High Unemployment and High Inflation Make This Recession Different
“Why is this recession different from almost all other recessions?” asked Herbert Barchoff. The economist, a former president of the Council of Economic Advisers, answered his own question: “This is not only the usual cyclical recession, but also a structural recession.”
Barchoff’s dark assessment appeared in a letter to the editor of The New York Times–in June 1992. Then, like now, Americans were suffering through a long, grinding recession following a boom (under Reagan) that had primarily benefited the wealthy. There were mass layoffs. The real estate market had collapsed. Foreclosures were rampant.
George H.W. Bush, who had expected to coast to reelection on the strength of his near 90 percent post-Gulf War approval ratings, projected a Herbert Hoover-like resolve to not lift a finger to alleviate the misery. The Federal Reserve cut interest rates, but it didn’t help. Six months later, angry voters fired an out-of-touch president who seemed unwilling to fix an economy he didn’t think was broken in favor of a guy who claimed to feel our pain.
Barchoff, it would turn out, was too pessimistic. “To reverse the excesses of the 1980’s,” he wrote, “restructuring has been going on in massive proportions at every level. It is a rare day that newspapers do not report layoffs, often in the thousands in the industrial sector.” What Barchoff didn’t know–few people did–was that the U.S. was about to begin the longest, broadest and biggest period of economic expansion experienced by any civilization in human history.
Downsizing continued in traditional sectors like manufacturing and newspapers. Even during the Clinton boom, millions of people were ruined, forced to declare bankruptcy. Midwestern cities were reduced to rusted-out shells. But none of that mattered to Wall Street. The Internet revolution prompted so much capital investment, and generated so many new jobs–freshly minted college grads thought it perfectly normal to earn $85,000 moving around lines of HTML–that otherwise sane people began talking about a “new paradigm” in which “the old rules no longer apply.”
In other respects, however, Barchoff was prescient. “[The then-new European Community] will substantially hurt our ability to be competitive,” he correctly predicted. “The drop in interest rates is no solution. During the Great Depression the prime rate went to one percent, with no cure. When you are out of work or afraid of losing your job, you do not take on debt. Nor will entrepreneurs borrow even very cheap money unless there is a market.”
The Bush Sr. recession was a grim affair. When I graduated from Columbia in 1991, the university canceled its annual jobs fair due to employers’ lack of interest. But it was a picnic compared to what we’re facing now. Bush Jr. could finally realize Barchoff’s nightmare of a structural recession–the kind of no-way-out shock experienced by Russia after the collapse of the Soviet Union.
“Normal” cyclical recessions feature increased unemployment, which puts downward pressure on prices. You rarely see high unemployment and high inflation at the same time. Conservative economists point to rising inflation during the late 1970s as an exception, but that wasn’t even a downturn, much less a recession. Inflation was high but unemployment was low. Anyway, the inflation didn’t hurt workers; during the Carter years mean wages rose faster than inflation. The opposite is true now. Real income is falling.
The economy has bled 3.1 million jobs since George W. Bush assumed the presidency in 2001, the worst record since the Depression. The official unemployment rate, constantly re-jiggered to make the economy appear more robust, has risen to 5.1 percent. The long-term unemployment rate, which includes people who have had such bad luck looking for work that they’ve given up entirely, has doubled, to over 13 percent.
Meanwhile, inflation is approaching seven percent. Again, that’s the official inflation rate. Your mileage as an average American–who spends a third of your pay on housing and more and more on gas–will vary. But let’s not dwell on the irony of $4-a-gallon gas resulting from a war fought to steal oil.
But wait. There’s even more bad news.
Two-thirds of economic activity is generated by consumer spending. Most people are broke. So much for that two-thirds. “In 2000,” reports David Leonhardt in The Times, “at the end of the last economic expansion, the median family made about $61,000, according to the Census Bureau’s inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less–about $60,500.”
This, says, Leonhardt, is a big deal. “This has never happened before, at least not for as long as the government has been keeping records.” RBC Capital Markets reports that consumer confidence has fallen below 30 percent, an all-time record low. T.J. Marta, a fixed-income strategist at RBC, said: “What confidence? There is no confidence. It’s like 1929.”
If Barchoff had picked up a copy of the San Jose Mercury-News in 1992, he would have read about the birth of the Web revolution, then touted as the “information superhighway.” But there’s nothing like that coming down the pike today. To paraphrase the ever-quotable Donald Rumsfeld, we’re going to have to make do with the economy we have, not the one we wish we had.
