most competitive economy: WEF." Most people took mild comfort that we clenched the number two spot in the World Economic Forum's Global Competitiveness Index. Not bad for the country that precipitated a global economic crisis, they may say. But, the numbers behind the US ranking are not reassuring. (For an enlarged page of the US rankings, click the page to the right. To read the whole report, click here.)

The US ranks high in market efficiency and innovation while it ranks poorly on basic requirements.

But even on the measures where the US is supposedly competitive, the economy shows considerable weakness...

Using its Current Population Survey (CPS) of Non-Farm Jobs (which is the second attachment hereto), the Bureau of Labor Statistics announced an hour ago, "Total non-farm payroll employment declined by 216,000 in August. Since December 2007, employment has fallen by 6.9 million."

However this monthly Survey, while highly publicized, highlights only the change each month in the number of employed non-farm workers. It notably excludes both: (1) changes in employment among the nation's more than 11 million farm and self-employed workers; and (2) the 14,804,000 workers who are either part-time-of-necessity, marginally attached, or in the labor force reserve because they have left the workforce out of frustration...

President Barack Obama's nomination of Ben Bernanke to a second term as Chairman of the United States Federal Reserve represents a sensible and pragmatic decision, but it is nothing to celebrate. Instead, it should be an occasion for reflection on the role of ideological groupthink among economists, including Bernanke, in contributing to the global economic and financial crisis.

The decision to nominate Bernanke is sensible on two counts. First, the US and global economies remain mired in recession. Though the crisis may be over in the sense that outright collapse has been avoided, the economy remains vulnerable. As such, it makes sense not to risk a shock to confidence that could trigger a renewed downturn...

While many recognize that deleveraging our household and financial sectors is crucial for a sustainable recovery, government policy seems to be doing the opposite. For households, the government has provided incentives to take on more debt. For financials, regulation has been lax, moral hazard pervasive, and banks have been enticed by profits to lever up their balance sheets...

The Economic Observer reports that the Chinese Ministry of Commerce (MOFCOM) has held a series of meetings on creating a Chinese Marshall Plan. The plan would use some USD 500 billion of China's USD 2.1 trillion in foreign exchange reserves to invest in developing countries in Asia, Africa and South America to create greater demand for Chinese goods.

The basic calculation behind the proposal is smart. American consumers will almost certainly not be consuming at the same rate as they were before the crisis and a ton of production capacity is sitting idle in China. The only consumer markets that have the potential to drive Chinese production and exports are in developing countries...

CNBC's Phil LeBeau reported yesterday that some 17% of a 1,000 purchasers surveyed were having doubts over purchasing a car using the Cash for Clunkers rebate. According to CNW, the group that conducted the survey, some purchasers are worried about monthly car payments.

I'm not sure how the survey was conducted, or what margin of error there would be on 1000 person survey, but this shows the concern many families have about their personal finances. It also brings to mind several of the biggest problems with the Cash for Clunkers stimulus program...

Last month, we wondered whether the May uptick in the widely-watched S&P/Case-Shiller Home Price Index was a sign that the housing market was bottoming out. Yesterday's release of the June data provides more evidence that a tentative recovery is taking hold.

18 of 20 major metropolises surveyed showed average (non-seasonally adjusted) increases in June, up from eight in May and four in April, according to the New York Times. (The laggards are Rust Belt/Sun Belt basket cases Detroit and Las Vegas.) A composite index of all 20 cities gained 0.75%. Meanwhile, the Federal Housing Finance Agency's house price index--which looks at national data and tracks more moderately-priced homes--rose 0.5% for the month...

The federal government's "Cash-for-Clunkers" scheme winds down this week, and commentators are rushing to judge the program a success or failure. Although "Cash-for-Clunkers" boosted auto production and Midwest factory output in July (and, likely, August), it remains to be seen whether the gains will be sustainable in the months ahead.

Bloomberg is reporting that the Obama administration may pick Ron Bloom, head of the government’s auto task force, to develop a national manufacturing policy.

Leo Hindery Jr., Chairman of our Smart Globalization Initiative, recently pushed for a manufacturing policy (as opposed to a strategy) in a recent testimony before Senator Sherrod Brown:

The need for an elaborate American industrial policy was first widely observed as far back as the early 1980s, and by 1993 some in the Clinton administration and especially some enlightened members of Congress tried to enact such a policy. Regrettably they failed, and now 16 years later, we sit here in 2009 still without one...

Warren Buffet has an op-ed in the New York Times this morning on why large government deficits will force us to print money to pay down our debts, thereby causing inflation. In his words, it will cause the "purchasing power of the currency to melt."

A slight melting of the dollar may not be such a bad thing for the economy. In fact, there may be no other way to deal with high levels of government debt and to correct America's enormous trade imbalance. (Chris Hayes, Washington DC editor of The Nation and New America Foundation Fellow, has a forthcoming paper on why moderate inflation is good that will be released at our September 15th conference.)...