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Robert Reich
NationofChange / Op-Ed
Published: Friday 4 May 2012
The Institute of Supply Management’s non-manufacturing index fell to a four-month low in April (53.5, down from 56 in March – still positive territory but just barely).

Why the Economy is Heading for a Stall

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We’ll know more tomorrow when the jobs report is announced, but today’s report on America’s massive service sector – which make up about 90 percent of the economy – is sobering to say the least.

The Institute of Supply Management’s non-manufacturing index fell to a four-month low in April (53.5, down from 56 in March – still positive territory but just barely). New orders dropped to their lowest level in six months.

That doesn’t bode well, especially when combined with other recent data. The Commerce Department reports that the economy as a whole has slowed from the last quarter of 2011 when it was expanding at an annual rate of 3 percent, to 2.2 percent for the first quarter of this year. And last month’s unemployment report showing only 120,000 new jobs in March were downright alarming.

What’s going on? Europe is sliding into recession, and gas prices are still high. But the real problem lies closer to home. Cuts in government spending are reducing domestic demand precisely at the time when consumers are reaching the end of their ropes and can’t spend more.

Consumers did all the spending they could in the first quarter. Household purchases increased 2.9 percent between January and March. That was the biggest increase since the last quarter of 2010.

Absent real wage gains, that spending pace can’t possibly continue. Consumer savings are down and their debt is up. Consumer confidence dropped last week to a two-month low.

The only people left spending are in the top 5 percent, whose stock portfolios have been doing so well they feel even richer. But the top 5 percent can’t pull the entire economy out of the doldrums. Besides, if demand continues to slide the stock market will follow.

The real problem is political, not economic. Republicans in Congress insist on cutting public spending even before the economy has mended.

Conspiracy theorists might think Republicans want the economy to be so bad by Election Day that Obama is swept out of office, along with most congressional Democrats.

Paranoid double-conspiracy theorists might come to the opposite conclusion: Democrats are allowing Republicans to do this because they want Romney elected and Republicans in charge next year as the economy slides into a terrible recession due to far larger spending cuts already scheduled to kick in then, as well as increased taxes on the middle class.

Under President Romney and a Republican congress there will be no escape from this downward spiral; fiscal hawks and right-wing government-haters will be in control. As a result of this nightmarish mess, Republicans will be booted out of office for a generation.

This article was originally posted on Robert Reich's blog.



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ABOUT Robert Reich

 

ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org. Robert Reich's new film, "Inequality for All" is available on DVD
and blu-ray, and on Netflix in February.

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20 comments on "Why the Economy is Heading for a Stall"

bladtheimpailer

May 05, 2012 10:06pm

What I find amazing is that the economy has recovered as well as it has. During the Great Depression recovery was completely stalled and reversed by the big banks contraction of the money supply twice. Remember money and profits can be made in a declining economy as well as an expanding one, if one is in the "know." If the economy tanks again, recovery stalled or worse, look no further than the "money masters" on Wall Street or any other street the money masters call home. I firmly believe we are beyond a political solution to the problem of the money trust. Even if we were to vote in a whole government of Kucinchs and Sanders the money masters would only declare economic warfare. We must build a new vision of society and back it up with non violent revolution and not fool ourselves what we're up against. Organize, educate, participate; it's going to take awhile. What have we got to loose?

oldhat

May 05, 2012 12:22pm

info for j hill about hoover When the Wall Street Crash of 1929 struck less than eight months after he took office, Hoover tried to combat the ensuing Great Depression with volunteer efforts, public works projects such as the Hoover Dam an increase in the top tax bracket from 25% to 63%, and increases in corporate taxes. These initiatives did not produce economic recovery during his term, but served as the groundwork for various policies laid out in Franklin D. Roosevelt's New Deal--- unemployment 1930 8.7 1940 14.6 depression ends 12/7/41 i would do history for Theodore Ziolkowski but from reading his rants he is not interested in facts

