July 29, 2010
The long-awaited economic recovery seems to be coming to a premature end. For over a year, many pundits have been anticipating a “jobless recovery”. In other words: don’t be concerned about the fact that so many people can’t find jobs – the economy will recover anyway. These hopes have been buoyed by the widespread corporate tactic of cost-cutting (usually by mass layoffs) to gin-up the bottom line in time for earnings reports. This helps inflate stock prices and produce the illusion that the broader economy is experiencing a sustained recovery. The “jobless recovery” advocates ignore the extent to which the American economy is consumer-driven. If those consumers don’t have jobs, they aren’t going to be spending money.
Although many observers seem to take comfort in the assumption that the jobless rate is below ten percent, many are beginning to question the validity of the statistics to that effect provided by the Department of Labor. AOL’s Daily Finance website provided this commentary on the June, 2010 unemployment survey conducted by Raghavan Mayur, president of TechnoMetrica Market Intelligence:
The June poll turned up 27.8% of households with at least one member who’s unemployed and looking for a job, while the latest poll conducted in the second week of July showed 28.6% in that situation. That translates to an unemployment rate of over 22%, says Mayur, who has started questioning the accuracy of the Labor Department’s jobless numbers.
* * *
In fact, Austan Goolsbee, who is now part of the White House Council of Economic Advisers, wrote in a 2003 New York Times piece titled “The Unemployment Myth,” that the government had “cooked the books” by not correctly counting all the people it should, thereby keeping the unemployment rate artificially low. At the time, Goolsbee was a professor at the University of Chicago. When asked whether Goolsbee still believes the government undercounts unemployment, a White House spokeswoman said Goolsbee wasn’t available to comment.
Such undercounting of unemployment can be an enormously dangerous exercise today. It could lead some lawmakers to underestimate the gravity of the labor market’s problems and base their policymaking on a far-less-grim picture than actually exists. Economically, and socially, that would make a bad situation much worse for America.
“The implications of such undercounting is that policymakers aren’t going to be thinking as big as they should be,” says Ginsburg, also a professor emeritus of economics at Brooklyn College. “It also means that [consumer] demand is not going to be there, because the income from people who are employed isn’t going to be there.”
Frank Aquila of Sullivan & Cromwell recently wrote an article for Bloomberg BusinessWeek, discussing the possibility that we could be headed into the second leg of a “double-dip” recession:
The sputtering economy and talk of a possible second recession have certainly rattled an already fragile American consumer. Consumer confidence is now at its lowest level in a year, and consumer spending tumbled in May and June. Since consumer spending accounts for more than two-thirds of U.S. economic growth, a nervous consumer is not a good omen for a robust recovery.
Job creation is a key factor in increasing consumer confidence. While economists estimate that we need economic growth of 4 percent or more to stimulate significant job creation, the economy has grown at only about 2 percent to 3 percent, with a slowdown expected in the second half.
* * *
With governments struggling under the weight of ballooning budget deficits and businesses waiting for the return of sustained growth, it is the American consumer who will have to lift the global economy out of the mire. Given the recent news and current consumer sentiment, that appears to be an unlikely prospect in the near term.
The same government that found it necessary to provide corporate welfare to those “too big to fail” financial institutions has now become infested with creatures described by Barry Ritholtz as “deficit chicken hawks”. The deficit chicken hawks are now preaching the gospel of “austerity” as an excuse for roadblocking any further efforts to use any form of stimulus to end the economic crisis. One of the gurus of the deficit chicken hawks is economic historian Niall Ferguson. Because Ferguson is just an economic historian, a real economist – Brad DeLong — had no trouble exposing the hypocrisy exhibited by the Iraq war cheerleader, while revisiting an article Ferguson had written for The New York Times, back in 2003. Matthew Yglesias had even more fun compiling and publishing a Ferguson (2003) vs. Ferguson (2010) debate.
At The Daily Beast, Sir Harry Evans emphasized how the sudden emphasis on “austerity” is worse than hypocrisy:
As for the banks, one of the obscenities of our time is that so many in the financial community who owe their survival to the massive taxpayer bailouts, not only rewarded themselves with absurd bonuses, but now have the gall to sport the plumage of deficit hawks. The unemployed? Let them eat cake, the day after tomorrow.
