Buying Time

Some say the warmer winter months pulled some of the growth that is normally reserved for spring/summer forward in the year, that therefore lower growth is now expected for the warmer months. Everyone agrees that Europe’s debt crisis and the possibility of continued or even rising oil prices (especially if there is an Iranian confrontation) loom horribly ahead. The prospect of accelerating austerity, led in Europe with Teutonic discipline by Germany (which believes that they are single-handedly funding the rescue packages and therefore are entitled to call the shots), does not augur well for the regional job market. American politicians are also falling over each other with proposals for new budget cuts at every level of government, from school districts to the federal government.

“There is a ‘light recovery blowing in a spring wind’ with ‘dark clouds on the horizon,’ Christine Lagarde, managing director of the International Monetary Fund, said [April 19^th], at the start of meetings here that will focus on Europe’s troubles and global growth. Ms. Lagarde implored world leaders not to become complacent… ‘An uneasy calm remains,’ said Olivier Blanchard, the International Monetary Fund’s chief economist. ‘One has the feeling that any moment, things could well get very bad again.’” New York Times, April 20^th. One third of the global economy flows through the U.S./European connection, so failure on either side of the Atlantic augurs badly for the recovery of the other.

With inexorably snail-paced job growth, and a miniscule projected 2.5% projected GDP increase (which does little but reflect population growth), describing the U.S. economy as sluggish is an understatement. China shocked the world by announcing it projected economic growth by a full percentage point, down now to 8.1%, but note the disparity in the U.S. and PRC numbers. Economists are even saying that our job growth numbers reflect nothing more than a removal of even more people from a job search; they’ve just given up.

Austerity is not popular when it is imposed. It throws lots of people out of work, generally results in a degradation in the quality of life, and often fails to distinguish between the necessary and the discretionary. Hard to picture real austerity with economic growth, almost impossible. Conservative French President Nickolas Sarkozy (pictured above) lost the support of the majority of his citizens in his lock-step march with Germany down the austerity highway and became the first one-term President in France since 1981, losing to the Socialist candidate François Hollande in the recent election.

We’ve been more circumspect in our cutbacks on this side of the Atlantic, but we have equally prioritized military spending and tax cuts for the wealthy over skill-creating educational and training programs, productivity-enhancing infrastructure repair and construction and industry-building research. It seems that we are living for the moment with little concern about investing in our own future, suggesting that such a future pits an economically and educationally unprepared America against Asian tigers with economic domination in their sights.

Austerity means cutbacks, and cutbacks necessarily mean job contraction. Failure to offset those measures with longer-term investment almost certainly insures a longer-term, if not permanent, parallel contraction in quality job growth and at least a stabilized standard of living. France learned the lesson, but perhaps it will swing too far in the other direction under new leadership, if the elections go that way.

Greece is struggling to create a parliamentary coalition after the most recent election, and thus another election in June may be necessary. With little or no ability to repay its debt, Greece now seems all but certain to eschew the Eurozone and return to a single currency. Austerity measures in Greece and Portugal, strong efforts to reduce the ratio of debt to GDP, seem to be failing, since as more austerity is imposed (reducing debt, for sure), the impact on the subsequent falling GDP numbers because of the austerity simply keeps the same (or worse) ratio intact with a lot of pain and suffering along the way. Pain and suffering pulls elected officials down. The next immediate weakness – the capitalization of Spain’s largest banks – has raised new concerns about the overall direction of European Union stability. Massive protests over the weekend underscored the personal suffering that marked Spanish the imposition of severe austerity measures. And if there were an attack on Iran by Israel, the spike in oil prices is very likely to extinguish that slightly flickering recovery flame.

I look at the state of the Western world, thinking it could easily be great again, that the United States could hang on to its foremost position with a slight reordering of its priorities, but for whatever expedient reason, our elected officials just can’t get out of their own way, explaining the issues to the electorate (which neither side has done beyond sloganeering) and then implementing policies that really will grow our economy. It comes down to this simple factor which must balance even the most well-intentioned austerity measures: you do not get a return on your investment… without an investment. Think of the “return on investment” by our government by another term: our future. What is a future with failed roads and bridges, under-educated workers and no new industries to absorb American workers?

I’m Peter Dekom, and today an average American worker’s lifetime efforts are rewarded by unemployment, losing a home (or at least the retirement value of a home) and a severely contracting lifestyle.