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STRATFOR.com
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THE INTERNET SOURCE FOR GLOBAL INTELLIGENCE
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Crisis Response May Harm U.S. Economy
November 2, 2001
Summary
Growing concern over the state of the U.S. economy is leading to calls for massive tax breaks and other support and stimulus measures. But most of the proposals being floated fail to address the real issue, and some could threaten the long-term health of the U.S. economy.
Analysis
U.S. senators Patty Murray, D-Wash., and Olympia Snow, R-Mass., proposed Oct. 30 a 10-day, national sales tax holiday to stimulate U.S. consumer spending during the Christmas buying season. Their suggestion adds to a growing number of new economic stimulus proposals to invigorate the American economy after the Sept. 11 attacks on the United States.
Washington is in crisis mode, directing military action abroad while formulating a homeland security policy. But making economic policy in this environment is dangerous. It increases the chance that unsound reactionary policies and pork-barrel outlays will be made, with negligible or even harmful long-term economic implications. The White House and Congress must deliberate a proper, measured response. Otherwise, bad policy could bust state and federal budgets and threaten long-term economic health.
The past week was a very bad one for the American economy. The Commerce Department Oct. 31 reported that gross domestic product declined at an annual rate of 0.4 percent in the third quarter, marking the first step toward an official recession. The department the next day also announced that consumer spending -- which propped up the U.S. economy through the first half of the year -- plunged by 1.8 percent in September.
The Labor Department added to the bad news Nov. 2, announcing that the U.S. unemployment rate soared to 5.4 percent in October, its biggest one-month jump in 21 years. The recent figures increase the pressure on Washington to respond with an aggressive economic stimulus program. The public expects the U.S. government to approach the economy in the same way it responded to the Sept. 11 attacks: with immediate, aggressive action.
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(c) 2001 Stratfor, Inc.
Dan
Crisis Response May Harm U.S. Economy . . .