South By North Strategies, Ltd.

Jobs Policy

James Galbraith argues for job creation over deficit cuts:

The question facing world leaders today is not what to do. It is whether to do it. There are two goals to meet: full employment and sustainable energy. That’s technically complex. But the complexities are complexities of engineering, organisation and politics. They are not complexities of economics or finance.
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The question is posed as though it involved deep questions and high obstacles, whose true nature the uninitiated cannot be expected to grasp. Thus the hue and cry over public debt and deficits – projected to be unsustainable – for reasons never stated – in the long run. Our papers and our television speak of almost nothing else. But if they are right – as all the voices of Wall Street and the City say – then how come the long-term interest rate on the government bonds of the rich countries remains so low? In the US, the federal government can borrow for 20 years at less than 4.4%. And it can borrow short-term for practically nothing.

Around the Dial – Feb. 22

Economic policy reports, blog postings, and media stories of interest:

• The Charlotte Observer looks at the state of the local economy.
• The Stash argues that health reform isn’t dead yet.
• Econbrowser explains the hike in the discount rate.

Recovery Paths

Over the weekend, The Charlotte Observer reported on possible paths of economic recovery. The report contained the perspective of John Quinterno of South by North Strategies, Ltd.

Despite some hopeful signs, the Charlotte area’s economy won’t outpace unemployment anytime soon, economists warn.
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Some jobs are gone forever, and those that will replace them could leave the region’s lowest-skilled and least-educated workers struggling to catch up, experts say.
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“The question is, are growth levels adequate enough to get us out of the hole we’re in?It doesn’t look like it,” said John Quinterno of South by North Strategies Ltd., a Chapel Hill economic research firm.

Weekend Wonk Out

A round-up of policy reports from the week ending on 2/12:

• The Center for Budget & Policy Priorities sets deficit facts straight.
• The Economic Policy Institute assesses the Recovery Act one year later.
• The Center for Economic & Policy Research warns against deficit scares.
• The Annie E. Casey Foundation looks at the use of public benefits.
• The Working Poor Families Project asks how infrastructure spending can create jobs.

Dueling Economic Narratives

In a recent speech, Dennis Lockhart, the president of the Federal Reserve Bank of Atlanta, put forth a tale of two economic narratives. The second narrative — the one that Lockhart and his colleagues at the Atlanta Fed are forecasting — is especially disturbing.

The alternative narrative entails some fundamental changes in business practices and consumer habits. In this scenario, businesses have learned from the recession that they can operate permanently at leaner inventory levels and flat or lower employee head counts. And the impressive worker productivity gains measured in recent data continue to accumulate.
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Consumers, in this narrative, have assumed a quite different mind-set compared to the precrisis, prerecession “normal.” Chastened by the recession and high unemployment—consumers are simply more frugal and more inclined to save. And even if consumers wanted to resume prerecession spending habits, the consumer finance industry, in this narrative, will not accommodate previous levels of consumption.
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In this narrative, growth continues, but at a very modest pace, and unemployment is very slow to recede. The first narrative is a return to something resembling normal as we knew it; the second narrative describes a somewhat new and different world.