Economists "oops" day

Maybe there was something to that interest rate inversion stuff. Commerce Department numbers released Friday show GDP growth back down to 2003 levels, at 1.1% and falling.

The Economic Policy Institute (EPI) snapshot depicts slow growth across the board, not just in autos. Growth in consumption, business investment, residential investment, and exports all fell from the third quarter into the fourth quarter. Final sales of domestic output actually shrank in absolute terms.

An earlier EPI piece showed that federal tax cuts have produced no new jobs. Forget the happy talk. Employment growth was generated not in the private economy from tax cuts, but came from new government spending. Jobs from Defense-related and discretionary spending was estimated at 2.82 million between 2001 through the end of 2006. Total job growth, as above, was only 2.0 million. Jobs generated by the tax cuts have actually declined the difference of 820,000. This in spite of the rock bottom interest rate regime the Fed has been following until recently.

Without job growth, there is no possibility of overall economic growth. Even the total of 2 million jobs over five years is fewer than Bill Clinton averaged every single year of his presidency, while shrinking the deficit.

What does this mean?

The Bush tax cuts have produced less than nothing. The economy is weaker for the effort. This is because those cuts have been targeted to the rich. The rich don't spend out of new income such as they get from tax refunds, but rather out of accumulated wealth.

It also means George Bush does not know what he is doing. Wait, you say, Dubya knows exactly what he is doing -- He is operating fiscal policy for the benefit of his rich corporate buddies. Fair point. What Bush does not know is that in the process he is killing the economy for everyone and choking off any possibilities for a rebound with big new debt.

He invaded Iraq with a purpose, too, but without understanding reality or the ramifications of his adventure. He and his Neocon ditto tank have produced a situation without an answer in the Middle East. They may have done the same thing with the domestic economy.

As Robert Rubin pointed out last week, the US -- alone among industrial nations -- has combined huge federal deficits and stagnant incomes with a very low personal savings, high personal debt and enormous trade deficits.

Yes, I am the voice of doom and gloom. It may surprise you that the economy of these posts is different than that witnessed to by the talking heads. It surprises me as well. Economics is not in the height of its glory right now, but surely we can do better than the line by Laurence J. Peter: "An economist is an expert who can explain precisely tomorrow why the things he predicted yesterday didn't happen today."

Most of the problem is politicization, both internal academic politics and the Heritage Foundation style. A new report from scientists at Emory University studied committed political partisans with MRIs. They discovered that reasoning centers in the brain were quiescent during the process of evaluating politically charged material, but circuits lit up that are connected with emotion and resolving conflicts. When acceptable conclusions were reached -- often by suppressing or ignoring difficult information -- circuits associated with behavior reward came on line. "Much like that seen when addicts get a drug," according to Drew Westen, director of clinical psychology at Emory. (See "Partisans don't let the facts get in the way of the truth.")

If you've ever seen economists argue, you know this is what is happening. Entire schools are built on logical flaws or assumption errors, supported only by vigorous debate and polemics. Very much too bad.