Economic Recovery

[Fast Gunn]

Reagan was the greatest President? You must live in a different reality, CP. Maybe you live in the clouds.

I honestly don't understand why some people still feel that way about Reagan. For the middle-class, the economy stunk while he was in the White House.

Supply-side economics, my ass!

Perhaps he was a good President, but only for the very wealthy class, but for most of America, I don't see what good he did except tell us interesting stories about Maggie Thatcher.

I saw him as just an actor and I think he fooled so many people with his easy-going charm, but personally I don't want a President to just be charming and easy-going.

I want a President with a high-powered mind who is able to make the tough decisions and take the country where it should go for the benefit of the majority, not just the upper crust.

Right now the primary problem facing this nation is the poor state of the economy. We need to do whatever it takes to get the economy moving again and if another stimulus is the answer than I support it.

Our ox is in the ditch and we must pull it out before the poor thing dies a slow lingering death.

We need action not endless deliberation!

[TexTushHog]

Originally Posted by oden

Get over it. The man is a big government liberal.

Actually, he's not a real liberal. That's the problem and the reason that the left wing of the Democratic Party is quite disappointed with him right now. The centrist Democrats are by and large happy. We liberals (which has nothing to do with "big government") are bitterly unhappy with Obama.

[Fast Gunn]

There was a sobering story posted in The Atlantic Magazine regarding this issue. A word of caution before you read the story; you may need a stiff drink after you've finished it.

How a New Jobless Era Will Transform America

The Great Recession may be over, but this era of high joblessness is probably just beginning. Before it ends, it will likely change the life course and character of a generation of young adults. It will leave an indelible imprint on many blue-collar men. It could cripple marriage as an institution in many communities. It may already be plunging many inner cities into a despair not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come.
By Don Peck



I How should we characterize the economic period we have now entered? After nearly two brutal years, the Great Recession appears to be over, at least technically. Yet a return to normalcy seems far off. By some measures, each recession since the 1980s has retreated more slowly than the one before it. In one sense, we never fully recovered from the last one, in 2001: the share of the civilian population with a job never returned to its previous peak before this downturn began, and incomes were stagnant throughout the decade. Still, the weakness that lingered through much of the 2000s shouldn’t be confused with the trauma of the past two years, a trauma that will remain heavy for quite some time.
The unemployment rate hit 10 percent in October, and there are good reasons to believe that by 2011, 2012, even 2014, it will have declined only a little. Late last year, the average duration of unemployment surpassed six months, the first time that has happened since 1948, when the Bureau of Labor Statistics began tracking that number. As of this writing, for every open job in the U.S., six people are actively looking for work.



All of these figures understate the magnitude of the jobs crisis.



The broadest measure of unemployment and underemployment (which includes people who want to work but have stopped actively searching for a job, along with those who want full-time jobs but can find only part-time work) reached 17.4 percent in October, which appears to be the highest figure since the 1930s. And for large swaths of society—young adults, men, minorities—that figure was much higher (among teenagers, for instance, even the narrowest measure of unemployment stood at roughly 27 percent). One recent survey showed that 44 percent of families had experienced a job loss, a reduction in hours, or a pay cut in the past year.
There is unemployment, a brief and relatively routine transitional state that results from the rise and fall of companies in any economy, and there is unemployment—chronic, all-consuming. The former is a necessary lubricant in any engine of economic growth. The latter is a pestilence that slowly eats away at people, families, and, if it spreads widely enough, the fabric of society.



Indeed, history suggests that it is perhaps society’s most noxious ill.



The worst effects of pervasive joblessness—on family, politics, society—take time to incubate, and they show themselves only slowly. But ultimately, they leave deep marks that endure long after boom times have returned. Some of these marks are just now becoming visible, and even if the economy magically and fully recovers tomorrow, new ones will continue to appear. The longer our economic slump lasts, the deeper they’ll be.
If it persists much longer, this era of high joblessness will likely change the life course and character of a generation of young adults—and quite possibly those of the children behind them as well. It will leave an indelible imprint on many blue-collar white men—and on white culture. It could change the nature of modern marriage, and also cripple marriage as an institution in many communities.



It may already be plunging many inner cities into a kind of despair and dysfunction not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years.

The Long Road Ahead

Since last spring, when fears of economic apocalypse began to ebb, we’ve been treated to an alphabet soup of predictions about the recovery. Various economists have suggested that it might look like a V (a strong and rapid rebound), a U (slower), a W (reflecting the possibility of a double-dip recession), or, most alarming, an L (no recovery in demand or jobs for years: a lost decade). This summer, with all the good letters already taken, the former labor secretary Robert Reich wrote on his blog that the recovery might actually be shaped like an X (the imagery is elusive, but Reich’s argument was that there can be no recovery until we find an entirely new model of economic growth).
No one knows what shape the recovery will take. The economy grew at an annual rate of 2.2 percent in the third quarter of last year, the first increase since the second quarter of 2008. If economic growth continues to pick up, substantial job growth will eventually follow. But there are many reasons to doubt the durability of the economic turnaround, and the speed with which jobs will return.



