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  •  I don't get this 'never, ever back to full" ?? (2+ / 0-)
    Recommended by:
    swellsman, Nulwee
    We will never, ever, get back to what we used to consider “full employment.”  A fairly large and permanent number of unemployed Americans may be the new normal;

    This makes no sense to me.  Unemployment was far greater during the great depression and went up and down many times since, with some of the best numbers being during the Clinton administration.  So it's clear that what we consider "total" employment has been reached many times with recessions and a depression mixed in.  That doesn't square with the idea that we will never ever get back to it.  We have and we could again.

    Or am I missing something here?

    Would we be so happy to have a military that dwarfs all others combined if it was a line item deduction on our paychecks next to FICA."

    by Back In Blue on Sun Oct 09, 2011 at 11:02:20 PM PDT

    •  I'm not exactly sure myself, but . . . (9+ / 0-)

      . . . I've got a coupla good ideas.

      First, the examples that the Reinharts were looking at were all post-WWII.  Looking to the Great Depression as evidence that we can eventually get back to "full" employment following a recession trigggered by a financial crisis doesn't really scan because - well - the world killed an awful lot of people in WWII.  World War II is what's called "a disjunctive event."

      When you kill an awful lot of people, you've got less people to find jobs for.  This is probably why the Reinharts restricted their study to events happening only after that bloody event.  Because - let's hope - we won't be seeing something like WWII again, so suggesting that we should come out of our current crisis the same way we came out of the Great Depression isn't, y'know, helpful.

      Second, remember that we are talking only about recessions caused by a financial crisis -- not one that results from the standard overheating of the business cycle, when the economy simply needs to cool down, exhaust its excess inventory, and then can heat back up again.

      Now, we've gone through some financial bubbles before.  But for 30 years we've been able to kick the can down the road and not pay a price for them by just getting ourselves into another and a bigger financial bubble.

      Reagan famously blew up the federal deficit (bigger than anyone ever could have imagined during peacetime), and pumping all that money into the economy was a kind of "government bubble."  A lot of it found its way into the S&L industry (a forerunner of today's real estate bubble) and that blew up, and that was bad and a lot of people got wiped out.

      But . . . it wasn't big enought to prevent blowing up a brand new bubble in the 90's -- the tech stock bubble.  That was great because as the value of the tech stocks went up they could be used as collateral to generate further credit, which meant (as a country) we could keep the party going.  Banks loaned even more money out secured by even shakier security, but that was okay because it allowed us to refinance the  hangover from the government bubble bursting at the end of the 80's.

      Of course . . . the tech stock bubble eventually burst, and so we needed to blow up yet another asset bubble.  This time Alan Greenspan kept interest rates on Gov't Bonds low in order to create cheaper credit and thus get us out of the 2001 recession, but this meant US  Bonds (safest in the world!) didn't provide a great rate of return.

      So large wealth funds looking for places to park their money turned to Wall Street, and Wall Street figured out how to monetize mortgages.  Once again, the increasing value (on paper) of the mortgages and, indirectly, of real estate meant that even more credit could be extended, this time using yet another bubble asset as collateral.  And this credit allowed us to retire and thus avoid the hangover of the tech stock bubble.

      But, of course, the real estate bubble eventually popped too and now . . . well, it doesn't appear that we have a new asset bubble to blow up.  Without a new asset bubble, we can't refinance all that debt.  Which means that instead of buying things or investing in new economic ventures, we're finally going to have to pay the price for 30 yrs of borrowing -- not us, personally, but us as a society.

      Which means that there will be no post-recession recovery, but just a long, slow slog where we're not getting worse.

      Now . . . how does this result in a permanently higher unemployment rate?

      Well . . . imagine that the economy isn't growing, or is barely growing at all, because of that debt overhang.  The fact the economy isn't growing doesn't mean the nation's population isn't.  The statistic I most commonly hear is that the U.S. needs to add about 150,000 new jobs a month just to keep unemployment steady, let alone reduce it.

      So you've got a growing population and a steady-state economy.  The economy might eventually grow enough just to encompass and incorporate the growing population (because in and of itself a bigger population increases demand), but that doesn't mean that it has much of a chance to do better and get the unemployment percentage back down to what was considered "full employment" before we got hung with all this debt.

      Like I said . . . I've not read Reinhart's research, just Ezra's article.  But I'd think it goes something like that.

      Politics is the neverending story we tell ourselves about who we are as a people.

      by swellsman on Sun Oct 09, 2011 at 11:46:01 PM PDT

      [ Parent ]

      •  What really drives me crazy about bubbles is (3+ / 0-)

        that we know they are bubbles when we are in them, yet we keep along as if we think that this time the bubble won't burst. What if we just, I don't know, didn't buy any more tulips and worked to move the economy to something with a sounder foundation?

