Some Economic Christmas Cheer

The U.S. economy is looking to the figurative skies for Santa Claus to swoop down and bestow copious presents. But we don't know yet whether the jolly old fellow judges us to be naughty or nice.

On Tuesday, the U.S. Commerce Department reported that the economy grew at a 2 percent annual rate for the third quarter of 2011, July to September. That's down from earlier estimates of 2.5 percent.

Fortunately, Esmael Adibi told us, "in a way, that's not very alarming." He's the director of the A. Gary Anderson Center for Economic Research at Chapman University. "The reason is that inventory dropped in the third quarter. Businesses do not have a very rosy picture of the Christmas holiday. They're being cautious. They don't want a huge inventory on hand."

On the positive side, he said, "We think Christmas will be better than do other economic forecasts. Growth will be higher, about 3 percent to 3.5 percent, in the fourth quarter," Oct. to Dec. 2011. He added that consumers have spent the past several years of deep recession and weak recovery pinching pennies. But now there is "pent-up demand for postponed purchases." Old cars and appliances now are breaking down and need to be replaced.

But even though growth could rise a little in the fourth quarter, it's still anemic. "An economy should grow 5, 6, 7 percent coming out of a recession," Adibi said. For example, in 1983, the third year of President Ronald Reagan's administration, the economy zoomed upward at a 7 percent rate, and nearly as much for the rest of the 1980s.

The difference, of course, is that President Obama has pretty much followed the opposite policies of Reagan. The Gipper cut taxes sharply, cut spending (although not enough to end deficit spending), and worked with then-Federal Reserve Board Chairman Paul Volcker to stabilize the dollar's value and promote investment with temporarily higher interest rates.

By contrast, although Obama agreed to a temporary extension of President George W. Bush's tax cuts, now he is seeking tax increases. Obama's annual budget deficits of up to $1.5 trillion are 10 times the $150 billion deficits of the last Reagan years. And Obama has done nothing to prevent current Federal Reserve Board Chairman Ben Bernanke from keeping interest rates close to zero, making it hard for ordinary people to accumulate the capital needed to start the small businesses that are the engines of jobs creation.

Adibi also said that in this uncertain climate, consumers are "deleveraging" — reducing their debt. They, or their family and friends, have been burned by real estate crashes and stock market volatility. Debt is no longer seen as the way to prosperity; paying off debt is. And businesses are "hesitant to hire workers," he said. That reduces the "multiplier effect" by which people hired for new jobs spend money in turn for houses, cars, food and other things, thus promoting general prosperity.

It's probably going to take a change of administrations — and a switch from Obamanomics to a revived Reaganomics — to get the economy moving again. We hope the Black Friday shopping surge was strong for retailers. But Santa still is going to leave behind too many lumps of coal.

REPRINTED FROM THE ORANGE COUNTY REGISTER

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