Historically, financial crises have spawned long periods of economic malaise, and this crisis, so far, has been true to form. Despite the bailouts, many banks’ balance sheets remain weak; more than 140 banks failed in 2009. As a result, banks have kept lending standards tight, frustrating the efforts of small businesses—which have accounted for almost half of all job losses—to invest or rehire. Exports seem unlikely to provide much of a boost; although China, India, Brazil, and some other emerging markets are growing quickly again, Europe and Japan—both major markets for U.S. exports—remain weak. And in any case, exports make up only about 13 percent of total U.S. production; even if they were to grow quickly, the impact would be muted.
Most recessions end when people start spending again, but for the foreseeable future, U.S. consumer demand is unlikely to propel strong economic growth. As of November, one in seven mortgages was delinquent, up from one in 10 a year earlier. As many as one in four houses may now be underwater, and the ratio of household debt to GDP, about 65 percent in the mid-1990s, is roughly 100 percent today. It is not merely animal spirits that are keeping people from spending freely (though those spirits are dour). Heavy debt and large losses of wealth have forced spending onto a lower path.
So what is the engine that will pull the U.S. back onto a strong growth path? That turns out to be a hard question. The New York Times columnist Paul Krugman, who fears a lost decade, said in a lecture at the London School of Economics last summer that he has “no idea” how the economy could quickly return to strong, sustainable growth. Mark Zandi, the chief economist at Moody’s Economy.com, told the Associated Press last fall, “I think the unemployment rate will be permanently higher, or at least higher for the foreseeable future. The collective psyche has changed as a result of what we’ve been through. And we’re going to be different as a result.”
One big reason that the economy stabilized last summer and fall is the stimulus; the Congressional Budget Office estimates that without the stimulus, growth would have been anywhere from 1.2 to 3.2 percentage points lower in the third quarter of 2009. The stimulus will continue to trickle into the economy for the next couple of years, but as a concentrated force, it’s largely spent. Christina Romer, the chair of President Obama’s Council of Economic Advisers, said last fall, “By mid-2010, fiscal stimulus will likely be contributing little to further growth,” adding that she didn’t expect unemployment to fall significantly until 2011. That prediction has since been echoed, more or less, by the Federal Reserve and Goldman Sachs.



The economy now sits in a hole more than 10 million jobs deep—that’s the number required to get back to 5 percent unemployment, the rate we had before the recession started, and one that’s been more or less typical for a generation. And because the population is growing and new people are continually coming onto the job market, we need to produce roughly 1.5 million new jobs a year—about 125,000 a month—just to keep from sinking deeper.



Even if the economy were to immediately begin producing 600,000 jobs a month—more than double the pace of the mid-to-late 1990s, when job growth was strong—it would take roughly two years to dig ourselves out of the hole we’re in. The economy could add jobs that fast, or even faster—job growth is theoretically limited only by labor supply, and a lot more labor is sitting idle today than usual. But the U.S. hasn’t seen that pace of sustained employment growth in more than 30 years. And given the particulars of this recession, matching idle workers with new jobs—even once economic growth picks up—seems likely to be a particularly slow and challenging process.
The construction and finance industries, bloated by a decade-long housing bubble, are unlikely to regain their former share of the economy, and as a result many out-of-work finance professionals and construction workers won’t be able to simply pick up where they left off when growth returns—they’ll need to retrain and find new careers. (For different reasons, the same might be said of many media professionals and auto workers.) And even within industries that are likely to bounce back smartly, temporary layoffs have generally given way to the permanent elimination of jobs, the result of workplace restructuring. Manufacturing jobs have of course been moving overseas for decades, and still are; but recently, the outsourcing of much white-collar work has become possible. Companies that have cut domestic payrolls to the bone in this recession may choose to rebuild them in Shanghai, Guangzhou, or Bangalore, accelerating off-shoring decisions that otherwise might have occurred over many years.
New jobs will come open in the U.S. But many will have different skill requirements than the old ones. “In a sense,” says Gary Burtless, a labor economist at the Brookings Institution, “every time someone’s laid off now, they need to start all over. They don’t even know what industry they’ll be in next.” And as a spell of unemployment lengthens, skills erode and behavior tends to change, leaving some people unqualified even for work they once did well.
Ultimately, innovation is what allows an economy to grow quickly and create new jobs as old ones obsolesce and disappear. Typically, one salutary side effect of recessions is that they eventually spur booms in innovation. Some laid-off employees become entrepreneurs, working on ideas that have been ignored by corporate bureaucracies, while sclerotic firms in declining industries fail, making way for nimbler enterprises. But according to the economist Edmund Phelps, the innovative potential of the U.S. economy looks limited today. In a recent Harvard Business Review article, he and his co-author, Leo Tilman, argue that dynamism in the U.S. has actually been in decline for a decade; with the housing bubble fueling easy (but unsustainable) growth for much of that time, we just didn’t notice. Phelps and Tilman finger several culprits: a patent system that’s become stifling; an increasingly myopic focus among public companies on quarterly results, rather than long-term value creation; and, not least, a financial industry that for a generation has focused its talent and resources not on funding business innovation, but on proprietary trading, regulatory arbitrage, and arcane financial engineering. None of these problems is likely to disappear quickly. Phelps, who won a Nobel Prize for his work on the “natural” rate of unemployment, believes that until they do disappear, the new floor for unemployment is likely to be between 6.5 percent and 7.5 percent, even once “recovery” is complete.
It’s likely, then, that for the next several years or more, the jobs environment will more closely resemble today’s environment than that of 2006 or 2007—or for that matter, the environment to which we were accustomed for a generation. Heidi Shierholz, an economist at the Economic Policy Institute, notes that if the recovery follows the same basic path as the last two (in 1991 and 2001), unemployment will stand at roughly 8 percent in 2014.



