Hospitals & Asylums
Economic Stimulus Package HA-20-1-08
By Tony Sanders
Introduction / Economic Growth Overview / Balance of Payments / Balanced Budget / Conclusion / Bibliography
I.
Economic Growth Overview
12. Many economists believe that the
overall United States economy, which reportedly grew at an annual rate of 4.9
percent in the July-September quarter, skidded to an anemic growth rate of 1
percent or less in the final three months of 2007 and may weaken further in
first quarter of 2008 (Crutsinger 2008).
The USA can no longer be expected to show 4% growth rates as they did in
the 1990s, early 1980s and late 1970s.
The World Bank forecast global growth to moderate to 3.3 percent in
2008, from 3.6 percent in 2007. With a
modicum of good governance least developed economies regularly grow at rates
greater than 7% while middle income nations develop at a rate of 4% and
developed nations count the decimal points between 1-3%. That means that the contributions of
developing nations to global demand is more than three times as important as
the contribution of the United States. Developing countries, if you add them
all up now, are basically the same size as the United States. The law of diminishing returns assures that
developing nations are growing more than three times as fast as developed
nations. American exports sell better
with the help of a cheaper U.S. dollar. There are concerns that a faltering
U.S. housing market or further financial turmoil could push the U.S. into
recession and weaken demand for the products of developing countries. The U.S.
economy is expected to stabilize around 2%.
Gross domestic product growth for developing countries is expected to ease
to 7.1 percent in 2008, while high-income countries are predicted to grow by a
modest 2.2 percent (Wong 2008).
Source: BEA GDP Growth 1930-2007
13. There is growing concern that the economy
will fall into a recession this 2008. The overall
United States economy grew at an annual adjusted rate of 0.6% in the first
quarter, 3.8% in the second quarter, to a high of 4.9% in the third quarter to
bottom out around 1 percent or less in fourth quarter of 2007 that threaten to
weaken the first quarter of 2008. The
odds have grown that the economy will slip into a recession. At the beginning
of last year, many economists put that chance at less than 1-in-3; now an
increasing number says it has climbed to around 50-50 (Aversa 2008). The
economy now ties with Iraq as the greatest fear of 20-21% of Americans. Democratic
leaders have introduced an economic stimulus package of tax rebates, longer
unemployment benefits and more food stamps (Fram 2008). The U.S. economy last
experienced a mild recession in the first and third quarters of 2001 when
economic growth dipped to 0.5%. During the ensuing recovery, above-trend
growth was accompanied by rising rates of resource utilization, particularly
after the expansion picked up steam in mid-2003. Notably, the civilian
unemployment rate declined from a high of 6.3 percent in June 2003 to 4.4
percent in March 2007 (Fram 2008).
The
Pew center reports surveys are showing one of the lowest levels of satisfaction
with national conditions in any recent presidential election year.
14. You have to
go back to 1992 to get a lower number of people saying the national economy is
excellent or good. The nation was
recovering from recession that year. Consumer spending had contracted in two
separate quarters in 1991, and while economic growth was gradually accelerating
as Bill Clinton and George H. W. Bush sought the presidency, the Clinton camp
famously posted a sign in its campaign war room proclaiming, “It’s the economy,
stupid ” (Goodman & Norris 2008).
The current economic landscape is most similar to the oil embargo in the
mid 1970s that triggered inflation and lasting inequality (Simon 1985). Post-war
US economic history can be divided into three eras, the postwar boom, from 1947
to 1973, the time of troubles, when oil crises and stagflation wracked the US
economy, from 1973 to 1980 and the modern era of reasonable growth with rising
inequality from 1980 until the present.
The time of troubles temporarily brought growth in median income to a
halt until inflation was brought under control. Since 1980 median family income has risen only about 0.7 percent
a year. Even during the best of times
the Reagan era “morning in America” expansion from 1982 to 1989 and Clinton era
boom from 1993 to 2000 family income grew more slowly than it did for a full
generation after WWII (Krugman 2007).
