ESSAY OF THE DAY - May 2nd, 2010
The U.S. economy is on the mend and has been for some time. The reason is that, as Marx acknowledged in The Communist Manifesto, the capitalist system is an engine of powerful forces.
Market capitalism, true capitalism and not big government colluding with big business to engage in what Bastiat called “legalized plunder,” is the most efficient way of organizing resources. As a system it drives innovation, which is the source of our increased standard of living. In fact, this system is so powerful and efficient that our economy is doing well in terms of producing goods and services, not because of government intervention, but in spite of it. There is no question that the federal government has been engaged in activities that have suppressed and will continue to suppress economic growth and will leave millions of our person unemployed for lengthy periods. But the economy as a whole will be productive and our gross domestic product will continue to increase in the near future.
There is substantial empirical evidence that the economy is recovering. Fourth quarter real GDP grew at a 5.6% annual rate, the Federal Reserve Industrial Production Index was up in March for the 9th month in a row, the ISM manufacturing index was up in March to 59.6 and the employment index was at 55.1, the fourth straight month above 50, housing starts and existing home sales were up in March, the Conference Board’s Index of Leading Indicators increased 1.4% in March, and one can cite more data showing the upside of the business cycle is underway.
At issue is why is the economy recovering and is it likely to be a sustained recovery? We may also ask why unemployment remains stubbornly high while production is increasing. Normally, as the economy comes out of a recession productivity increases, part-time employment increases, and finally full-time employment increases. Why have we yet to see the last stage of this process? [Continued]
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