Arthur Laffer and Robert B Reich are poles apart. The former personifies the sublime and the latter the supercilious. I can read Arthur Laffer and learn something new from every one of his articles. He writes infrequently but every single article is timed to address a major issue. This time he has discussed the prospect of an economic train-wreck of 2011---a catastrophic double dip recession likely to be precipitated by Obamanomics. Robert Reich, on the other hand, publishes often in a variety of journals and most of it is old ideological fluff rewritten as a new article. In the current mood in the country, he sticks his neck out to defend the indefensible—the tax and spend policies of the Obama administration.
Robert Reich’s latest article, “The Necessity of Obamanomics” published in Wall Street Journal regurgitates tired old Keynesian nostrums. The hubris is palpable from the very first sentence, “Alright class, here’s your assignment….”. This is quickly followed by a cliché, “as long as the private sector is deleveraging the public sector has to borrow and spend in order to keep the economy moving forward”. Really. Japan has been stimulating its economy for the last twenty years with nothing to show except stagnation and now near bankruptcy. Over a dozen rounds of stimulus have yielded insanities like their own “bridge to nowhere” which one Japanese joked is used for “bungee jumping”. He dismisses concerns of rising debt and considers it manageable as long as government entitlements costs are controlled. The fiscal concerns of “mad-as-hell” tea partiers get a short shrift.
In the very same issue of the Wall Street Journal, another article on electronics retailer, hhgregg, describes its rapid expansion, despite the recession, constrained only by the supply of appliances. It is taking advantage of inexpensive retail real estate to expand and grab the space left empty by the now defunct Circuit City. hhgregg is already expanding to absorb the job losses suffered due to Circuit City’s bankruptcy without any help from the stimulus.
The recovery this time has been less than vigorous with growth rates close to half of what they generally are at this stage of the cycle. Given the spectacular growth in productivity over the last two years, the recovery in profits could have been faster than normal and would have propelled higher levels of investment. The thorn is the package of anti-business policies of this administration.
Art Laffer singles out the key issue as the uncertainty in the business environment. The numerous tax concessions and tax increases, the fiddling with major sectors of the economy create uncertainty whether these measures are eventually enacted or not. Capital is shy like a cat and will not commit till the macroeconomic environment is more predictable. The growth rate in 2010, according to Laffer, will be decent and the rate of unemployment will decline modestly. Many businesses will pre-pone capital expenditures to take advantage of the tax benefits that will expire in 2011. The lop-sided growth with faster expansion in manufacturing and much slower in services industries is a clear indicator that growth is being driven by the need to stock up inventories.
All hell will break lose in 2011 when profits are squeezed by higher taxes. Business is also going to be hit with health costs maintaining their rising trajectory. The double dip recession is a near certainty as the economically illiterate loons in Washington run amuck. Unless the much maligned tea partiers intervene to remove these irresponsible creeps.