Liberal economists like Paul Krugman suggest a rerun of the 1930s, when FDR’s New Deal employed millions to build new infrastructure like dams and bridges. But none of the three remaining presidential contenders is likely to undertake such a thing. “The worst-case scenario” about the 1991 war against Iraq, Barchoff said in 1992, would have been if it had lasted two years and cost an extra $200 billion. Iraq War II, now in its sixth year, is currently pegged at an estimated $3 trillion. Republican John McCain is committed to pouring more trillions into Iraq War II until victory is achieved, i.e., forever. As Democrats wary of being tarnished with the label of “big spender,” both Obama and Clinton will likely place fiscal discipline ahead of expansive new government programs.
There is no short-term fix. In the long term, we must put more money into more people’s pockets. That means higher wages and lower taxes for the poor and middle class. Some of what is needed is easy to see: a more progressive tax code, repealing laws that allow employers to harass and fire those who try to organize unions, nationalizing industries run by vampire capitalists–health insurers, private hospitals, colleges and universities. Banks encourage predatory lending while stifling saving. They ought to be re-regulated. What madness permits them to charge 30 percent on credit cards while paying one percent on passbook savings accounts?
More–much more–is necessary to prevent the wholesale collapse of the U.S. economic system. A maximum wage should be imposed–the highest paid American should earn no more than ten times the lowest paid. I know, I know–none of this will happen. There will be nothing but Band-Aids and lazy rhetoric as we plummet into the abyss. It cannot be otherwise, for our politics are ossified, the media is corporatized, and we the people are dull and apathetic.
COPYRIGHT 2008 TED RALL
33 Comments.
Maybe this explains why nobody's bidding at your auction.
"…nothing but Band-Aids and lazy rhetoric as we plummet into the abyss. It cannot be otherwise, for our politics are ossified, the media is corporatized, and we the people are dull and apathetic."
Indeed, Ted…problems are fundamentally social before they are in any way technical. And whenever a problem is social, it is political. As a society we seem to have difficulty getting the best outcome out of every decision making process. In fact we seem to only get the right answer by accident or after all other options have been attempted.
don't worry. There will no longer be a doubt in anyones mind come 2012.
As I have said before:
McCain in '08
FDR in 2012
Good….er, is that the right word for the economy collapsing?…column.
I question if what's going on is really inflation, seems to be a combination of inflation engineered by the Federal Reserve and rises in prices due to the general state of the economy.
The classic definition of inflation is too many dollars chasing too few goods, and if that is the case the continuing cutting of interest rates by the Federal Reserve is directly responsible for putting excess dollars out there via the multiplier mechanism where loans given out essentially create money that didn't exist before because not all of the loan money is backed up by assets.
The solution in the late '70s, engineering a recession by having the Federal Reserve forcefully take money out of the economy, isn't exactly the best thing to do. Maybe not cutting interest rates to almost zero would be a good start, especially since loose interest rates were a contributing factor to this, not just predatory lending.
Never mind the economy, we're all fucked anyways, all the time. What else is new. Try this breaking news, from the Huffington Post:
———————————–
Tonight I had an opportunity to ask Barack Obama a question that is on the minds of many Americans, yet rarely rises to the surface in the great ruckus of the 2008 presidential race — and that is whether an Obama administration would seek to prosecute officials of a former Bush administration on the revelations that they greenlighted torture, or for other potential crimes that took place in the White House.
Obama said that as president he would indeed ask his new Attorney General and his deputies to "immediately review the information that's already there" and determine if an inquiry is warranted — but he also tread carefully on the issue, in line with his reputation for seeking to bridge the partisan divide. He worried that such a probe could be spun as "a partisan witch hunt." However, he said that equation changes if there was willful criminality, because "nobody is above the law".
———————————–
Sounds promising, no?
Sorry to continue off topic, but if Obama were to win the election and pick John Edwards as AG, this country might just get the enema it so desperately needs. Perhaps Ted Rall as Fed chairman or Secretary of State?
Other things that we can do now, but probably won't:
Encourage employee ownership of businesses — that way it doesn't matter whether the owners or workers win.
Level the playing field with our trading partners — you can sell to us, when you treat your workers and the environment and your product safety at least as well as we do.
