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3 Reasons for Slow Recovery

November 01, 2011 By Lee Egerstrom, Economic Development Fellow

As October was coming to a close, the U.S. Commerce Department presented the strongest findings yet that an economic recovery is underway by noting that the Gross Domestic Product (GDP) grew by 2.5 percent from July through September.

Leading economists insist that is the rate of growth needed on an annualized basis to start cutting America’s unemployment. Unfortunately, the rate of growth was only 0.9 percent in the first half of this year.

So, based on the numbers, how long before Minnesotans can start singing “Happy Days are Here Again”?

Without being a spoilsport, Minnesota 2020 will only say there is reason for cautious optimism. The economy is growing. But we haven’t overcome three underlying problems that have held back the national and regional economies since the Great Recession ended in June 2009.

First, we are a nation of consumers and that includes a highly productive Minnesota. Personal and household consumption of goods and services account for 70 percent of U.S. GDP. In contrast, about half of German and United Kingdom GDP depend on domestic consumers.

Second, we will remain the world’s dumping ground for surplus, inexpensive manufactured goods. But we need to design and manufacture more high tech, green tech and value-added products that utilize our strengths and human resources.  

Third, we are part of a highly integrated global economy that depends on selling surplus products to glutinous Americans. Now, after several years of Americans tightening their belts, the burden of making markets for the world’s producers is being more equitably shared with other First World, or developed nations, and this transition is not being accepted with resounding success.

This last point is only starting to attract attention. It should have been obvious to most economy watchers when securities and commodities markets bounced almost daily in September and October on news of Europe wrestling with sovereign debt issues. News accounts around the globe show such problems aren’t confined to any single continent.

In Australia, central bankers (the Reserve Bank of Australia) are to meet this week to consider lowering interest rates in an effort to encourage consumer spending. David Uren, writing in The Australian on Oct. 29, noted that the Reserve Bank has held back on lowering interest rates in fear of inflation; a fear not being realized because Australia isn’t immune to the “sluggishness” of the U.S. economy.

Consumer spending fell in Ireland during September for the third month in a row, the Central Statistics Office reported. Cars, furniture and lighting product sales were off sharply as consumers worried about EU finances and possible job losses.

The French government released statistics on October 27 noting that consumer spending continued to fall after an especially weak second quarter. Worries about euro zone finances were thought to play a big part in French caution.

A couple of exceptions were Germany and the United Kingdom, and a spurt in consumer spending in those large markets may be nothing more than what was experienced on our side of the Atlantic.

“German consumers have discovered retail therapy,” sarcastically suggested (Deutsch Welle) in an Oct. 25 online report. Citing government reports that German consumer spending continued to rise despite a global economic slowdown and the euro financial crisis, the news report playfully suggested shoppers “just don’t trust the banks with their money.”

The UK, meanwhile, is to have third quarter data released today. But based on September retail sales tracked by the Office of National Statistics, consumer spending increased 0.6 percent led by purchases of laptops and video games – products unlikely to sustain economic growth into future months and quarters.

Commerce data on the U.S. third quarter suggest the jump in GDP resulted from consumers buying goods in response to pent up demand, and not because of improved household incomes.

The bottom line is that we have both internal and external pressures on our local, state and national economies that will not magically bounce back from the 2008-2009 Great Recession. Our economic problems didn’t start then; they’ve been building for at least three decades while we’ve tried to consume our way to happiness.

But this much hasn’t changed. A new Minnesota and new national economy must be shaped in which we use our resources and talents to make sustainable products and offer global services that enhance quality of life both at home and abroad.

Further tax breaks for the wealthiest citizens won’t restore consumer spending. Removing or weakening health, safety and environmental regulations won’t restore manufacturing. Cuts to education and infrastructure spending won’t prepare us for future growth and prosperity.

There are no quick fixes. But we can make things worse.

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  • Robert Nepper says:

    November 8, 2011 at 11:14 am

    President Roosevelt’s investment of billions on his New Deal didn’t end the Great Depression. It took the Japanese attack on Pearl Harbor to really create an enormous number of jobs and thus revive our economy.

    We need and equivalent job-creation event (but without the huge cost and carnage) Minnesota’s proposed “Creative Freedom Act” (SF 78) might prove to be just that tool.

    The Creative Freedom Act would require employers to simply “Use or Return” all employee inventions which the firm is claiming (but not using). Current rules allow these large firms to “bottle up” a huge amount of employee creativity, preventing anyone from using these unwanted inventions to create new products, new business, new jobs and new spin-off firms.

    One example of the tremendous success of this “Use or Return” policy is the development of the fantastic Xerox copier. The shop owner of this invention released it back to his creative employee as “worthless” because his initial copies were so terribly poor.

    But once freed from the typical corporate strangulation, this “worthless” invention spawned a huge $50 BILLION entirely new xerographic industry creating a half-million new jobs! (WSJ May23,i989)

      Use or Return Benefits
      This landmark initiative promises the following main benefits:
    1. Employers would develop more inventions (fearing loss of ownership due to inaction).
    2. Employees would submit more inventions (knowing that the employer could no longer block their inventions indefinitely).
    3. The above two critical factors promise to produce a continuous flow of good jobs by “cross-stimulating” both our employers and employees – at no cost!
    4. Employees would regain the creative incentives intended by the U.S. Patent Office.
    5. More manufacturing jobs (and critical cutting edge technology) would be retained in Minnesota because new products seldom produce sufficient sales volume to make offshore production profitable.
    6. More top level creative scientists, engineers, technicians etc (STEM employees). would remain in (or be attracted to) Minnesota having these unique, creative freedom benefits.
    7. This Use or Return initiative COSTS NOTHING but instead, PRODUCES tax revenue, while providing a PERMANENT, SELF-SUSTAINING economic stimulant for Minnesota!