One economist's even bleaker economic view

@CNNMoney June 8, 2011: 10:32 AM ET

Martin Feldstein

NEW YORK (CNNMoney) -- The struggling U.S. economy is in even worse shape than it appears, and the Obama administration has done little to help, according to influential economist Martin Feldstein.

In a Wall Street Journal column published Wednesday, Feldstein argues that as bad as some headline economic numbers such as gross domestic product have become in recent months, "the picture is even gloomier if we look in more detail."

Feldstein is an economics professor at Harvard University. He's also the retired president of the National Bureau of Economic Analysis, the well-regarded organization that determines when the economy falls into recession, as well as when recessions come to an end.

He was one of the first top economists to call the start of what became the Great Recession, telling CNNMoney in early January 2008 that a recession was "likely." The recession was later determined to have begun in December 2007.

Feldstein has also served as a top adviser and policymaker for every Republican administration since Ronald Reagan, for whom he served as chairman of the Council of Economic Advisers. In his role as an adviser to George W. Bush's campaign, he is widely seen as the father of the tax cuts that were passed early in that administration.

In Wednesday's column, Feldstein points out that while gross domestic product the broadest measure of economic activity, grew at a disappointing 1.8% rate in the first quarter, much of that growth was due to businesses increasing inventory. Sales grew at an even more dismal annual rate of 0.6%.

"A sustained expansion cannot be built on inventory investment. It takes final sales to induce businesses to hire and to invest," he wrote.

While second-quarter GDP won't be reported until late July, Feldstein points out that monthly estimates for April show the economy sliding. He said leading economic indicators, which are designed to predict what's next for economic growth, fell for only the second time since the spring of 2009.

"The data for May are beginning to arrive and are even worse than April's," he added. "They are marked by a collapse in payroll-employment gains; a higher unemployment rate; manufacturers' reports of slower orders and production; weak chain-store sales; and a sharp drop in consumer confidence."

Feldstein blames the Obama administration for much of the economic mess - but not in the same ways that orthodox Republicans would. He suggests that the $830 billion stimulus package passed in 2009 by Democrats -- over almost universal Republican opposition -- was not big enough to make up for the drop in demand for the economy. That's an argument usually made by liberal economists rather than conservative ones.

And rather than say that there should have been more emphasis on tax cuts in the stimulus, as Republicans typically do, he says that direct government spending is the more effective. He believes the money should have been spent on military equipment in Iraq and Afghanistan rather than to support state and local governments and other public works, as the Obama stimulus package did.

He also opposes Obama's calls for higher tax rates on top earners and multinational corporations.

"With that higher-tax cloud hanging over them, it is not surprising that individuals and businesses do not make the entrepreneurial investments and business expansions that would cause a solid recovery," Feldstein said.

But he also said the administration's failure to deal with future budget deficits and exploding national debt is another major problem for the economy.

"The economy will continue to suffer until there is a coherent and favorable economic policy," Feldstein concludes. To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.80%3.88%
15 yr fixed3.20%3.23%
5/1 ARM3.84%3.88%
30 yr refi3.82%3.93%
15 yr refi3.20%3.23%
Rate data provided
View rates in your area
Find personalized rates:
Economic Calendar
Latest ReportNext Update
Home pricesAug 28
Consumer confidenceAug 28
GDPAug 29
Manufacturing (ISM)Sept 4
JobsSept 7
Inflation (CPI)Sept 14
Retail sales Sept 14
  • -->

    Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.