Put serious money into oil-independence, at all levels. If it reduces the need for oil, we'll pay you to do it. Insulation? Moving closer to work? Trading houses to shorten commutes? Telecommuting? Local rail? Whatever — open it right up. Go nuts on this one.
Universal health care, so that entrepreneurs aren't crushed into jobs solely by their health care needs.
Now, there is no absolute good; all these can be criticized. Better to do something than nothing, though, and better to do nothing than to do more of the same!
wfar (works_for_a_republican)
So true, so tragic. What's needed isn't just new technology or investment- it's a whole new ecoconomic system that doesn't even exist yet, new ways of looking at wealth.
The Recession will have to come, and it's coming hard. Do you know that oil's up to $113 / barrel? It'll probably have hit $114 by the time you read this, if not $115. These are completely new conditions, Westerners need to start working out how to pay their fuel bills – it'll probably involve solar power on a massive scale, changes to industry, the way goods are produced, the kinds of goods produced, food production… etc, etc, etc. The survivalists are talking about it as if it's the end of the world but all it really means is that we will have to live within our means again, more durable consumer goods and less power-thirsty ones along with domestic energy production (such as home solar power)
However as you say, the system is so hidebound it isn't likely to even try to change until it's too late 🙁
Change will be grass-roots, at least at first. I'm expecting power cuts like we had in the '70s myself. That should be interesting.
Keep up the blogging – even if you have to use a tiny laptop hooked up to a car battery. I'd hate for the Internet to die.
Perhaps a better comparison for today's economy is 1973-74. The fiscal and social costs of Vietnam were coming due and the price of oil went way up. Getting out of Vietnam proved to be a boon for the Federal budget and the pork continued to flow. Today, the price of oil is poised to stay high as we stay the course in Iraq. Our currency is at historic lows against even obscure currencies. For these two interrelated reasons, I think that high inflation's return may last for a minute or two.
"Victory in Iraq" (a registered trademark of the Haliburton Corp.) will go far to complete the "War on Terror" (yeah, another registered trademark). Until "Victory" is acheived America will spill blood and money to create a colonial dominion in the Cradle of Civilization.
The really scary part is when the president uses the Military Commissions Act or some other successor laws to jail large numbers of political dissidents like Mr. Rall.
Ted, the clarity of your thinking and the power of your writing is just staggering. Once again you've nailed it. Definitly a column I will be forwarding.
Just remember this, fellow citizens focusing on the price per gallon of gasoline. Bush has the codes for our nuclear weapons. He still has eight and a half months in the White House. If he has done pretty much what he damn well pleases the past seven years, what makes anyone think he won't decide to nuke Iran on his personal whim? Bush said he's the war President. We now know he meant it. Incompetent in all the things a President needs to be competent, Bush is competent in fucking up royally. Let's all give a round of applause to George H. W. and Barbara Bush, for being our First Parents-in-Denial since 2000. Now, let's all bend over and prepare to kiss our collective ass goodbye.
off topic but,
I tried to email you, but it bounced back saying you were over your mail quota…
I think we have no idea of what many, many people think of all this and I'm not sure all that many people know what they think or would go mad if they did not remain in a state of oblivion. There is nothing new or uniquely American about this.
Still, I think quite a few folks have a pretty good sense of how far off the track we are but very few of those have any sense that they need to organize and start educating themselves. Far too many still think that they will somehow escape or some savior is going to make it all better. (Let's all wait until the train crashes so we can all be saved.)
What I do not know is what kind of event it will take to cause some substantive movement to occur. 9/11 became the burning of the Reichstag for the Neoconservative. All the economic damage gets masked. I do not know if there are many actual economists left. Keynes was around for the Depression and had correctly predicted that the terms of the Treaty of Versaille would result in another war. A few that seem to know where things are going are seeing fewer and fewer moves available. Who wants to be "right" about these things.
It is not just the US, i.e., we are not the only nation-state playing monopoly with their peoples lives and future.
I wonder if the "system" is far less resistant to shattering than they think, i.e., if the bizarre interdependencies, many of which have nothing to do with any "real" except the tokens we call money. That seems to be how it works these days: They keep the numbers up and then they fall precipitiously once they can't hide it anymore (and stand around waying "Who knew?" or "I drank the koolaid."