“We haven’t seen anything like this before: a really deep recession combined with a really extended period, maybe as much as eight years, all told, of highly elevated unemployment,” Shierholz told me. “We’re about to see a big national experiment on stress.”

[Texas Contrarian]

The graph in the opening post depicts a sharp decline in the German unemployment rate. I can explain much of that in just two words. (One word if I may use German!)

"Kurzarbeit."

That's German for "short work."

It's a government-sponsored plan where some firms in struggling industries cut back each employee's hours by about 20% and the government makes up most (but not all) of the compensation shortfall. A bit of shared sacrifice, if you will.

Liberal economist Dean Baker has suggested that beleaguered U.S. industries consider a model such as this, and that we could thereby reduce the unemployment rate by a substantial amount. One of his key points is that money which would otherwise be needed to pay unemployment compensation could cover much of the costs. In my opinion, this plan would at least have the virtue of being significantly better than most of the bailouts, subsidies, and "stimulus" initiatives we've created.

Still, that only explains part of the unemployment rate difference. Although the total number of German manufacturing jobs has declined by about 20% over the last 15-20 years, the Germans are still doing a better job than we are at producing and exporting.

Originally Posted by Fast Gunn

So what exactly is Germany doing that the United States is not and why aren't we doing it?

Well, it's a little bit about what the Germans are doing, and a little about what they are not doing.

One very positive step Germany took in 2009 was to pass a constitutional amendment compelling policymakers to gradually push down the budget deficit to a very low level over the next few years. It is called a "debt brake." When the German finance minister says that he is going to be serious about fiscal responsibility, he actually means it!

What Germany is not doing also relates to this issue. Around March of 2009, there was a well-publicized rift between Obama and Merkel. The U.S. was trying to get Germany to join an international effort to co-ordinate large fiscal surges. Specifically, Germany was urged to pass a stimulus package equivalent to that of the massive $862 billion U.S. bill (as a percentage of Germany's GDP). Merkel and the German finance ministry would have none of it, having observed the failure of such policies in Europe time and again.

Germany did agree to a smaller stimulus package. Although it contained a number of ineffective political payoffs, it was not nearly as wasteful and ineffective as ours. The Germans prefer to support production and exports.

Again before the G-20 this year, Germany resisted Geithner's pressure to enact more "stimulus" spending. Their budget deficits, as a percentage of GDP, are a fraction of ours -- and they wisely want to keep it that way.

While we are squandering money like there's no tomorrow on phony, politically-motivated "stimulus" packages designed to pay off favored political constituencies, serious nations are setting about the task of planning a sound fiscal future.

[Fast Gunn]

Thanks for that informative post, CaptainMidnight.

I wish we had more posts of that caliber on this board.

I did look up the English translation of the German word you used and it actually mean "Short Time", but your meaning is clear and I won't quibble with it.

I find it interesting that President Obama disagreed with the Chancellor of Germany since both leaders possess high-powered intellects.

I wonder if the solution that one country finds workable would necessarily work in another country. The same dose of medicine that helps one patient might actually hurt another one.

This country only made a bad situation worse during the Great Depression with their misguided programs such as tightening credit when the opposite was what was needed.

Franklin Roosevelt saw that and took the country in the right direction with his New Deal and I thought that we had finally learned the lesson, but this recession seems much more entrenched than anyone expected.

People are tightening their belts, but I think the US government needs to stimulate the economy, but in a more focused way and I think that is what President Obama is trying to do.

I think once we come out of this recession that people are going to be much more careful with their money.

Right now many US companies are just sitting on piles of cash and they need to be goosed into having some faith in this country and put that money to use and start hiring again, but right now they are afraid to do it.