Newspaper article The Christian Science Monitor

Economy Needs More Than Anti-Recession Tinkering

Newspaper article The Christian Science Monitor

Economy Needs More Than Anti-Recession Tinkering

Article excerpt

THE economy appears to have weakened again after a modest improvement during the summer. Now a year and a half old, this recession is the longest since the Great Depression. December's unemployment rate of 7.1 percent is the highest yet in this recession. And most forecasts for the coming year suggest we will not grow fast enough to lower the unemployment rate much.

Many are asking an important question, "What should we do about the recession?" We should also be asking the more fundamental question, "How can we restore healthy long-term growth and raise the standard of living of the average American family?" Some policies that look appealing for getting us out of the recession look less appealing when we consider their impact on the budget deficit and long-term growth.

Primary responsibility for getting us out of the recession lies with the Federal Reserve. It dramatically - although belatedly - lowered interest rates in December, cutting the discount rate a full point to 3.5 percent. I do not expect the economic indicators suddenly to blossom. But lower interest rates will have an important positive impact on the economy.

In principle, fiscal stimulus could be a useful complement to lower interest rates in promoting a healthy recovery. But such stimulus would have to be carefully targeted and clearly temporary if it is not to hurt long-term growth by permanently raising the deficit.

America's fundamental economic problems will not be cured by a recovery from the recession. Real hourly pay of the average American worker is only 3 percent higher now than it was at the depth of the previous recession in 1982. This stands in marked contrast to the years from 1948 to 1973, when real wages grew 3 percent per year. In the 1980s families had to work harder and longer to get ahead.

Productivity growth is the key to raising wages and incomes and to making us more competitive internationally. American businesses have achieved increases in output per hour of about 1 percent per year over the last decade while the Japanese have raised their productivity four times faster. Much of the responsibility for improving productivity rests with the private sector. …

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