Saturday, July 28, 2012

FT: "Slowdown in Growth Adds to US Fears"

The Financial Times July 29, 2012 A1. (print edition)

[Excerpted] "The world's largest economy has suffered a worrying loss of momentum with US growth slowing to an annualised 1.5 percent in the second quarter of 2012...

'US economic growth has slowed to a crawl,' said Kathy Bostjanic...'Given the anemic  pace of consumption and investment, plus continued austerity for state and local government spending, and weak exports, it is difficult for the domestic economy to produce at a more robust pace.'

There was one bright spot. Housing investment grew at an annualised rate of 9.7 per cent."

[end excerpt]

Majia here: Housing is not sustainable. We've seen that. One important reason the economy cannot recover is because of gross misallocation of resources because of rent-seeking, corruption, and the predation upon public purpose by contractors. 

This is what Joseph Stiglitz has to say about the reason the economy cannot recover:

Inequality Undermines Prosperity By Joseph Stiglitz, Los Angeles Times  28 July 2012
[Excerpted] Corporate executives in the U.S. take advantage of deficiencies in our corporate governance laws to seize an increasing share of corporate revenue, enriching themselves at the expense of other stakeholders. 

 Pharmaceutical companies successfully lobbied to prohibit the federal government - the largest buyer of drugs - from bargaining over drug prices, resulting in taxpayers overpaying by an estimated half a trillion dollars in about a decade. 

 Mineral companies get resources at below competitive prices. 

Oil companies and other corporations get "gifts" in the hundreds of billions of dollars a year in corporate welfare, through special benefits hidden in the tax code. 

Some of this rent-seeking is very subtle - our bankruptcy laws give derivatives (such as those risky products that led to the $150-billion AIG bailout) priority but say that student debt can't be discharged, even in bankruptcy.

Rent-seeking distorts the economy and makes it less efficient. When, for instance, speculation gains get taxed at a lower rate than true innovation, resources that could support productivity-enhancing activities get diverted to gambling in the stock market and other financial markets. So too, much of the income in the financial sector, including that derived from predatory lending and abusive credit card practices, derives not from making our economy more efficient but from rent-seeking...

1 comment:

  1. It is so true our country prefers corporate capitalism unfettered by the tax burden applied to the struggling lower and middle class.

    Then... When even that largesse of capitalist profits is not enough, the banksters negotiate a socialist bailout from the government. The government they own by virtue of fatcat secret payolas to politicians and manipulation of the mass media (which they also own).


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