Greenscams productivity miracle is one BIG LIE:
Read this and tell me you can still be a BULL......
This smacks of everything we have been saying, along with the fact I KNOW Hillary makes a run at the WH in 2004. Can you imagine her as President, if that happens I move overseas for sure.
Friday, 27 July 2001 16:17 (ET)
Analysis: Wrong, gentlemen, wrong
By MARTIN HUTCHINSON, UPI Business & Economics Editor
WASHINGTON, July 27 (UPI) -- "If this is the bust, the boom was sure as
hell worth it. You agree with that, right?" said Sen. Phil Gramm, R-Texas,
to Fed Chairman Alan Greenspan at a hearing Wednesday. "Certainly," said
Greenspan.
Wrong, gentlemen, wrong. This is only the very beginning of the bust, and
by the end of it, nobody will think the boom was worth it.
Second quarter Gross Domestic Product, announced Friday, was up an anemic
0.7 percent. This, by itself is not a disaster, not even a "dictionary
definition" recession, although if the second quarter figure is revised as
much as the first quarter's was (which is likely -- June's durable goods
figure was dreadful), it will be in negative territory by the time of the
"final" figure in September.
What is of more concern, however, is that while real personal consumption
expenditures increased by 2.1 percent in the quarter, real residential fixed
investment increased 7.4 percent and real government expenditure increased
by 1.6 percent (you can always rely on the Feds) non-residential fixed
investment declined by 13.6 percent, compared with a modest 0.2 percent
decline in the first quarter, and real exports declined 9.9 percent.
In other words, the productive parts of the economy, those that provide
jobs and sell goods abroad, are shrinking rapidly, while the unproductive
parts, those that provide credit card bills, top-heavy mortgage debts, and,
eventually, a budget deficit are still going very strong.
The Senate hearings on "predatory lenders" appear to have been well timed;
when you've lost your job and savings but still have large credit card debts
and a mortgage you can't pay, all lenders are predatory.
There's more bad news. As well as the second quarter figures, the Bureau
of Economic Analysis on Friday announced downward revisions to GDP growth
for 1998, 1999 and 2000, of 0.1 percent for 1998, 0.3 percent for 1999 and
0.7 percent for 2000. These revisions may sound moderate, but they go
straight to the question of whether the much vaunted "productivity miracle"
was real, because they revise output downward while keeping labor input the
same, thus in 1999 and 2000's case revising the 2.8 percent and 4.2 percent
productivity growth in the years to 2.5 percent and 3.5 percent.
As I set out in an earlier article, however, the productivity figures
themselves are still inflated by a change made in 1996, putting business
software in the statistics as a capital investment, and depreciating it over
five years, rather than the 18-24 months that would be realistic. In a
period of high software investment, as quintessentially was 1999-2000, this
is very distortive, artificially inflating productivity by about 0.8
percent. Thus the "true" productivity growth figures for 1999 and 2000
should be 1.7 percent and 2.7 percent, pretty unimpressive for years at the
top of a boom.
Further, 1999 and 2000 were periods of exceptionally high capital
spending; thus a rise in labor productivity does not translate to a rise in
total factor productivity, but partly to a rise in capital intensity. Even
under the old figures, total factor productivity growth was no higher in
1992-1999 than it had been in the 1980s; the new figures would deflate the
comparison still further, to a point where, in 1999-2000, total factor
productivity may actually have declined, as investment capital was poured
into uses that were unproductive even at the time, let alone in retrospect.
The productivity miracle was a myth, therefore, and thus the Greenspan
justification for "irrationally exuberant" stock prices in 1997-2001 falls
away. Here there is more bad news to come. Earnings on the S&P 500 stocks in
the second quarter of 2001 fell by at least 18 percent, and the forecast
after the warnings of the last couple of weeks is for a further fall of
about 9 percent in the third quarter. Even while stock prices remain
stagnant, therefore, the price-earnings ratio on the S&P 500 is escalating
quarter by quarter.
One is a fool to forecast stock prices, particularly in the near term, but
it would seem that the overwhelming balance of probability over the next
year, probably beginning once the July-September tax cuts have been safely
pocketed, is for a further massive drop in the stock market, to a level
where stock valuations are around their historic mean, i.e. 5,000 for the
Dow, 600-800 for Nasdaq and 600 for the S&P Index. This drop in turn will
have a very substantial negative wealth effect, which will make the
recession, probably not touching bottom until at earliest 2003 (and then
recovering achingly slowly) a nasty one indeed.
No, senator, or chairman, it was not worth it. The boom was a bubble, but
the bust will be real, and you ain't seen nothing yet.
There is an attempt under way by Clinton fans to write the economic
history of the '90s as fast as possible, to cement popular opinion of it
before the full price has to be paid. If the '90s can be portrayed as a
carefree era of rapid growth, with no adverse consequences, then the pain we
are about to endure can be blamed squarely on the present incumbents. The
new book by Clinton Fed appointees Alan Blinder and Janet Yellen, "The
Fabulous Decade," is the first attempt at this, but there will doubtless be
more, a regular drumbeat rising to a crescendo in the media, as the
perpetrators of the '90s follies realize that months, and then years, have
passed since they left office, so that economic disaster is less and less
their fault. By loudly proclaiming the "new economy" productivity miracle,
and focusing on the actual '90s, not the equivocal record of 2000, they may
succeed.
Ironically, by bringing in the tax cut so quickly, the Bush administration
has ensured that its stimulative effects will only delay the recession
rather than pulling us out of it, thus further muddying the intellectual
waters and greatly aiding the Clintonian legend. Treasury Secretary O'Neill,
too, wanders around making vaguely disconnected optimistic pronouncements,
sounding like Herbert Hoover on Prozac, and confirming the impression that
the Clinton economic legacy was sound, so whatever happens now is the fault
of the Bushies.
As for Fed Chairman Greenspan, his drops in interest rates are doing no
good, and will within the next few months be seen to have been quite futile,
merely removing a possible weapon that could have been used to restart the
economy once the bottom had been reached.
Thus there is no question that Greenspan's force-feeding of the money
supply (with M3 now up 14.7 percent over the last 6 months) and his
rapid-fire drops in interest rates, have merely postponed the inevitable
recession and made the Clinton era's fingerprints on the economic
unpleasantness less obvious. But then, in an earlier piece, written indeed
before he began cutting, I pointed out that he is married to a staunchly
Democratic Friend of Bill-and-Hillary, so that may have been the intention
all along.
After all, a really nasty recession, combined with a whitewashing of the
Clinton economic legacy, would make Hillary awfully hard to beat in 2004.
--
Copyright 2001 by United Press International.
All rights reserved. |
