Martin Feldstein-WSJ.com, economist. He is currently the George F. Baker Professor of Economics at Harvard University, and the president emeritus of the National Bureau of Economic Research (NBER). He served as President and Chief Executive Officer of the NBER from 1978 through 2008.
JUNE 8, 2011
The Economy is Worse Than You Think
Expect more bad news until someone enacts a plan to bring deficits under control without raising taxes.
The policies of the Obama administration have led to the weak condition of the American economy. Growth during the coming year will be subpar at best, leaving high or rising levels of unemployment and underemployment.
The drop in GDP growth to just 1.8% in the first quarter of 2011, from 3.1% in the final quarter of last year, understates the extent of the decline. Two-thirds of that 1.8% went into business inventories rather than sales to consumers or other final buyers. This means that final sales growth was at an annual rate of just 0.6% and the actual quarterly increase was just 0.15%—dangerously close to no rise at all.A sustained expansion cannot be built on inventory investment. It takes final sales to induce businesses to hire and to invest.
After a temporary rise in March, the economy began sliding again in April, with declines in real wages, in durable-goods orders and manufacturing production, in existing home sales, and in real per-capita disposable incomes.
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