Richard Townsend

May 04, 2012 6:35pm

The Social Programs we need are called jobs ! When FDR was confronted with this same situation during the Great Depression he told the public that he was tired of waiting for private industry to start creating the jobs they had promised and that he was going to establish 10 million new government jobs to give the economy a boost. Remember we had a much smaller population then so 10 million jobs had a massive impact on that economy. What did these jobs do, mainly building and repairing infrastructure. An area that we so urgently need to concentrate on today. FDR got the funding from a group of very wealthy individuals who had a vested interest in seeing this country survive and prosper. Those that refused to fund FDR's plans then are the same ones today who are funding lobbyist to kill all the New Deal social programs as their companies ship jobs off shore to 3rd world slave shops.

Ian Michaels

May 04, 2012 4:49pm

I appreciate Robert Reich, but he is very wrong on the cause of our economic "stall".

You can't blame Republicans or Democrats for cutting back because there is no money to spend. It has been sucked out of the system. It has gone to fund multi-front wars and unsustainable programs. The "normalcy" of the last ten years has been paid for using the country's credit cards. Every time we're told "spend a little bit more". We've bailed out massive banks and corporations. And we're told to spend more. It's only because we hold the world's reserve currency that we haven't been wiped out yet.

Congress should stop passing laws (CISPA, SOPA, etc) and start a full-blown examination of this nation's trajectory. We need solid social programs that encourage self-reliance, personal accountability and dignity because the next ten years are going to be rough.

ARTH

May 05, 2012 4:44am

The only way to pay the debts is to grow the economy. The only way to grown the economy is via government spending. I agree that that would preferable without further deficit spending but without government spending, the size of the economy will decline and if government spending continues to be cut, there will be more unemployment and eventually a shrinking GNP.
Cutting alone might address the debt problem but at what humanistic cost and suffering? Don't these people in the top 1% of 1% owe something to their fellow citizens and the community-at-large?

True Progressive

May 04, 2012 10:41pm

"You can't blame Republicans or Democrats for cutting back because there is no money to spend."

Richard Townsend, what planet do you live on? There's lots and lots of money. The problem is that it's concentrated in the 1%. It's like a gigantic arterial clot that's choking the entire economic body. The US, that is, "us" needs to seize about $1 trillion in off shore corporate funds, and use those funds to re-start our economic activity. To hell with the corporations. They haven't paid taxes anyway. You suggest that "self-reliance, personal accountability, and dignity are what's needed to reverse the economic spiral. Well, none of that's going to result from our continued worship of corporate America. To hell with them. Seize their funds and get this society back on a sound economic track.

Richard Townsend

May 04, 2012 6:50pm

The Social Programs we need are called jobs ! When FDR was confronted with this same situation during the Great Depression he told the public that he was tired of waiting for private industry to start creating the jobs they had promised and that he was going to establish 10 million new government jobs to get the economy off dead center. Considering the fact that we have 15 million long term unemployed now, the 10 million jobs FDR envisioned do not have to be increased that much to address the situation today. What did these jobs do, mainly building and repairing infrastructure. An area that we so urgently need to concentrate on today. FDR got the funding from a group of very wealthy individuals who had a vested interest in seeing this country survive and prosper. Those that refused to fund FDR's plans then are the same ones today who are funding lobbyist to kill all the New Deal social programs as they bail out investment banks with taxpayer's money while their companies ship American jobs off shore to 3rd world slave shops to improve their, and their investors, bottom line. Capitalism no longer works for the vast majority (99%) of American Citizens !

Jefffrey Hill

May 04, 2012 2:55pm

Herbert Hooverism and his Austerity put the country into the 1930s Great Depression.
Public works and spending on WWII pulled us out of it.
That's historical fact, something rethugs and teabaggers have a total disdain for since it belies their self-delusional beliefs.
TAX the RICH! TAX the RICH! TAX the RICH! TAX the RICH!

