[lbo-talk] This Expansion Looks Familiar

Yoshie Furuhashi critical.montages at gmail.com
Fri Feb 16 05:52:55 PST 2007


<http://www.nytimes.com/2007/02/13/business/13growth.html> February 13, 2007 This Expansion Looks Familiar By EDUARDO PORTER and JEREMY W. PETERS

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Now, a little more than five years into an expansion that officially started in November 2001, the economy is showing remarkable parallels to the situation of a decade ago. "It's striking how similar they are," said Robert J. Gordon, an economics professor at Northwestern University.

The overall rate of growth has followed a trajectory almost identical to the first five years of the 1990s expansion. Now, as then, corporate profits have surged; the stock market has, too. But just as workers have finally begun to reap some of the spoils of a growing economy, many forecasters worry — as they did a decade earlier — that the expansion is running out of steam.

What is striking, considering these similarities, is how little effect the policy choices of Democratic and Republican administrations seem to have had on how both growth cycles played out.

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Advocates on each side insist that government policy was crucial to steering the economy. Gene B. Sperling, a former economic adviser to Mr. Clinton, argued that his administration's efforts to cut the budget deficit were instrumental in bringing down interest rates and improving investors' confidence in the economy.

By contrast, Edward P. Lazear, President Bush's chief economic adviser, argued that the tax cuts enacted by the Bush administration in 2003 deserve some credit for the current expansion. "They had a fundamental impact on investment," Mr. Lazear said. "There was an abrupt turnaround at the point when those tax cuts were put into effect."

But even Mr. Lazear conceded that the role of policy in driving the economy can be overstated. "Neither President Clinton nor President Bush fundamentally altered the structure of the American economy," he said. "This is a pretty healthy economy where the private market is most of what is going on."

There are substantial differences, of course, in the nature of the two expansions. The early '90s were characterized by a building bust; the current one has been supported by a housing bubble. The boom of the second half of the 1990s was underpinned by an Internet-driven investment bubble, but most technology stocks today are far below their earlier highs.

"In both situations we had overinvestment, now in housing, then in fiber optics," said Joseph E. Stiglitz, a professor of economics at Columbia who was Mr. Clinton's chief economic adviser from 1995 to 1997.

Mr. Bush and Mr. Clinton had very different economic priorities and will leave very different economic legacies. Mr. Clinton increased the top marginal tax rate to 39.6 percent, from 31 percent, and closed the budget deficit. President Bush cut tax rates back to 35 percent, and the deficit reappeared.

Corporate profits have swollen twice as fast, as a share of the economy, in the first five years of this expansion, under Mr. Bush, as in the same period of the previous one.

Still, policy has had less effect on the distribution of the rewards of growth than the stated goals of Democrats and Republicans would suggest.

Indeed, the share of the economy devoted to workers' compensation shrank as much in the first five years of the 1990s expansion — to 56.3 percent, from 57.7 percent, of gross domestic product — as in the most recent five years, when it fell to 56.6 percent, from 58.1 percent. -- Yoshie <http://montages.blogspot.com/> <http://mrzine.org> <http://monthlyreview.org/>



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