Paul Krugman explains in the New York Times why the economy is only barely recovering:
“The funny thing is that there hasn't been much negative economic news, just an absence of the good news that we were told to expect. Above all, business investment, whose plunge led us into this slump, has yet to show any serious signs of life.
“The truth is that instead of the vigorous recovery we were supposed to have by now, our economy seems to be in a state of suspense, waiting for something to happen. Optimists think that business investment will, finally, turn up; but businesses still have lots of excess capacity, and show little inclination to go on another investment spree. Pessimists think that consumers, faced with a still-worsening job picture, will finally stop spending. [...]
“There is, however, one more wild card, which is also a key contrast with the Reagan years: the attitude of foreign investors. During the Reagan recovery overseas investors, who had previously been down on America, flocked in. This time we start from a very different position. Foreigners have been wildly enthusiastic about America for years– an attitude we have come to count on, because we need $1.2 billion in capital inflows every day to cover our foreign-trade deficit. What happens as they lose their enthusiasm?
“One of the largely unreported stories of the last few months– in the U.S. media, anyway– is the precipitous decline of foreign confidence in American leadership and institutions. Enron, aggressive accounting, budget deficits, steel tariffs, the farm bill, F.B.I. bungling– all of it adds up, in European minds in particular, to [...] a “fall from grace.” Foreign purchases of U.S. stocks, foreign acquisitions of U.S. companies, are way off.”
The corporate watch: Krugman worries about the state of suspense by Lee Salazar, unless otherwise expressly stated, is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License. Terms and conditions beyond the scope of this license may be available at leesalazar.com.