South By North Strategies, Ltd.

Around the Dial – Feb. 22

Economic policy reports, blog postings, and media stories of interest:

• The Charlotte Observer looks at the state of the local economy.
• The Stash argues that health reform isn’t dead yet.
• Econbrowser explains the hike in the discount rate.

Recovery Paths

Over the weekend, The Charlotte Observer reported on possible paths of economic recovery. The report contained the perspective of John Quinterno of South by North Strategies, Ltd.

Despite some hopeful signs, the Charlotte area’s economy won’t outpace unemployment anytime soon, economists warn.
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Some jobs are gone forever, and those that will replace them could leave the region’s lowest-skilled and least-educated workers struggling to catch up, experts say.
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“The question is, are growth levels adequate enough to get us out of the hole we’re in?It doesn’t look like it,” said John Quinterno of South by North Strategies Ltd., a Chapel Hill economic research firm.

Overstretched Safety Nets

A front-page story in Sunday’s issue of The New York Times looks at the potential human toll of slow economic growth. Especially hard hit will be individuals who have or will fall out of the middle class, yet current social insurance systems are unprepared to accommodate the growing numbers of long-term unemployed. From the article:

“We have a work-based safety net without any work,” said Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin, Madison. “People with more education and skills will probably figure something out once the economy picks up. It’s the ones with less education and skills: that’s the new poor.”

Weekend Wonk Out

A round-up of policy reports from the week ending on 2/12:

• The Center for Budget & Policy Priorities sets deficit facts straight.
• The Economic Policy Institute assesses the Recovery Act one year later.
• The Center for Economic & Policy Research warns against deficit scares.
• The Annie E. Casey Foundation looks at the use of public benefits.
• The Working Poor Families Project asks how infrastructure spending can create jobs.

Dueling Economic Narratives

In a recent speech, Dennis Lockhart, the president of the Federal Reserve Bank of Atlanta, put forth a tale of two economic narratives. The second narrative — the one that Lockhart and his colleagues at the Atlanta Fed are forecasting — is especially disturbing.

The alternative narrative entails some fundamental changes in business practices and consumer habits. In this scenario, businesses have learned from the recession that they can operate permanently at leaner inventory levels and flat or lower employee head counts. And the impressive worker productivity gains measured in recent data continue to accumulate.
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Consumers, in this narrative, have assumed a quite different mind-set compared to the precrisis, prerecession “normal.” Chastened by the recession and high unemployment—consumers are simply more frugal and more inclined to save. And even if consumers wanted to resume prerecession spending habits, the consumer finance industry, in this narrative, will not accommodate previous levels of consumption.
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In this narrative, growth continues, but at a very modest pace, and unemployment is very slow to recede. The first narrative is a return to something resembling normal as we knew it; the second narrative describes a somewhat new and different world.