True Progressive

May 04, 2012 10:58pm

I love it when the tea baggers and other right wing garbage assert that it was "WWII, not the New Deal, that actually brought us out of the Depression." Well, what do these assholes think WWII was, if not the greatest instance of "gubmit" spending in all of human history. From Wikipedia,

"Federal debt as a share of the nation's income has varied. Historically, the nation has run up deficits during wars and recessions, but then debt has subsequently declined. For example, debt as a share of the economy peaked just after World War II (112.7% of GDP in 1945), but then fell. . . . As of March 2012, debt held by the public was $10.85 trillion or approximately 70% GDP . . "

The WWII debt was PAID OFF, in large part because the most of the rest of the world was shattered, and the US was the only major industrial player left standing. But another reason the debt was retired was that Roosevelt's New Deal programs and tax structures remained in place throughout the 1950's and 60's. This was a time when the highest marginal income tax rates were 90%. And guess what, despite these "confiscatory" rates, the US still had rich people. But it also had a strong middle class that kept the economy humming and expanding. It wasn't until that political dope pusher Reagan came along and connived people into believing in magic, that they could get something for nothing by throwing money at rich people. The rich kept their tax largess, and today we have the biggest inequality in wealth and income since the late 19th Century, the so-called Gilded Age.

Theodore Ziolkowski

May 04, 2012 2:08pm

HISTORY IS PROVING THAT CONSERVATIVES, REPUBLICANS AND TEA-PARTY MEMBERS ARE GREEDY and CORRUPT.

To hear a Conservative, Republican or Tea-Party Member speak about not believing Science and what they propose as a solution to the Budget, Environment, Employment and the Economy shows just how totally Ignorant they are and that we the Intelligent and Educated Liberals will never be able to work out open and honest Compromises with them. I suggest that we stop trying and move on with the business of the People and the Country. Elect Democrats and REMOVE all Republicans and Tea-Party Members from elected office everywhere and anywhere.

History has clearly shown that when the Taxes on the Rich and Powerful 1.0% have been at the highest rates the Country and the entire Citizenship of the United States of America moved forward together and made significant progress.

History has proven many times, by many presidents, that Tax Cuts for the “Rich and Powerful,” and Deregulation of the Corporations, Companies, Institutions and Organization only leads to their failure to protect the Citizens from their Corporations, Companies, Institutions and Organization Greed and Corruption.

After Ronald Reagan tripled the national debt with his supply-side tax cuts, George W. Bush doubled it again with his own. (Reagan's performance would have been much worse, had he not raised taxes 11 times to help make up the shocking shortfall.) As a share of American GDP, tax revenues peaked in 2000; that is, before the Bush tax cuts of 2001 and 2003. As the Center on Budget and Policy Priorities concluded, the Bush tax cuts accounted for half of the deficits during his tenure, and if made permanent, over the next decade would cost the U.S. Treasury more than Iraq, Afghanistan, the recession, TARP and the stimulus - combined.

michigan

May 04, 2012 1:53pm

I agree with your view that 5% are not affected by the economic turmoil and that 95% are unable to function because they were given the balloon before, during and after this false economy was blown up and exploded by cheap money. Truly, I can tell you that most people I know are hanging by a thin rope and it will not take much (high gas prices, an illness or another job lose) to place them in their relative's basement. We have too big to fail businesses now bigger and more powerful in our economy creating a slave existence for many workers.No leadership = no hope of change

Seabury Lyon

May 04, 2012 1:26pm

The true ROOT CAUSE for our impotence to improve our plight is quite simple: corporate money is drowning the Will Of The People in our electoral and legislative processes. We've only got to get pissed off enough to man the barricades and demand that it be eliminated, and quickly!

Instead of focusing on that ROOT CAUSE PROBLEM, we running around confused, dazed and distracted, fighting mere "symptoms". That's like taking pain killers for a bad case of tooth decay instead of learning and practicing proper dental hygiene.

There is no escaping it -we have simply got to learn proper POLITICAL HYGIENE and force our legislators through concerted political action, to OBEY OUR WILL!

The Occupy movement has got it right. They avoid the corporate megaphone media and rely on independent, fact-based sources for information to act on. Now that their numbers are multiplying and organization is improving they're beginning to have real effect. Those who choose to remain on the sidelines now are truly part of the problem, ipso facto.