Source: BEA
Year
|
Non-farm
Employment
In
thousands
|
Annual
Change
In
thousands
|
% Change
|
Un
employ
ment
|
GDP
Growth
|
GNI
Growth
|
GNI Per
Capita
|
2000
|
131,785
|
2,792
|
2.2
|
4
|
3.7
|
|
28,100
|
2001
|
131,826
|
41
|
0.03
|
4.7
|
0.8
|
3.5
|
29,080
|
2002
|
130,341
|
-1,485
|
-1.1
|
5.8
|
1.6
|
1.8
|
29,606
|
2003
|
129,999
|
-342
|
-0.2
|
6
|
2.5
|
3.2
|
30,543
|
2004
|
131,435
|
1,436
|
1.1
|
5.5
|
3.6
|
6.2
|
32,423
|
2005
|
133,703
|
2,268
|
1.7
|
5.1
|
3.1
|
5.9
|
34,337
|
2006
|
136,174
|
2,471
|
1.8
|
4.6
|
2.9
|
6.6
|
36,610
|
2007
|
137,969(p)
|
1,795
|
1.3
|
4.8
|
2.2
|
3
|
37,303
|
15. The Labor Department's showed that
hiring practically stalled in December, driving the nation's unemployment rate
up to a two-year high of 5 percent (D’Innocenzio 2008). The labor market has been a source of stability in the macroeconomic
situation, with relatively steady gains in wage and salary income providing
households the wherewithal to support moderate growth in real consumption
spending. Should the labor market deteriorate consumer spending would
fall. A number of factors, including
higher oil prices, lower equity prices, seem likely to weigh on consumer
spending. The baseline outlook for real
activity in 2008 has worsened and the downside risks to growth have become more
pronounced (Bernanke 2008). Economic
growth in the US must stabilize upon expectations for +/- 2% economic growth
rate. A stable growth rate of 2% would
permit budgeters to enjoy moderation and sustain economic growth. Increases in wages would then equate with
inflation. Personal savings and
consumer spending would increase, the market would grow at a steady rate. It falls upon the supply side of federal
statistical agencies, namely the Bureau of Economic Analysis (BEA), to
stabilize economic growth. The BEA must
not “get high” in some quarters.
Overestimates in those quarters, clearly cause shortfalls in other
quarters when the complaints cannot be ignored. By reporting artificially high figures the federal government
misleads investors to overspend on merchandise in some quarters creating
shortfalls in other quarters, that are felt on the stock market, before they
spread to the labor market. By
moderating economic growth estimates with a goal of 2% annual GDP growth prices
will remain stable enough to maximize the investment in employment.
16.
University of Michigan economists predict, despite solid growth 2004-06,
America’s economy will be subdued through 2008. Moderate job gains, rising interest
rates and the continuing slump in housing starts and vehicle sales will account
for a somewhat restrained economy over the next two years. The economy will
expand in 2007 and 2008, but at a pace well below the 3.2 percent increase in
real GDP growth of this year and last year. In their annual forecast of the
U.S. economy they predict employment growth of 1.5 million jobs in 2007 and 1.2
million jobs in 2008. Unemployment is expected to tick upward to 4.7 percent in
2008. National economic output (as
measured by real Gross Domestic Product) is predicted to grow by 2.4 percent in
2007 and 2.5 percent the following year.
The outlook for economic growth seems to begin with what happens to the
residential and vehicle sectors early next year. Private housing starts fall from 2005’s 2.07 million units - the
most since 1972 - to 1.61 million in 2007 and 1.57 million in 2008. Existing
home sales, which set a new record at 6.17 million homes in 2005 drop from 5.05
million in 2007 and 4.95 million in 2008 (Crary, Hymans & Wolfe 2006).
17. The Securities Industry and Financial Markets Association’s (SIFMA) Economic Advisory Roundtable unveiled its predictions for 2008, forecasting that the pace of U.S. economic growth would slow in the first half of the year, but accelerate in the second half. In the year-end survey, the median forecast anticipates GDP to grow but at a below-trend pace of 2.1 percent in 2008 as the economy works through the housing sector contraction and the effect of credit market turbulence. Like consumer spending, growth in business capital spending is expected to be slightly lower than the 2007 level. Business spending will continue to benefit from generally solid corporate balance sheets and cash balances accumulated during the recent period of strong corporate profits, but growth will be well below the rates seen in recent years. Although assigning specific dates to the beginning of the housing recovery is difficult, most respondents do not expect housing prices to “hit bottom” and begin to recover nationally until 2009. Finally, the reduced tax rates on dividends and capital gains enacted in 2003 are scheduled to “sunset” in 2010 (SIFMA 2007).
18. The Federal Reserve reports, economic growth in the second and third quarter of 2007 was quite strong. Tightening credit conditions,
the product of ongoing stresses in financial markets, and some intensification of the correction in the housing sector are likely to limit economic activity going forward. Growth slowed significantly in the fourth quarter from its rapid third-quarter rate and to remain sluggish in early 2008 (Bernanke 2007). The projections for both overall and core inflation, at the three-year horizon, from 2008-2010, fall in the range of 1.5 percent to 2.0 percent. For 2010, the range of projection for real GDP growth rate is between 2.2 percent to 2.7 percent and an unemployment rate between 4.6 percent to 5.0 percent (Mishkin 2007). Fear of recession would recede if economic growth estimates would be more than 1% and less than 3% and the unemployment rate less than 5%. To outpace inflation of 1.5-2.0%, average personal income should grow by at least 2% annually to offset the 4.5-5% unemployment rate.
