What passes for business reporting in the United States is too often a series of breathless reports about the stock market. When the Dow rises precipitously, as it did today (Wednesday), the business press predicts an end to the Great Recession. When the stock market plummets, as it did last week, the Great Recession is said to be worsening.
Pay no attention. The stock market has as much to do with the real economy as the weather has to do with geology. Day by day there's no relationship at all. Over time, weather and geology interact but the results aren't evident for many years. The biggest impact of the weather is on peoples' moods, as are the daily ups and downs of the market.
The real economy is jobs and paychecks, what people buy and what they sell. And the real economy -- even viewed from a worldwide perspective -- is as precarious as ever, perhaps more so.
Today's rally was triggered by news that one of China's official measures of its growth -- its Purchasing Managers Index -- rose. The index had been in decline for three straight months.
Why should an obscure measurement on the other side of the world cause stock markets in New York, London, and Frankfurt to rally? Because China is so large and its needs seemingly limitless that its growth has been about the only reliable source of global demand.
Many big American companies have been showing profits because they're doing ever more business in China while cutting payrolls at home. American consumers aren't buying much of anything because they've lost their jobs or are worried about losing them, and are still trying to get out from under a huge debt load (the latest figures show more consumer debt delinquent now than last year and a surge in personal bankruptcies). The U.S. housing market is growing worse, auto and retail sales are dropping, and the ranks of the jobless continue to swell.
Europe is in almost as much a mess. The problem there isn't just or even mainly that Greece and other nations on the "periphery" have too much public debt. A bigger problem is European consumers aren't buying nearly enough to generate more jobs. Unemployment remains high, and the trend is bad. Manufacturing growth there has slowed to its weakest pace in six months. Yet bizarrely, Europe's large economies -- Britain, Germany, and France -- are paring back their public budgets. It's exactly the wrong time, and a recipe for disaster.
Germany's so-called "job miracle" (as Chancellor Angela Merkel calls it) is more mirage than miracle. Most of the gains in employment there have come from part-time jobs, often at low pay. Average annual net income per German employee continues to drop. This explains why domestic demand there is so sluggish and why Germany is desperately dependent on its exports of machinery and manufacturing components to Asia, especially China.
Meanwhile, Japan, now the world's third-largest economy, is a basket case. Japanese consumers aren't buying much of anything, and why would they? The country is still in the grip of a deflationary cycle that shows no end. Japanese consumers reason if they can buy it cheaper next week there's no reason to buy now. Basically the only thing keeping Japan's economy going are its exports of cars and electronic components to China.
Australia is booming, but look closely and you see the same buyer. Australia is making a boatload of money selling its minerals and raw materials to China (Australia is fast becoming one big Chinese mine shaft). The Brazilian economy is soaring. Why? Exports of wheat and cattle to China. Middle East oil producers are getting richer. Why? China's insatiable thirst for oil.
Elsewhere around the globe the picture is as uncertain. Much of Pakistan is under water. Much of the rest of the Middle East is under tyrannical or corrupt regimes. Russia has suffered such a dry spell it's hoarding wheat. Despite its wealthy few, India's masses are still terribly poor.
The stock market could plunge tomorrow or the next day because the world's economic fundamentals are so precarious.
The global economy cannot be sustained by one big, voracious nation -- especially one that's suffering bouts of civil unrest, actively repressing dissent, suffocating under a blanket of pollution and coping with other environmental hazards, and whose biggest companies are run by the state.
This post originally appeared at RobertReich.org.
President Obama's plan for fixing America's badly-worn transportation infrastructure is not, as some critics have asserted, simply throwing more taxpayer money down the rabbit hole.
In fact, if implemented correctly, it could not only help us make up for a lot of lost time re-building a critical component of our economy, make us more competitive in the global marketplace, and serve as economic "game-changer," a fundamental re-orientation of how we structure long-range industrial policy.
Right now, most people are focused on jobs. U.S. unemployment rose to 9.6 percent in August, and for the construction industry, that figure is 17 percent, nearly double. What's worse, those numbers may continue upward when the money from the first stimulus package runs out. In short, far too many Americans are not going back to work tomorrow.
Rebuilding our third-rate transportation infrastructure will also help us catch up with established competitors like Germany and up-and-coming players like China, Brazil, and India. Those nations are investing in their economies and their future competitiveness by putting money into modern ports, freight rail, and other infrastructure. Right now, there are serious question about whether U.S. infrastructure can deliver the level of service American businesses need.
Finally, there is the matter of practical policy. The latest extension of our nation's transportation law runs out at the end of this year. In this toxic political environment, it may be impossible to get a renewal, which could force a shutdown of the program, as was the case earlier this year, and put thousands of existing jobs in jeopardy. Washington must show leadership now.
An effectively-designed infrastructure initiative can stabilize and strengthen our economy beyond the current crisis. Smart investments can generate productive, sustainable and inclusive growth. A strategy of "invest and reform" would ensure that infrastructure investments were driven by market logic, factual evidence, and performance rather than the greatest short-term political reward.
Does President Obama's plan do all these things?
The good news--there are several key reforms that promise to change the way transportation infrastructure projects are funded and chosen on the federal, state, and metropolitan levels: A merit-driven National Infrastructure Bank could be the vehicle for green-lighting projects that have the highest return on investment, rather than the greatest political reward. Another round of projects that support bottom-up decision-making linking transportation, housing, energy, and environmental concerns. A program for transportation modeled after the Education Department's Race-To-The-Top initiative that could instill meaningful reforms on the state level, where most decisions are made.
The investments in high-speed rail and next-generation air traffic control are important in that they begin to shift focus away from small-bore spending to the kind of transformational investments the federal government should be focusing on. Linking high speed rail to the rest of the transportation program will help us begin to think of these siloed investments as a holistic system.
Obviously, the big challenge is how to get this done. Effective transportation policy in the U.S. does not lack for good, practical ideas. It lacks funding, or, more accurately, it lacks interest in raising taxes to generate the funding. Most of what the president proposed is traditionally funded by the tax on gasoline. But as driving declines, and as more fuel-efficient cars mean we're consuming less gas, there's much less money overall.
President Obama has taken any gas tax increase off the table, proposing instead to repeal the domestic manufacturing deduction for oil and gas production. This may be enough to fund parts of the president's plan, but it is short of the comprehensive package we need.
We need to hear more about what the administration's priorities are for the long-term reauthorization of the transportation law. Again, there is no shortage of ideas. There's a draft bill in the House, and likely to be one in the Senate. Three national commissions have weighed in on this.
We need to know how the program--largely the same framework used to build the interstates a couple of generations ago--will be updated to reflect the realities of 21st century metropolitan America.
Finally, we need a frank conversation about how we're going to pay for all this, and then to exercise the will to do that. A jump start now is no good if we stall again down the road.
eric seiger
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