Restoring Economic Growth

By Martin Neil Baily – James Carville famously remarked of the 1992 election that “It’s the economy stupid!” and the same will be true of the 2012 election.

When President Obama came into office, he embraced the challenge of turning the economy around. The policies he followed to stabilize the banks and provide stimulus to a tumbling economy were the correct ones and succeeded in stopping the collapse. Unfortunately, Obama and his economic team were overly optimistic about how fast a full recovery could be achieved. An extended period of slow growth was inevitable, given the severity of the crisis and recession.

The economy has been trapped in a vicious cycle where companies’ sales are growing so slowly that hiring is limited. The resulting lousy labor market means slow growth in household income. With incomes growing slowly if at all, household debts still high and the value of houses depressed, consumer spending is weak, perpetuating the cycle of weak demand. The overhang of excess housing and high consumer debt are two anchors weighing down the recovery and making it harder to break the vicious cycle.

The next administration should embrace the trends of rapidly improving technology and increasing competition and avoid setting up roadblocks to change. The Department of Education is already playing an important catalytic role in figuring out what works and what does not. The President’s Council on Jobs and Competitiveness chaired by Jeffrey Immelt, suggested ways to improve the level of technical skills. The next president should go further than they did in trying to get business support for increased training and research into ways to make training more effective. more>


Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s