In what may very well turn out to be
the MSM piece which gets my vote for most important article of the month on our economy, despite its self-evident brevity and simplicity of purpose (to provide diverse points of view about the
NBER's announcement over the past 24 hours that
our economy officially began its recovery in June 2009), the NY Times asked six esteemed economists and economic pundits, today (Tuesday), in its "Room For Debate" (Discussion): "
Is This What A Recovery Feels Like?"
IMHO, what makes today's "discussion" so noteworthy is that the NYT asked these economic gurus (a group with points of view that span virtually the entire political and economic spectrum) the same question and their answers were, while nuanced and certainly not identical, nonetheless, remarkably similar. Judge for yourself. Here are the summaries of their six essays...
# # #
YVES SMITH:
"Get Used To Lower Living Standards"
September 20, 2010, 08:03 PM
Yves Smith writes the blog Naked Capitalism. She is the head of Aurora Advisors, a management consulting firm, and the author of "Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism."
Most Americans probably find it hard to believe that statisticians have deemed the U.S. economy to be out of recession. Unemployment and underemployment are stubbornly stuck at the highest level since the Great Depression. Capacity utilization is under 75 percent, well below pre-crisis levels. There is still a large overhang of houses in foreclosure and serious delinquency, meaning that the housing market has yet to bottom.
The ugly fact is that serious financial crises take a very long time to resolve and result in a permanent fall in the standard of living. Past historical patterns confirm the slow job creation rate: it will be many years before the excesses of the credit bubble work their way through. That means the best we can hope for, absent aggressive government action, is an economy that bumps along at a low level of what is technically growth, but is very far from what most businessmen and consumers would consider healthy.
--SNIP--
And while public officials keep trying to bolster confidence, to the average person, it looks like a game of confidence.
Smith points out that "...the odds of a further bout of contraction are high."
Bolstering her sentiments, she cites...
-- the Institute for Supply Management, whose manufacturing survey points to a further slowdown
-- the E.C.R.I. index has been hovering immediately above and below levels that have successfully predicted previous recessions
-- consumer confidence is falling
-- and confidence surveys of small business, CFO's, and home builders are all announcing abysmal promise for the immediate future
-- on the global front...
- bonds spreads in Europe are at their highest levels in many months, and indicating that numerous sovereign states are, once again, at serious risk of default
- tensions with China over its failure to properly valuate its currency indicate future "trade retaliation"
# # #
JEFFREY FRANKEL:
"A Better Picture Than 2009"
September 20, 2010, 08:26 PM
(Jeffrey Frankel is a professor at Harvard University's Kennedy School of Government, and a member of the National Bureau of Economic Research Business Cycle Dating Committee, which officially declares recessions. He served on President Clinton's Council of Economic Advisers from 1996 to 1999.)
...On the one hand, people say "Who needs the N.B.E.R. to tell us what we already knew?" It is true that gross domestic product has been expanding for five quarters now, and that most economists had therefore long since decided that the recession ended last year. But it takes time before it is possible to call the precise trough in a definitive way, for several reasons: different indicators say different things regarding the precise date of the bottom, data get revised, and we could not have been confident until now that a hypothetical new downturn would count as a second recession instead of a continuation of the first one.
On the other hand, people say "It doesn't feel like the recession is over to me or to people I know. How can the N.B.E.R. be so out of touch?" The main answer here is as follows: The proposition that the recession is over is only a statement that things are no longer getting worse; it is not a statement that we are back to good times.
-- He continues on to note that: "The economy still feels bad for good reason: it is bad." He talks of the jobless rate still being very high; but, he reminds us that "things" (I guess that's a new NBER technical term) are better than they were in the first half of 2009; and, it will take a long time for our economy to dig itself out of its hole. He does state that: "... the current pace of the expansion is disappointingly slow, especially with respect to jobs. But G.D.P. and employment are, at least, rising..."
-- Frankel says he's concerned about a new downturn because our federal government "...has been unable to deliver a sensible fiscal response (which would consist of some more stimulus as in February 2009...)"
-- he's "optimistic", but he simultaneously says, "...More likely, we will have a continuation of the current (inadequate) recovery..."
This is from one of the more "optimistic" members of the NBER. (Yikes!)
# # #
MIKE KONCZAL:
"The Uncounted Unemployed"
September 20, 2010, 08:26 PM
(Mike Konczal is a fellow with the Roosevelt Institute. He was formerly a financial engineer and mathematical analyst.)
...Recovery in output, which is the technical definition of a recession, is very different than recovery in the labor market.
The labor market is very fragile. There has been a huge spike in the amount of workers who have dropped out of the labor force entirely. There is a record high percentage of people working part time involuntarily because of slack business conditions and a lack of demand. Small businesses' largest complaint is a lack of sales and customers. And foreclosures remain near peak levels, reflecting continued weaknesses in both the housing market and employment. All of this points to an uncertain recovery.
The country faces structural problems that have not gone away with the recession's end and still require a government response. The housing crisis needs solutions focused on principal reduction, lien-stripping in bankruptcy courts and short-sales to seriously tackle the problem...
As I noted in my post, early Monday morning, "Konczal Study: Lack of Demand, Not Skills, Is Jobless Problem." But, in today's NYT, Konczal does tell us that...