Has there ever been a case where a people went sane? The actual problems are largely the result of fictions of one kind or another, i.e., not any particular lack or capability, except the ability to reorganize and make the kind adjustments Ted suggests. It is really pretty simple: If folks don't have cash to spend they don't spend it. If they don't have a way to contribute to the economy, they don't contribute to the economy. Prices, money, financial instruments and so on are all convenient fictions… things we made up to facilitate exchanges. Now they are simply instruments of control. It is deluded to think you can "control" the world this way but, as we see, it is quite possible to screw things up big time.
I'm way past wanting to hear any "reason" for this kind of behavior. I think the definition of madness is that reasons are not to be found.
Maximum wage is a fair idea.
But what you think about controlling inheritance rights?
Ted,
I agree with what you're trying to say by "nationalizing industries run by vampire capitalists–health insurers, private hospitals, colleges and universities". These organizations are often run by greedy and exploitive management who get rich to the detriment of their employees and the people the serve.
Most of these organizations, however, are non-profit. In practice, that just means that lavish perks for management and kickbacks for board members are factored into the cost of operation until no profit exists. A "vampire capitalist" raises prices and cuts expenses and then sucks away the profit. People in charge of a corrupt non-profit raise prices and cut business related expenses so there's more to waste on the upper echelons.
There may be little practical difference on a consumer level, but the economic principles at work are different. Inefficient and corrupt organizations exist in all economic systems. Atrributing this to capitalism is misleading.
Maximum wage? Would you deny hard-working hedge fund managers the right to support their families?
http://www.nytimes.com/2008/04/16/business/16wall.html
A good place to start is to identify the criteria you are using to make judgments, i.e., how do you decide that things are not going well? We seem to get fascinated by techniques and devices but never really state how we tell if we get the right outcome. Even phrases like "full employment" miss the mark by a wide margin. People need–really need–food, shelter, healthcare, and education.
Those are necessities. They don't need jobs. In fact, they can't show up to work unless those needs are met. Sure, sure… work is required to meet those needs but if there is anything we know how to do, it is what is required to organize and orchestrate what it takes to do what is necessary. Even socialists say, "If you don't work, you don't eat." I don't know anyone who really wants a job but, having raised a couple of human beings, I know that even very small children want to show that they too can be useful and helpful. Most folks I know will lend a hand if they can. Most people are generally cooperative. We create the Hobbesian nightmare. In fact, that was what Hobbes was trying to point out.
GDP numbers and stock prices tell you very little. Potholes in the streets, bridges in need of maintenance, high student/teacher ratios, lack of access to health care, burdening young people with debt so they can get the knowledge and skills necessary to carry their weight… these are the real indicators of how we are doing.
The economic ethos in America is "You have a chance to be rich." You can win the lottery literally or by the accident of birth. Bill Clinton claimed that proof of economic success was the number of millionaires created. This is worse than bs. It is sick and sickening.
Economic security requires incredible amounts of cooperation and an agreement that everyone's basic needs should be met efficiently and in a dignified way. What is the difference between a trust fund baby and a child who is supported by AFDC beyond the level of support? Both are being supported by society.
If anything has been proven about neoclassical economics, it is that it does not produce economic security and is highly unstable. Why? Because it tilts the table towards the ideal of being wealthy. A vast majority of folks buy into this myth and act accordingly. Woo! Hoo! We produce obscenely wealthy folks and declare victory.
We seem to be aiming for an economy that supports about 5% of the population and even most of that 5% is really what one might call middle class. They really are not all that secure and they know it. As a consequence, they mindlessly go about doing what is necessary to push the other 95% off the boat.
The first question you have to ask is, "What kind of world do I want to live in?" If the answer is, "I want a world where I can be rich," then you you have your wish.
I was watchin' my TV
with a quart of Old Milwaukee
catchin' up on all the murderers
when my telephone starts to ring
It turns out that it's the President tellin' me if he gets my vote
I will soon be wearing a mink coat cause he'll make all of us Americans rich as kings
well he had me hook line and sinker
even though it was just a recording
till the news showed guys on Wall Street try to fly without their jets
so I fed my German shepards, checked the canned goods in the basement and hoped the President's replacement has'nt tried to get my telephone number yet…
I am really enamored with the maximum wage concept. I thought that 20 to 1 was a good number but thats just details. I have never understood why CEOs felt entitled to huge bonuses while other employees were not worthy of a bonus of any kind. If a company does well everyone should be rewarded not just the execs.
Please, no more poetry, no more term papers. Please.
