'Green Shoots' of Recovery? Don't Fall for the Media's Economic Triumphalism

By Joshua Holland, AlterNet. Posted June 22, 2009.

But the demand for U.S. assets has declined in recent months, and as the public debt increases, the amount we'll have to pay on that debt in order to keep selling it will likely increase. That will create upward pressure on interest rates which may further limit the recovery in the medium term as businesses and families face higher interest rates for financing various purchases.  

Tax Cuts Expiring:  

The Bush-era tax cuts were an abomination of priorities; at the end of Bush's term in office, the top 1 percent of Americans bore the lowest share of the tax burden and raked in the largest chunk of the national income at any point in at least the last 20 years. It's good that they are set to expire -- it'll  raise revenues and restore a semblance of equity to a system that's become painfully skewed toward the interests of an exceedingly small and very wealthy minority.   

But in purely economic terms, it's likely to be another impediment to a robust recovery -- those cuts will expire at just around the time many green shoots optimists expect a return to at least respectable growth at the end of this year.   

Similarly, (good) "cap-and-trade" legislation, if it passes Congress, is necessary for curtailing greenhouse gas emissions and averting catastrophic climate change. But it will result in an effective tax hike that may also slow down any potential recovery. (Again, this is not an argument for extending the Bush tax cuts or opposing new regulation of greenhouse gasses.)  

Yellow Weeds  

There are other potential obstacles to a robust recovery that are more technical in nature. Readers interested in a wonkier analysis should check out Roubini's piece, "Ten Risks to Global Growth." In it, he notes that one "cannot rule out a sharp snapback of [economic activity] for a couple of quarters, as the inventory cycle and the [stimulus spending] lead to a short-term growth revival." But "unless structural weaknesses are resolved," he predicts that climbing indicators over the short term will prove to be only an illusion of economic health.

Yet the green shoots crowd predicts an end to the recession -- already the longest and most painful in decades -- toward the end of this year. They see it as a V-shaped dip -- a sharp decline followed by an equally strong period of recovery. That's what has happened in recent decades, following "normal" periods of recession. 

But a more likely outcome is a U-shaped recession ending (that is, being declared over -- wages and employment typically lag behind the official end of a recession) sometime next year, with a long and painful tail, which may then be followed by a period of less-than-stellar economic performance for several years.  

And it's entirely possible that those other shoes will fall, pushing us into a W-shaped double-dip recession -- with a bit of growth followed by a second period of contraction -- which would be unlike anything we've experienced in recent memory.

So, some key questions: For all the optimistic chatter about green shoots, what kind of so-called recovery will we actually experience? How can we have a "return to normalcy," whatever that is, if we refuse to initiate the kind of structural changes that would lead to widely shared prosperity -- the widespread economic security that a consumer-driven economy like ours requires in order to sustain growth? Will we start building things again? Will we balance our trade deficit?

Washington's maneuvers may have slowed our descent, but so far, these questions remain largely unaddressed.

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Joshua Holland is an editor and senior writer at AlterNet.

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