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Blinder on the US economy

This short piece in Foreign Affairs by Alan Blinder is as good a statement as I have seen on the state of the US economy:

“The majority of Americans can be forgiven for believing — as they do — that the U.S. economy is still in a recession when it’s not. The economy is certainly growing, which is the definition of not being in a recession. But growth has been painfully slow this year, running at just about a two percent annual rate. No one would call that good performance. It is, in fact, little better than half the growth rate that many forecasters expected when the year began. Reflecting this weakness, forecasts for both 2011 and 2012 are being revised downward”.

The difficulty is that the international situation is unfavourable – a coincidental confluence of events in Europe and Japan – and domestic demand in the US is weak. The real difficulty however is the tight budgetary situation in the which will force tax cuts and expenditure cuts.  The haste to achieve these cuts is being driven by the conservative side of US politics which wants to “purge” the economy of its capital market excesses. This is exactly what the US economy does not want short-term. A fiscal program targeting job creation would make a lot more sense short-term.


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