Keynsian economics might be able to save Global Capitalism as it did in the '30s, but if it doesn't…
Well, from the chaos of an economically devastated world a strong leader or vanguard party might emerge to restore order and put everything in their proper place.
I've already formed a Falange to be ready to help restore and keep order.
http://www.facebook.com/group.php?gid=14364996034
I'm amazed at people that sit around and wait for the government to fix what's wrong in their life. Capping a CEO's pay is not going to help you. Good Lord, if you don't like where you're at in life, go change it! God you libs claim to be so bright, and yet you sit around and wait for the POTUS to make your life better. Lemmings….
"I have never understood why CEOs felt entitled to huge bonuses while other employees were not worthy of a bonus of any kind. If a company does well everyone should be rewarded not just the execs." – Ken
I think it comes from capitalism's European predecessor Mercantilism. In that system the total wealth of the nation was property of the Crown, and everybody on the king's payroll was paid out of the royal treasury. Obviously a corporation isn't a kingdom (though many act like they are), but the same mentality of "the boss gets paid the most due to his position" still holds out of cultural inertia. I agree with you that most of these goobers don't deserve their outlandish wages.
– Strelnikov, who still wants the Bear Sterns leadership shot for their stupidity
One of the anonyma said: "Most of these organizations, however, are non-profit. In practice, that just means that lavish perks for management and kickbacks for board members are factored into the cost of operation until no profit exists. "
Don't forget political contributions! Some of these industries were privatized just for that reason: government agencies never put as much into Party coffers as does a good old "private" industry. It's especially rich if you have a very few large entities that can compete to outbid each other for virtual monopoly.
Of course, that wasn't the stated reason for privatization. We've been taught (as dogma, no evidence needed) that "government" is interchangeable with "inefficient." Conversely, it's dogma that a free market must be efficient.
A government that depends on bribes isn't going to let the market be free anyway, but they'll call it "free market" to get those industries out there competing to support the Party.
wfar (works_for_a_republican)
P.S. to 'privatization' rant: what if the Bushies can privatize the interstates, as they've threatened? What a gold mine of political contributions that would be!
wfar (works_for_a_republican)
the reason CEOs get those fat bonuses regardless of how well the companies do is simple and straight-forward… it's because they can. Upper management has been bought off like storm troopers, they were raised to believe in the merits and justness of the corporate structure, which is at its core a fascist hierarchy.
They are corporate fascists, and it's their right to plunder because that's what they are there fore.
"Say it isn't so" you might say? Why did MBA programs just figure out in the past 5 years that it might be a good idea to offer a course in ethics?
Ethics are secondary to milking as much money from your position as you possibly can, and then moving onto the next scam.
I bet someone is going to rip me for this comment.
God you libs claim to be so bright, and yet you sit around and wait for the POTUS to make your life better. Lemmings….
right on, edward. Couldn't agree more!
aggie is right again. The CEOs are practicing ultra-rational behavior. Unless the government converts the War on Terror to The War On Tapeworm Capitalism(TM), it is useless to blame the CEOs. The fact that their lobbyists are hanging out in Gucci Gulch, all but writing our economic policy for us is a story the media refuses to tell because they are a rational business too.
Yes, we actually need a crisis before we can expect change. That is the way Madison and Hamilton et al. wanted it.
McCain '08. He's our best chance.
angelo- just to clarify: do you want McCain '08 so he finally pushes the country over the edge?
Ted,
you sound so orwellian in that last remark. But in a very good way. Every reader here should read Why I Write if they have not>
just to clarify: do you want McCain '08 so he finally pushes the country over the edge?
I went to the Reagan Presidential library, dug up Reagan, drove him down the Ronald Reagan freeway and brought him to the Santa Suzanna Field Lab to awaken his corpse with strontium90.
He said:
"any of them will do, but McNasty will be the fastest."
"angelo- just to clarify: do you want McCain '08 so he finally pushes the country over the edge?"
– anon
Not to speak for the guy, but I'm guessing "yes." Unless he is a masochist, then it's all part of his sexuality.
– Strelnikov
Its nice to see someone else mention a national salary cap. I firmly believe that nobody NEEDS to bring home more than 1 million a year. All that surplus could eliminate any other form of taxation. But hey, socialism is evil right? Looking out for your fellow man, your countryman, your family… it's insideous in comparison to the compassionate capitalist who ignores suffering just because HE'S got it good.