        •  "This time is different" is (4+ / 0-)

          the groupthink that sets in when greed is winning the day.  

          Those that clearly see an economy heading for a cliff are not only ignored but denigrated as pessimists, naive, etc.

        •  People love inertia. (2+ / 0-)

          Sounds counter-intuitive to such a nation of productivity as the USA. :)    But, in reality, people are afraid, especially when it comes to money, to make changes when everyone else doesn't agree.  

          My wife conducts research on the relationships between people and money.  Basically, they're afraid to make a bold move like getting out of a bubble before it bursts and the financial industry takes advantage of that.  The movers and shakers who really do understand the markets see it coming and adjust accordingly while the rest of the retail investors take the hit like chumps.  Additionally, the average financial advisor has their own agenda, which is essentially keeping your money in their hands.  They don't want you to make big changes either unless it benefits them.    They also know that you're likely to keep your money with them for the same reason, even if they screw-up.

          Simple fact is that most people don't understand when to get out of a bubble and really don't want to for fear of missing out.  I go by the other Buffet rule. Only invest in what you know.  

          Would we be so happy to have a military that dwarfs all others combined if it was a line item deduction on our paychecks next to FICA."

          by Back In Blue on Mon Oct 10, 2011 at 12:53:49 PM PDT

          [ Parent ]

      •  Population growth (3+ / 0-)

        One thing we really do need to work on is population growth.

        A shrinking, aging population carries troubles of its own but we cannot continue to expand indefinitely.  At some point we have to try to conceive of an economic system that takes care of people but does not depend on endless expansion.

        We are the principled ones, remember? We don't get to use the black hats' tricks even when it would benefit us. Political Compass: -6.88, -6.41

        by bmcphail on Mon Oct 10, 2011 at 09:23:50 AM PDT

        [ Parent ]

      •  What really needs to happen is to adjust (1+ / 0-)
        Recommended by:
        Killer of Sacred Cows

        the structure of the workforce. People now do double-duty or job and a half duty. Think how many people could be employed if jobs were less concentrated.

        And pay ... compensation seems to have no basis in value of work ... it's just based on what you can get. Finding a way to compensate people based on actual contribution or on some rational basis ...

        Help us to save free conscience from the paw Of hireling wolves whose gospel is their maw. ~John Donne

        by ohiolibrarian on Mon Oct 10, 2011 at 10:22:42 AM PDT

        [ Parent ]

    •  Well that is easy to understand (2+ / 0-)
      Recommended by:
      Killer of Sacred Cows, EthrDemon

      If you look at what possible scenario would lead to full employment--assuming something very much like the system we live under. There is no such scenario even theoretically possible. First of all Globalization has radically changed everything as it has now come to be stable and the way we do business. This will never change, barring major disaster. The system is in place and it is locked. Low skilled professions will go to the cheapest labor pool. This keeps profits high and wages low. This has been going on for awhile and will only increase in the future.

      Where are the jobs going to come from? Nowhere unless the U.S. suddenly embraces socialism which is about as likely as me winning a one-on-one contest with Lebron James.

      •  Then we need to pass and ENFORCE laws (0+ / 0-)

        that say you may not outsource labor and you may not keep more than a certain percentage of profits, say 5-8% - the rest has to be reinvested in your company in terms of jobs and benefits for WORKERS. America still has too big a consumer pool for companies to ignore. Some of them may pull up stakes and leave, but the rest will toe the line.

        Add to this a law making it illegal for any CEO or high-level exec to make more than 30 times their lowest-paid worker, and I'll bet you outsourcing will vanish like a fart in the wind. (And the fine should be twice whatever the difference is between 30 times the lowest-paid worker's pay and whatever the CEO got.)

        Calling it "Playing Devil's Advocate" still doesn't excuse defense of evil beliefs, opinions, and actions.

        by Killer of Sacred Cows on Mon Oct 10, 2011 at 01:34:37 PM PDT

        [ Parent ]

        •  That might be possible in some game-scenario (0+ / 0-)

          but in the real world tough guys don't give up their treasure--you have to kill them first, usually. Occasionally one of them gets religion or meets a Zen Master and changes but as a class the oligarchs are not going to surrender what they've gotten and they are in a position to enforce their will whenever they want to. There is no scenario that I see that is going to change the balance of power significantly.

          We're stuck with the system as it is. We need to accept that and build something new within it--fortunately there's still room, there are many cracks and we need to work it not dream about scenarios that are impossible. Mind you, you are right and I sympathize and your solutions are rational but the game is about muscle not reason.

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