19. The modern science of monetary policy has the objective to
maximize the well-being of households in the economy. The success of a
market-oriented monetary policy is determined by the extent to which households
and firms have the freedom to make their own economic decisions. Household
spending decisions are largely directed by the aggregate demand of statistical
agencies and expectations regarding inflation (Mishkin 2007). The fluctuations in economic growth seem to
be primarily the by-product of over-estimates of GDP growth by the Department
of Commerce and Bureau of Economic Analysis in certain quarters when the
federal government is attempting to secure a loan. Overestimates by federal statistical agencies lead directly to
overstocking in the private sector.
Overstocking in one-quarter results in public shortcomings in another
quarter. Market participants must
budget more carefully. Investment
should foster employment that is directly linked to market demand. Investors must ensure that their
corporations do not sell more debt than they are worth. For a stable economy it is best to adopt
more moderate estimates for GDP to reflect the per capita income of the work
force.
Population,GDP and GNI
Estimates, Gowth and Per capita with Gini Deflator 2000-2010 [in millions and
per capita]
|
|
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
|
Pop ulation |
282 |
285 |
288 |
291 |
293 |
296 |
299 |
302 |
305 |
308 |
311 |
|
Growth |
1 |
1 |
1.1 |
1 |
0.7 |
1 |
1 |
1 |
1 |
1 |
1 |
|
Gini |
0.433 |
0.435 |
0.434 |
0.436 |
0.438 |
0.440 |
0.442 |
0.443 |
0.444 |
0.444 |
0.443 |
|
GDP |
9,719 |
10,022 |
10,339 |
10,828 |
11,552 |
12,227 |
13,065 |
13,405 |
13,700 |
13,974 |
14,253 |
|
Growth |
3 |
3.1 |
3.2 |
4.7 |
6.7 |
5.8 |
6.8 |
2.6 |
2.2 |
2.0 |
2.0 |
|
Per capta |
34,464 |
35,165 |
35,899 |
37,210 |
39,427 |
41,307 |
43,696 |
44,387 |
44,918 |
45,370 |
45,830 |
|
Gini |
19,541 |
19,868 |
20,319 |
20,986 |
22,158 |
23,378 |
24,819 |
25,167 |
25,534 |
25,680 |
25,986 |
|
GNI |
8,430 |
8,724 |
8,882 |
9,163 |
9,727 |
10,301 |
10,983 |
11,312 |
11,651 |
12,000 |
12,360 |
|
Growth |
3 |
3.5 |
1.8 |
3.2 |
6.2 |
5.9 |
6.6 |
3 |
3 |
3 |
3 |
|
Per capita |
29,893 |
30,611 |
30,840 |
31,488 |
33,198 |
34,801 |
36,732 |
37,457 |
38,200 |
38,961 |
39,743 |
|
Gini |
17,248 |
17,601 |
17,763 |
18,074 |
18,989 |
19,488 |
20,864 |
21,238 |
21,621 |
22,052 |
22,534 |
Source: US Census & BEA
20. For many years economists have agreed
that US GDP statistics were artificially high and did not reflect the per
capita income of the average citizen.
The US must moderate their prospects for economic growth as a developed
nations whose potential is limited by the law of diminishing returns. A more effective method of gauging
prosperity is pre-tax, Gross National Income.
GNI figures are however also misleading because they do not account for
the cost of taxation and work related expenses or why so much wealth is
concentrated in the hands of a few. The
US Census Bureau estimates that in 2004 the median family income was $44,334
and the average family size was 2.59, yielding a per capita income of $17,117;
average per capita money income was estimated at $21,587 in 1999. In 2006, the average American worker earned
$29,544 (Waxman 2007). Income inequality, as measured by the Gini co-efficient,
has steadily increased since 1970, before which time it flucuated between 0.35
and 0.38. Between 2000 and 2005 the
Gini inequality coefficient increased from 0.433 to 0.440. If the 0.02 growth rate of growth of income
inequality remains unchanged the Gini co-efficient would rise from 0.440 in
2005 to 0.500 in 2010. Using the Gini
co-efficient for 2005 the per capita GDP was $23,132 and the per capita income
was $19,480.
Introduction / Economic Growth Overview / Balance of Payments / Balanced Budget / Conclusion / Bibliography