Chamber Economist Sees a Better Economy if ‘Fiscal Cliff’ Avoided

By Tom Smith
As the U.S. economy is finally starting to look better, the actions surrounding the “fiscal cliff” could indeed set back the recovery.

If we can get away from the “contrived” fiscal cliff, which is a politically-created crisis, “then I would be pretty optimistic at this point,” said Martin Regalia, chief economist for the U.S. Chamber of Commerce, in remarks Thursday to ACI-NA’s International Aviation Issues Seminar here in Washington.

The whole fiscal cliff issue is just “malarkey” in this town. “It is totally contrived and arbitrary,” he said. “There is no need to have it.”

“Let’s get rid of the brinksmanship and take a serious look at the issues.”

Martin Regalia

“A marginally bad solution may be better than no solution,” Regalia said. However, with “a really bad solution” we will only fool ourselves and not get our debt under control. It all seems to be about who will blink first.

“Right now everyone is vulnerable and that is not good public policy,” he said. The U.S. needs a program that nurtures growth.

The U.S. economy is getting better, but it is still performing below its long term potential. Indicators point to a faster growing economy back to a rate that employment will pick up.

The economy needs to create at least 360,000 new jobs each month to actually reduce the number of unemployed, the under-employed and those that have given up looking for a job. In November numbers issued this morning, there were 146,000 new jobs created, but 350,000 who “dropped-out” of the labor force.

“We are creating a whole cadre of structurally unemployed who will not be easily absorbed in the economy,” he proclaimed after going through a series of charts.

Among the positive indicators, Regalia said is a rebounding housing market and the fact that Europe’s debt crisis has eased.

Of interest to the international airports in the room, Regalia noted that despite the efforts and wishes of President Obama to “export” the U.S. into a recovery, the world’s demand for trade remains weak. “I am not seeing much growth in international trade.” The dollar remains strong and there is not enough demand.

Overall, the economy still has excess capacity and inventories remain high which is holding back hiring.

“The consumer is where the ball game is won or loss,” he said. “Everything reverts back to consumption. The real driver has to be jobs and wage growth, both of which have been almost none existent.

“Companies are so cash rich because they did not to need to invest nor hire. As soon as they see some clarification in the economy they will invest.”

Because this recovery has not followed the course of every other recovery since the Great Depression, Regalia noted that many proclaim the nation and the economy is in a “new normal.” He doesn’t believe that is the case. However, “I hope we are not in a new normal because this old data can’t tell you much about that,” he said.

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