US Economists Wake Up And See A Crisis

The second half of this year will be worse than the first–economically. That is what economists are saying now that they have looked at the Federal Reserve notes, the unemployment numbers, and housing data.

Bloomberg polled 67 prominent economists between July 31 and August 9 and found that the average forecast for second half GDP growth was 2.55%. The is down from 2.8% when the poll was done a year earlier. The same group said the expansion would actually drop to 2.1% in 2010.

The numbers, if correct, are well below those used in the President’s budget and even CBO numbers which tend to be lower than those handed out by the White House. The difference, if the lower numbers from economists are right, will have a profound effect on the ability of the US to close deficits and bring down the growth rate of the national debt. That, in turn, will mean the entitlement programs like Social Security and Medicare will face uncertain futures which may involve cuts in benefit payouts.

The US is late to the austerity party that has already begun in Japan, the UK, Germany, and the rest of Europe. Most analysis of the American situation says that the citizens here find the thought of government spending cuts so unpalatable that politicians who espouse spending cuts will be turned out of office. That is probably a misconception.

The White House has given lip service to the idea that national spending must come down. A commission, headed by former Republican senator Alan Simpson of Wyoming and Erskine Bowles, White House chief of staff under President Bill Clinton , recently told the National Governors Association that current budgetary trends are a cancer “that will destroy the country from within” unless checked by tough action in Washington. That almost certainly presages what will be the final assessment of the group when it delivers the President its conclusions later this year.

Almost every analyst of the current mode of Congress and the Administration says that austerity is merely a “talking point” among most politicians. The is not likely to change. America has grown itself out of too many recessions for elected officials to believe that this time will be any different. Even as they look at protracted and intransigent unemployment and low business production and purchasing, the recovery is just around the corner in the second half or early in 2011 perhaps.

The President and prominent members of the Congress have not tried to “sell” austerity. They do not have any stump speeches or proposed national programs that ask citizens to pay higher taxes and take less government aid. Their optimism, they believe, will be self-fulfilling which means they will never see or hear the train that hits them.

Douglas A. McIntyre