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US now looks like Japan

August 3, 2013

Patrick Emerson PhD ,
OSU Economist
Oregon Economics Blog

Yet another month with good-but-not-great job growth figures.  How long has this been now, five years?  We  find out that the US economy added 162,000 jobs and that unemployment fell to 7.4%.

I think it is pretty clear that folks that were pointing to a Japan-style malaise had it just about nailed.  Japan’s lost decade is looking a lot like what the US is in now.  I think those that argued for a more forceful monetary and fiscal response has the weight of the evidence on their side though I for one remain unconvinced that we have the ability to pull off more fiscal and monetary stimulus.  Needless to say the timing of the sequester and the Fed’s potential tapering look unfortunate.

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Bob Clark August 3, 2013

I don’t agree, mostly. The sequester didn’t get going until the second quarter of this year, and yet second quarter GDP growth rate is higher than that of the first quarter with no sequester. The Sequester’s impact is expected to fade with time, too. And the Sequester is largely symbolic as it only reduces the rate of growth in government expenditure. There is still growth in government expenditure. Then too, the federal budget deficit is declining very steadily, and it may lessen the call for more Sequester (in order to stabilize the U.S full faith and credit rating and confidence).
If there could be a boost to U.S economic prospects, it would be removing the albatross of new government regulations like ObamaCare which incentivizes making workers part-time rather than full time employees.
Deregulation would give the U.S economy some pep at no government financial cost (unlike more fiscal stimulus).

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