-- those who've dropped out of the job market will need some retraining and actual access to real jobs, or they risk becoming even more detached from the workplace than they are now
-- like virtually every other pundit mentioned in today's Times, he advocates for more monetary stimulus for Main Street, along with fiscal policy to boost demand (consumption)
-- we need to "adjust our expectations" with regard to our government, but our government needs to fill the current gap in demand, as well
-- a legal solution must be found to break the mounting wave of residential foreclosures
-- and we should address the jobless situation head-on, while we stop trying to fix our "broken status quo"
Lastly, he's provided us with an outstanding graphic (definitely check it out, IMHO) which addresses the millions of us currently walking away far too early from the job marketplace...
CHART: Dropping Out Of The Labor Force
# # #
TYLER COWAN:
"Not a True Recovery at All"
September 20, 2010, 08:35 PM
(Tyler Cowen is a professor of economics at George Mason University. His blog, Marginal Revolution, covers economic affairs.)
I see it as premature to conclude that the bottoming out is over, even if the formal conditions for the "end of the recession" have been satisfied. I see a few major problems:
--SNIP--
1 . The private mortgage market is far from self-sustaining and government-sponsored enterprises are still required to keep the mortgage market going. The lack of private sector interest suggests that capital markets still expect real estate prices to fall. Our government is propping those prices up, in part because further falls might necessitate an additional bailout of the banks. It's not obvious that our economy will see a smooth landing here.
2 . Economies are generally slow to pull themselves out of "deleveraging" recessions. It can take 10 years or more, and we are only a few years into this process. As long as the deleveraging is going on, is very hard for government to stimulate the economy successfully.
3 . Many countries, including the United States, are making plans on the basis that China will continue to grow robustly and that the European Monetary Union will hold together. In reality, China has had 30 years of rapid growth; historically, developing countries tend to have periodic booms and busts and so China is overdue for a slowdown. The country also has a real estate bubble and lots of excess capacity. A partial break-up of the eurozone would bring considerable economic and financial volatility, with potential fallout for the United States...
Elsewhere in his post, Cowan uses a word many of the other five, quoted economists and pundits use in their commentary: "uncertainty." He also notes that none of these problems are behind us, and that's why the recovery has been so "unspectacular."
He continues on to note: "In part it looks like a recovery only because things were, for a while, so extremely bad. I don't yet think of us as being in a true recovery mode at all." In the meantime, he warns folks not to go around parroting too much happy news about what we've seen to date.
# # #
ARNOLD KLING:
"A Misleading Report"
September 20, 2010, 08:35 PM
(Arnold Kling is an adjunct scholar with the Cato Institute and a member of the Financial Markets Working Group of the Mercatus Center at George Mason University. He is the author of "Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy." He writes for Econlog.)
I disagree with the recession-dating decision. Employment declined by nearly one million workers in the four months after the supposed end of the recession. Even now, it is not clear that a recovery has started. To say that the recession ended 15 months ago is to tell a misleading story.
--SNIP--
We're in the middle of three separate crises, none of which has been resolved...
Kling continues on to provide detail on his "three crises..."
1.) "...the failure of the securitization model in finance, is being papered over. Washington and Wall Street are trying to return to this failed model, which can only survive on the basis of subsidies provided by the Fed, Freddie Mac and Fannie Mae..."
2.) he talks of "...a crisis of political legitimacy," and of the "irreconcilables" in both parties. For the Republicans it's the Tea Party, and as far as Democrats are concerned, he mentions "...the Democratic wing of the Democratic Party..." (Heh!)
3.) He also discusses the "impending" U.S. sovereign debt crisis.
# # #
MEGAN McARDLE:
"A Long Time Away From 'Normal'"
September 20, 2010, 08:35 PM
(Megan McArdle is the business and economics editor for The Atlantic.)
...for many Americans, the recession doesn't feel like a thing of the past; it is very much a clear and present danger. Unemployment is the most punishing aspect of a recession in a modern economy, and it tends to be a lagging indicator.
--SNIP--
But this is not the only lingering trial of the recent recession.
Demand remains weak across many sectors; credit is harder to get; and housing, which represents the largest asset for most Americans, is still well below its peak. The dislocation caused by these problems leaves many Americans feeling extremely poor.
Nor can we be sure that we have seen the last of the recession. During the Great Depression, the economy recovered between 1933 and 1937, only to plunge again as the fiscal and monetary stimulus which had sustained growth finally had to be withdrawn.
The fact is that recessions driven by financial crises seem to be especially deep and painful. The government can alleviate the worst of the pain, but it cannot bring back the sense of confidence about the future that reigns during more normal economic periods. Only time can heal this wound, and if history is any guide, it may take a big dose of time to get us feeling "normal" again.
Ms. McArdle focuses upon the reality that the current Great Recession has delivered "...much higher structural unemployment than the cyclical downturns of the past -- workers who need to find new industries, or learn new skills, because the niches they used to fill have gone away."
# # #
So, there you have it. Six supposedly (vastly) different points of view on our economy (from Arnold Kling at the very rightwing Cato Institute straight through to some well-known "lefties," such as Mike Konczal and Yves Smith, and everyone else in-between). And, that is precisely why I think this set of essays is so noteworthy.
Is it just me, or are they all pretty much telling us the same thing?
Let me know your thoughts on my observations...