Is The Economy Broken?
December 31, 2001 1:24 PM   Subscribe

Is The Economy Broken? It was one thing when it was the tech/Internet sector - the bubble burst, but now the wave continues with the 2002 recovery seeming like wishful thinking. If it's not layoffs, companies are cutting their 401k plans. Argentina's crisis seems like it will have ripple effects as well. Then you have numbers saying people are confident, so are we getting tanked by jittery Wall Street-ers? Oh, there's also a war on.
posted by owillis (13 comments total)
There may be a problem but with some big tax cuts we can be trickled on and all will be well again.
posted by Postroad at 1:28 PM on December 31, 2001

There is not a war on. At least not the way that we talk about WWII or even to a lesser degree Korea. So little of the GNP goes into the military (even with multibazzillion dollar warplanes) that it's just not the same. That combined with the fact that we don't have to make the manufacturing commitment of converting plants from cars to planes and tanks makes the whole war argument pretty mute. I will qualify this with consumer sentiment, if enough people start actually believing the war rhetoric then we will see slowing consumer spending and declining demand across the board. This can and likely will cause the economy to weaken, but using "war" like it has some real economic meaning is a bit silly and very probably alarmist.
posted by shagoth at 1:31 PM on December 31, 2001

Not sure how tax cuts would help, since they never occur in the right places...

Did anyone else find msnbc's fade in ad utterly maddening? I asked earlier, with the gigantic flash ads right in the middle of an article, how much worse it world get... here's my answer.
posted by Nauip at 1:33 PM on December 31, 2001

I meant to include the war as far as its effect on industries doing foreign trade, as well as the travel industry - which does have a significant ripple effect on our economy. So, no, there won't be any modern day Rosie The Riveters but the state of war should have something to do with our economic health.
posted by owillis at 1:34 PM on December 31, 2001

owillis: State of war? Be real. Joe Six-Pack sees Osama as an opposing football player with the game played out on cable TV. America has no taste for real war. Frankly, it's the shoe scanning and crazy, intrusive and ineffective government responses that make the "war stature" the negative impact that it is. I mean, we're talking about the same gang of idiots who have been stumbling around like drunken monkeys throughout the whole handling of alleged homeland defense.
posted by shagoth at 1:51 PM on December 31, 2001

There is some investment flowing into the defense sector. Pentagon is also investing in some tech startups in the Valley. But the magnitude of those investments are not enough to lift up the sluggish economy.

On the other hand, travel, insurance etc. are badly effected by the aftermaths of 9/11. Some of the signs that are supposed to be indicative of an economic rebound may be misleading (eg car sales data is considered an acceptable macroeconomic indicator. But the increase in sales may be driven by the 0% APR across board which may well be cannibalizing future sales rather than indicative of an actual upsurge in consumer spending).

A lot of analysts seem to saying the economy is crawling back up. But I think someone (can't remember which journal) was right when he said - even the recovery is going to feel like a recession.

And it will probably be more like a gradual year long recovery process rather than a quarter long process.
I certainly hope that I am wrong and the optimists are right.
posted by justlooking at 2:45 PM on December 31, 2001

"America has no taste for real war."

I beg to differ. I'm an American, as are all the people I associate with, and there's nothing we love more than a good war. Give us bombs, guns, tanks, and missiles and someone to shoot at, and we're happy as clams.

Sarcasm aside, what would it take to meet your definition of "real war"? Trench warfare? Nuclear? Maybe you're waiting for a formal declaration of war, which would mean Vietnam didn't count.

Our armed forces are engaged in combat with an armed enemy who has sworn to destroy us. Isn't that war? To you, safe in your office, maybe not. To the troops in Afghanistan and their families at home, I'll bet that it qualifies.
posted by mr_crash_davis at 2:52 PM on December 31, 2001

It's rather irrelevant whether the American people have a taste for "real war" -- for comparison, let's use the SI unit of stalingrads -- when there is no "real war" to be had. Such is life as a hyperpower.

Though after 9/11 we might think of ourselves as rather able to take more than we thought.

I don't think the economy is broken, so much as it's a bit sprained, and chastened by the image of itself tripping. The only real fundametnal problem, though, is that the US stands pretty much alone as a strong, functioning economy, leaving us few trading partners. Europe is restructuring; Japan's been down so long it looks like up; the more modest regional economies from Argentina to Indonesia are firing on only one or two cylinders. This situation has been noticed since roughly 1998 and hasn't really improved; and now the US economy has itself tanked.

So, slow recovery, but that's hardly a disaster, unless you consider the go-go 90s "normal" -- which it wasn't.
posted by dhartung at 4:42 PM on December 31, 2001

Nah, there's no problem with the ecomony. Just do as those patriotic ads tell you to do and spend yourself into debtor's prison.

The future's gonna be great!
posted by mark13 at 6:14 PM on December 31, 2001

Not broken, just recalibrated to realistic levels. Certainly we're in for a difficult year in 2002, and maybe 2003, but there is no hyperinflation, no massive currency devaluation, none of the serious symptoms of "brokenness".

IMO, the answer isn't tax cuts. It's in the lower interest rates, although that takes time to flow through the economy. Consider how many homes there are in the US. If the average mortgage is $100K, and the average fixed rate mortage is about 9%, then the average homeowner can refinance (often taking money out), and lower his monthly payments by about $140. That's $1,680 per year of extra purchasing power per house in the US, over $50,000 per house over the life of the loan. I'm swagging the estimates for average rates and values, but you get the idea of the order of magnitude. That is a LOT of money, and it will spur the demand for increased production and services we need to get back on a growth path instead of contraction.
posted by JParker at 1:53 AM on January 1, 2002

Will credit card interest rates ever drop? Apparently not. "Alan Greenspan has lowered interest rates 10 times this year. Mortgage rates are at 30-year lows and auto companies are offering zero percent financing. But have you looked at the rates on your credit cards lately?...The average interest rate on credit cards is still nearly 14-and-a-half percent...'It's disgraceful really, because Alan Greenspan wants the economy to get going. He wants to help consumers. The credit card companies are pocketing the money and getting rich.' Ed Mierzwinski, U.S. Public Interest Research Group."
posted by Carol Anne at 6:09 AM on January 1, 2002

Good points, JParker. I just refinanced and consolidated my first and second mortgages from 7.5 and 10 percent respectively, down to 6.5%. I also went from a 30-year mortgage down to 15. It didn't cost me a dime to refinance, and it's going to save me $200/month and about $60,000 worth of interest over the life of the new loan. Thats $2400/year or to put it another way, 4 times the amount of that one-time, trick $600 rebate check from Uncle Sam that will count against any 2001 tax refund that I might have been eligible for.
posted by MrBaliHai at 6:14 AM on January 1, 2002

Argentina's crisis seems like it will have ripple effects as well.

Evidence? The article you link to makes no such claim, and what else I have read seems to minimize the ripple effect.
posted by anewc2 at 5:20 AM on January 2, 2002

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