Transcript The Near-Term Prospects for the Economy

The Economy Wreckers:
A.K.A. “Deficit Hawks”
Presentation to the
U.S. Chamber of Commerce
October 18, 2010
Dean Baker, Co-Director
Center for Economic and Policy Research
1) The economic collapse was entirely
foreseeable and preventable
2) The obsession with the deficit
distracted attention from the
impending crisis
3) The current economic situation is a
disaster for non-corporate America
4) The deficit problem was and is a
broken health care system
1) The story of the collapse was an $8 trillion
housing bubble
•
•
•
•
Collapse led to a $600 billion plunge in annual
consumption
Collapse led to a $600 billion plunge in annual
construction
Annual S&L spending would have fallen
$150-$200 billion, absent stimulus
Total shortfall in annual demand
@ $1350-$1400 billion
2) Bubble was easy to see – unprecedented 70
percent run-up in real house prices
Policymakers Missed the Bubble
• deficit hysteria – fiscal wake-up tour,
economic sleepwalking tour
• Washington Post – hype the deficit every day,
ignore the bubble
• Peter Peterson -- $1 billion to hype the deficit
No Consequences for Missing the Bubble
– Worst Economic Disaster in 70 years
• blanket amnesty: “who could have known?”
• no policymakers or regulators were fired or
even missed a promotion
Devastated Economy
• more than 25 million unemployed,
underemployed or dropped out of workforce
• savings of near retirees devastated – median
near retiree has net worth of $180k
• millions facing loss of home
Black Teen
Employment to Population Ratio
35
30
Percent
25
20
15
10
5
0
2000
Source: Bureau of Labor Statistics
2007
Sept 2010
Corporate Profits Fully Restored
Domestic Corporate Profits (broad measure)
1,700
1,600
$ billions
1,500
1,400
1,300
1,200
1,100
1,000
900
800
I
II
III
2007
IV
I
II
III
2008
IV
I
II
III
2009
IV
I
II
2010
Source: Bureau of Economic Analysis, National Income and Product Accounts
Continued Deficit Hysteria
Obstructs Stimulus
• Washington Post’s yellow journalism
• Peter Peterson’s billion
The Long-term Deficit Problem Is a
Health Care Cost Problem