Clarence Swinney

May 04, 2012 1:10pm

Shame
14,000 National Income--3600 budget--borrow 1300
50% get 87% individual income
70,000,000 workers get 13%
10% get 50%
OECD rankings--#2 Least taxed--#2 Least Taxed Corporations-#3 inequality
Tax Book=Chirstmas Tree for goodies for Rich and Corporations
Public fund election--6 months-3 primary 3 general-debate  week=12-adequate to evaluate candidates---no $$  none
Since members of Congress and White House would have no need for campaign funds
ban acceptance of anything with a financial value.. This closes K Street Bribery
Will we change to protect the Middle Class?
Christian Nation? Care For The Least Amongst thee.
POOR= most used word by Jesus Christ
clarence swinney Lifeaholics of America
Work For a LIFE not just a LIVING($$$$$$)

Clarence Swinney

May 04, 2012 1:09pm

1980-200920 years 3 conservative Presidents18 years conservative Senate12 years conservative House6 years Total conservative controlSCORECARD------------------------------------600 Budget to 3500 (less wjc itsy)1000 Debt to 10,000Surplus to 1400 Deficits as far as eye can see99,000 Jobs per month from Carter 218.000Initiated our involvement in 10 Foreign ConflictsAlienated 1500 Million against us by invasion of two of most Destitute and Unarmed nations. Transferred Income Wealth upward with tax codes started with Reagan 60% Tax Cut for Top Incomes. Today, 10% own 73% Net Wealth—83% Financial Wealth—take 50% of individual Income.Today, Top 50% get “about” 90% individual Income .Bottom 50% or 70,000,000 workers get “about” 10%.Today, 5 Banks control 50% of all bank deposits in 7000 banks Today, 10 Banks control 80% of all bank deposits in 7000 banksToday, 10 Insurance companies control our Health care Financial system.Those are numbers why in OECD nations we rank:

mamabashums

May 04, 2012 1:01pm

Maybe everone should stop paying their credit card bills, that would wake a few people up when they know that the money stops flowing their way.
Maybe the goverment should stop paying the debt and demand a lower rate.
At some point we are either going to pay for our citizens or pay the debt cant pay both. Yes get rid of all the politicians and put average joes in instead draft them if you must so they wont have a chance to be corupted by lobbist whores.

ARTH

May 05, 2012 4:41am

The American people should be "bailed out" for their own credit card debt. If all of the money which goes into paying debts was released into the economy rather than being hoarded by the banks. The stimulative effect would be dramatic.

Boris Badenov's picture
Boris Badenov

May 04, 2012 2:08pm

One of these days a new revolution will be started because of all this political hypocrisy.

Boris Badenov's picture
Boris Badenov

May 04, 2012 2:07pm

"Maybe the government should stop paying the debt and demand a lower rate."

Do you mean like what their trying to do in Greece?

Swimmer

May 04, 2012 10:37am

The game is rigged. Elections can be stole, it's that simple!

teabagged2Death

May 04, 2012 7:32am

We, the people, must vote these rascals out of office by voting against this DemoCon/RepubliCat status quo. We need to inform the voting and non-voting populace that the lesser of two evils is still evil. That is why Ralph Nadar was not elected.

This is a participatory democratic republic that allows us to control our commonwealth and environment through the election process. There are no logical reasons to not vote, only illogical excuses. Those who vote for these Same Old Shysters are dooming us all.

Our votes are far too precious to waste on proven incompetents. If there are only 2 candidates available, vote for the blank space, because it won't steal our tax dollars. If you prefer, write-in your own name in that space, and always remember that a vote cast against them gives you the right to complain. Those who don't vote should keep quiet.

As a registered voter and participating activist collecting signatures on petitions, as well as registering other voters, recommending Other/No Party Affiliation since 1972, this is the phrase screaming out to all non-voters on every clipboard:

"APATHETIC CITIZEN = A PATHETIC CITIZEN !!!"