The stock market’s in a bit of a melt up today, driven allegedly by the European Central Bank’s announcement of a new plan to buy unlimited amounts of sovereign debt—government bonds from struggling Eurozone economies like Spain, Italy, and Greece—as well as higher than expected ADP jobs report.
OK, but in the age-old tradition of ascribing any cause you want to daily market movements, supposed I said the markets really like President Clinton’s speech last night? They–the markets–were particularly lifted by his reminder that ancient art of political compromise can prevent of lot of damage to this economy.
You see, there are two broad factors hurting our economy right now—markets and politics.
By “markets,” I mean everything from ongoing corrections from the Great Recession (housing, consumer deleveraging, credit markets) to Europe, energy/food prices, and so on. We’ve done a lot to counteract the market failures, but need to do more. We can’t, however, because of the second problem: politics.
But I don’t just mean “we’re not doing things we should,” like providing states with fiscal relief to stave off their ongoing layoffs. I’m talking about self-inflicted wounds, like last year’s debt ceiling debate and this year’s fiscal cliff.
Last night I was in a debate on the Kudlow show about a new report by the World Economic Forum on their Global Competitive Index. The US has slipped in recent years from first place in the late 2000s to 7th place in the latest version (out of over 140 economies).
I wouldn’t make too big a deal out of this slippage—these indexes tend to have many quirky and arbitrary characteristics. For example, this one looks pretty cyclical to me: the US gets whacked for the low growth and high debt levels that are characteristic of recession. But that doesn’t mean our underlying, structural competitiveness has changed (and you don’t need an complicated index to see who’s in recession).
In fact, when you think about the swing from real GDP falling 9% in 2008q4 and then growing by 1.4% three quarters later (and continuing to expand ever since), you could come to a very different conclusion about our flexibility and competitiveness. Moveover, that 10% swing in growth was in no small part driven by increasing deficits for which you lose points in indexes like this one.
But there was something in there that caught my eye. One of the big negatives identified is the level of political distrust in the US. And while I’m not much moved by uncertainty arguments re the Affordable Care Act or the EPA (those are typically just NFIB talking points), when business folks complain about the fiscal cliff—impending (or not) tax changes, spending cuts affecting gov’t contractors—I take their point.
The World Forum folks write that our slippage is “perhaps not surprising in light of recent political disputes that threaten to push the country back into recession through automatic spending cuts.” But forget the index. Think about the points President Clinton was making last night about compromise.
There’s been enough political hot air generated in the last two weeks to melt what’s left of the ice caps. But does any of it leave you feeling like our Congress might be closer to resolving the fiscal cliff or avoid another debt ceiling debacle?
And to remind you—this was also in President Clinton’s speech—there’s no lasting resolution to these fiscal fights that doesn’t involve new tax revenues in the deal. It was, in fact, my great pleasure to point out to Larry Kudlow that of the six countries ahead of us on the list, all but Singapore collected far more in tax revenues than the US. We can neither support a competitive, world-class infrastructure, nor achieve a sustainable budget path absent both spending cuts and new tax revenue.
Yet, those facts have been precisely the reason for our gridlock.
There’s a line of thought that goes if the President gets re-elected, the Tea Partiers will realize the folly of their ways and step down.
Right. I’d like to hear plan B.
The former President’s speech was filled with germane facts and brimming with good ideas about the future. But the best idea of all, or at least the one upon which all the others depend, is relearning how to work with the opposition for the good of the country.
Wow, there’s a crazy idea, no?