Is an economy in transition necessarily a mess?

I saw an interesting chart attached to a tweet that asked if President Obama really inherited an economic mess. The link to the chart can be found here.

The chart argues that when Mr. Obama became president, he inherited a $1.4 trillion dollar deficit, thirteen straight months of unemployment, and GM and Chrysler on the brink of extinction. Today, argues the chart, Mr. Obama has turned things around. The deficit is holding steady at $1.3 trillion, there has 27 months of job growth, GM & Chrysler are intact. According to the chart, President Obama has successfully done what he set out to do.

Unfortunately, the chart has not answered the question whether President Obama inherited a mess. My answer is no, he didn’t. What he created was an excuse to get elected.

Yes, productivity did fall during the 2007 recession. Fall in productivity is the basis for all recessions. Companies sending work overseas thus not having that productivity counted here at home may have hurt. Running out of home equity lines to borrow against because home values were falling as the markets realized that consumers with flat incomes would not be able to repay loans put a strangle hold on derived consumer demand.

If consumers are not buying, the economy is not moving. If efficient technology is replacing workers in auto plants and banks, fewer paid consumers result in higher unemployment and a bigger hole in our budget because unemployment benefits have to be paid out in light of decreased government revenues.

But as resources move to more productive activities, some resources may be put aside as no longer being useful. Labor is the prime example. Unless labor resources are improved to address the changes in demand from employers, then they will fall to the wayside. As productivity increases with the use of innovative technology, old labor will be put into the dump heap. This isn’t a mess. This is how the economy works.

We cannot ignore the human and social impact, however. I hesitate to call the social impact a mess. That is too crass a description of pain. If I were Mr. Obama, I would rephrase his assessment of the economy under George Bush. He didn’t inherit a mess. He inherited a social condition that government may not be equipped to address. He inherited a larger than usual number of economic refugees who did not prepare for change.

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
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One Response to Is an economy in transition necessarily a mess?

  1. I was initially ready to argue with you Mr. Drew, until I read your concluding paragraph. You are the first to say what I’ve been observing and you’ve stated it quite succinctly; “Obama inherited a social condition that government may not be equipped to handle.” Technology is changing the need for labor faster than society can keep pace. Two that come quickly to mind are automated warehouses where robots have eliminated the need for most human labor; the second and newest is ‘additive manufacturing’, a process where 3-dimensional products are being printed (yes, printed) in layers of metal, plastic etc. A product is designed in AutoCad, the data fed directly to the printer and the product is manufactured. Imagine the manufacturing skills that will no longer be necessary. And, for anyone believing this to be a far-fetched future technology,, know it is in use today. Boeing and Airbus are manufacturing aircraft parts with this process and automakers and others are following suit. This is a game changer which takes me back to you concluding point; government may not be equipped to handle the social impact of rapid and permanent reductions in labor demand. While I do believe Obama inherited a mess, its a mess of an entirely different sort and I’m not sure anyone in government recognizes the magnitude and implications of the problem. It time for a paradigm shift; the world has an excess of labor and dealing with the social impacts of this condition will require an entirely new approach.

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