Gerald Celente, publisher of The Trends Journal, wrote a great essay for The Daily Reckoning website entitled, “Let Them Eat Losses”. He pointed out how the kleptocracy violated and destroyed the “very essence of functioning capitalism”. Worse yet, our government betrayed us by forcing the taxpayers “to finance the failed financiers”:
No individual, business, institution, nation or empire is too-big-to-fail. Had true capitalism been allowed to function unimpeded, the bloated, over-extended, inefficient and gluttonous firms and industries would have failed. There would have been hardships and losses but, finally rid of its financial tapeworms, the purged system could be restored to health.
No “ism” or “ology” — regardless of purity of intent or moral foundation — is immune to corruption and abuse. While capitalism itself is being blamed for the excesses that brought on financial chaos, prior to the most recent gambling binge, in tandem with the blanket dismantling of safeguards and the overt takeover of Washington by Wall Street, capitalism was responsible for creating one of the world’s most successful and universally admired societies.
As I discussed on July 8, because President Obama lacked the political courage to advance an effective economic stimulus package last year, the effects of his “semi-stimulus” have now abated and we are headed into another recession. Reuters reported on July 27 that Robert Shiller, professor of economics at Yale University and co-developer of Standard and Poor’s S&P/Case-Shiller Index, gave us this unsettling macroeconomic prognostication:
“For me a double-dip is another recession before we’ve healed from this recession … The probability of that kind of double-dip is more than 50 percent,” Shiller said.
“I actually expect it.”
During the last few months of 2009, did you ever think that someday you would be looking back at that time as “the good old days”?
More Good Stuff From David Stockman
August 2, 2010
The people described by Barry Ritholtz as “deficit chicken hawks” have their hands full. Just as some Democrats, concerned about getting campaign contributions from rich people, were joining the ranks of the deficit chicken hawks to support extension of the Bush tax cuts, people from across the political spectrum spoke out against the idea. As I pointed out on July 19, President Reagan’s former director of the Office of Management and Budget (OMB) – David Stockman – spoke out against extending the Bush tax cuts for the wealthy, during an interview with Lloyd Grove of The Daily Beast:
The infamous former Federal Reserve chairman, Alan Greenspan, had already spoken out against the Bush tax cuts on July 16, during an interview with Judy Woodruff on Bloomberg Television. In response to Ms. Woodruff’s question as to whether the Bush tax cuts should be extended, Greenspan replied: “I should say they should follow the law and let them lapse.”
When Alan Greenspan appeared on the August 1 broadcast of NBC’s Meet The Press, David Gregory directed Greenspan’s attention back to the interview with Judy Woodruff, and asked Mr. Greenspan if he felt that all of the Bush tax cuts should be allowed to lapse. Here is Greenspan’s reply and the follow-up:
The drumbeat to extend the Bush tax cuts has been ongoing. Federal Reserve chairman, Ben Bernanke, claimed on July 23, that those tax cuts would be one way of providing stimulus for the economy – provided that such a move were to be offset “with increased revenue or lower spending.” Increased revenue? Does that mean that people – other than those earning in excess of $250,000 per year – should make up the difference by paying higher taxes?
On July 31, David Stockman came back with a huge dose of common sense, in the form of an op-ed piece for The New York Times entitled, “Four Deformations of the Apocalypse”. It began with this statement:
The article included a boxcar full of great thoughts – among them was Stockman’s criticism of the latest incarnation of voodoo economics:
Mr. Stockman took care to lay blame at the foot of the man he described in the Lloyd Grove interview as an “evil genius” – Milton Friedman – who convinced President Nixon in 1971 to “to unleash on the world paper dollars no longer redeemable in gold or other fixed monetary reserves.”
Despite the fact that tax cuts are considered by many as the ultimate panacea for all of America’s economic problems, David Stockman set the record straight about how the religion of taxcut-ology began:
Stockman’s discussion of “the vast, unproductive expansion of our financial culture” is probably just a teaser for his upcoming book on the financial crisis:
On the day following the publication of Stockman’s essay, Sarah Palin appeared on Fox News Sunday – prepared with notes again written on the palm of her hand – to argue in support of extending the Bush tax cuts. Although her argument was directed against the Obama administration, I was fixated on the idea of a debate on the subject between Palin and her fellow Republican, David Stockman. Some of those Republicans vying for their party’s 2012 Presidential nomination were probably thinking about the same thing.
href=”http://statcounter.com/wordpress.org/”
target=”_blank”>