Explaining Why America’s Recovery is So Anemic – And Why Current Public Policy and Future Republican Policy Won’t Help

Consumers are Needed – Consumers Aren’t Spending – Consumers Don’t Have the Income or Debt Capacity

For reasons many of us find puzzling, the Economist Magazine believes that the U. S. economy is doing pretty well, and may continue to do even better.

The cause for celebration in the Economist is America’s booming export sector.

As America shifts from a consumer-focused economy to a more outward-looking one, what businesses sell, and how and where, will change too. And all sectors will be affected: services, manufacturing and commodities. This is most obvious in the geographical pattern of American exports. Sales to traditional markets in the OECD, a rich-world club, have risen 20% since the end of 2007. But they have risen 51% to Latin America and 53% to China, which is now America’s third-largest market after Canada and Mexico.

But this is the seeds of disaster.  First of all consumer spending, which is needed to drive the U. S. economy is and has been in serious trouble.

Consumers are now engaged in a long, hard process of shedding debt and learning to live within their means. This is essential, but it has a price: an uncommonly feeble recovery. In the three years since the recession ended, GDP has grown by an average of 2.4%. This year it may not reach even that. On July 6th the government reported that jobs figures, excluding jobs on farms, rose by just 80,000 (less than 0.1%) in June, the third straight month of meagre growth, and unemployment remained at 8.2%. 

And as these charts show, only exports have kept the U. S. from plunging to zero growth, or worse.

So what’s the problem, economists like exports and they do indicate a positive sector of the U. S. economy.  The problem is two fold.  First the U. S. economy is so large compared to others that it will never be able to export enough goods and services to sustain the economic growth goals when consumer spending is weak.  Exports just cannot take up the slack.

Secondly, and more important, as the economic conditions in the rest of the world slow, so will the U. S. export sector.  If your customers are in trouble, you are in trouble.  This is something Germany is going to have to learn the hard way, as German European policy drives German customers in Spain, Greece, Portugal and the rest to cut back their spending, and a lot of that spending is on German products and services.  So as Europe slows, as South America slows and as Asia slows the U. S. economy will slow.

Normally this can be offset by consumer spending.  But consumer spending is driven by consumer income and consumer debt.  The tax policies of the Republicans are not going to give American consumers more income, and the spending policies of Conservatives will drive down family incomes.

So what might the U. S. look like with total Republican control?  It will look like Europe, much to the horror of Conservatives who hate looking like Europe.  Ah yes, a whiff of irony in the midst of a 2013-14 Republican created recession.