(Diarist's Note: Some centrists and others supporting the Wall Street meme refer to this as "stabilizing.")
Deep Hole Economics
By PAUL KRUGMAN
New York Times
January 3, 2011
...Why do I need to point this out? Because I've noticed many people overreacting to recent good economic news. What particularly concerns me is the risk of self-denying optimism -- that is, I worry that policy makers will look at a few favorable economic indicators, decide that they no longer need to promote recovery, and take steps that send us sliding right back to the bottom...
Yes, you're going to find plenty of armchair pundits talking up the economy, again, just like they did in late 2009 and early 2010. (Remember, just a few months before the mid-terms, talk of our "Recovery Summer?")
Krugman continues in his column to point out something I've been blogging about for approximately three years...
...So, about that good news: various economic indicators, ranging from relatively good holiday sales to new claims for unemployment insurance (which have finally fallen below 400,000 a week), suggest that the great post-bubble retrenchment may finally be ending.
Hooray! But then again, not so much. Jobs, not G.D.P. numbers, are what matter to American families. And when you start from an unemployment rate of almost 10 percent, the arithmetic of job creation -- the amount of growth you need to get back to a tolerable jobs picture -- is daunting...
Bold type is diarist's emphasis.
Krugman notes that even with an astounding 4% annual growth in G.D.P., unemployment would still be at or near nine percent by the end of 2011; and around 8% by the end of 2012.
...Seriously, what we're looking at over the next few years, even with pretty good growth, are unemployment rates that not long ago would have been considered catastrophic -- because they are. Behind those dry statistics lies a vast landscape of suffering and broken dreams. And the arithmetic says that the suffering will continue as far as the eye can see.
So what can be done to accelerate this all-too-slow process of healing? A rational political system would long since have created a 21st-century version of the Works Progress Administration...
But, the Nobel Prize-winner gets quite pragmatic towards the end of his tome, today, and states: "...the best we can hope for from fiscal policy is that Washington doesn't actively undermine the recovery."
# # #
Now, Jim Quinn, a winger over at the Burning Platform, and someone whom I happen to think writes quite well -- even if I only agree with him about one percent of the time -- has an especially good post up over at Zero Hedge tonight, entitled: "Guest Post: 2011 - The Year Of Catch 22"
(As an aside, yes, I firmly support a long-term plan to alleviate our national debt [as long as it's on the backs of those that benefitted most from three decades of oligarchical, unbridled greed-gone-wild]. And, if I had to sum it up, I'd say that one of the biggest differences between those of us on the leftwing and the raging, status-quo-supporting fools on the rightwing is how we propose to tackle the problem. That being said, checkout Stiglitz' and Thoma's commentary below the Quinn quote, immediately ahead.)
Guest Post: 2011 - The Year Of Catch 22
The Burning Platform via Zero Hedge
January 2, 2011 6:35 PM
The United States and its leaders are stuck in their own Catch 22. They need the economy to improve in order to generate jobs, but the economy can only improve if people have jobs. They need the economy to recover in order to improve our deficit situation, but if the economy really recovers long term interest rates will increase, further depressing the housing market and increasing the interest expense burden for the US, therefore increasing the deficit. A recovering economy would result in more production and consumption, which would result in more oil consumption driving the price above $100 per barrel, therefore depressing the economy. Americans must save for their retirements as 10,000 Baby Boomers turn 65 every day, but if the savings rate goes back to 10%, the economy will collapse due to lack of consumption. Consumer expenditures account for 71% of GDP and need to revert back to 65% for the US to have a balanced sustainable economy, but a reduction in consumer spending will push the US back into recession, reducing tax revenues and increasing deficits. You can see why Catch 22 is the theme for 2011.
So, with U.S. economic inequality eclipsing an all-time record (since our government first started measuring this metric), unemployment still catastrophically high, housing still on a downward trajectory (surpassing the housing slump of the Great Depression), states and municipalities on the verge of economic collapse, and a consumer savings rate that--if it continues to increase--runs counter to our national economic need for short-term, increased demand, what do we do to get out of this "hole?"
Well, there's been talk of improving our nation's trade imbalance, but (much like Krugman and others have noted, in general) that's been pretty much confined to little more than "happy talk." And, if you doubt my dismissal of U.S. trade imbalances being rectified anytime soon, consider these two words: peak oil. Then, of course, there's this inconvenient reality on the matter, from just the past two hours, too: "Oil Rises Close to $92, Near 2-Year High." (So much for the U.S. "exporting-our-way-out-of-financial-hell" meme. Not gonna' happen anytime soon.)
Which brings me to the sane words from another Nobel Prize-winning economist, Joseph Stiglitz (h/t to University of Oregon economics professor Mark Thoma, over at his Economist's View blog)...from Project Syndicate:
...It has become fashionable among politicians to preach the virtues of pain and suffering, no doubt because those bearing the brunt of it are those with little voice - the poor and future generations. To get the economy going, some people will, in fact, have to bear some pain, but the increasingly skewed income distribution gives clear guidance to whom this should be: Approximately a quarter of all income in the US now goes to the top 1%, while most Americans' income is lower today than it was a dozen years ago. Simply put,... should innocent victims and those who gained nothing from fake prosperity really be made to pay even more? ...
Debt restructuring - writing down the debts of homeowners and, in some cases, governments - will be key. It will eventually happen. But delay is very costly - and largely unnecessary. Banks never wanted to admit to their bad loans, and now they don't want to recognize the losses, at least not until they can adequately recapitalize themselves through their trading profits and the large spread between their high lending rates and rock-bottom borrowing costs. ...
...So this is my hope for the New Year: we stop paying attention to the so-called financial wizards who got us into this mess - and who are now calling for austerity and delayed restructuring - and start using a little common sense. If there is pain to be borne, the brunt of it should be felt by those responsible for the crisis, and those who benefited most from the bubble that preceded it.
And, here's Thoma, putting it all together...
Reducing the deficit -- austerity -- is not the real goal of the Pain Caucus, it is only a means to an end. The real goal is to scale back government programs they oppose. If the Pain Caucus thought there was any chance at all that they'd be the ones who end up paying most of the costs of the policies they are calling for through, say, higher taxes, they never would have bothered to try to use the deficit as a means of scaling back government programs in the first place. That the austerity advocates have so little fear that their calls for deficit reduction might result in their having to share in the costs says a lot about the unequal distribution of political power.
Which brings me back to Krugman, and his thoughts today, which happen to run in tandem with winger Quinn's "Catch-22" commentary.
Krugman notes that, "There's even a significant chance that the Fed will raise interest rates later this year...Doing so in the face of high unemployment and minimal inflation would be crazy, but that doesn't mean it won't happen."
He concludes by wondering "aloud..."
So back to my original point: whatever the recent economic news, we're still near the bottom of a very deep hole. We can only hope that enough policy makers understand that point.
This morning we have the leftwing and the rightwing both saying (albeit somewhat indirectly) that, due to decades of mismanagement of our economy, "We're screwed!"
Echoing the centrist's mantra, that's what I'd call a "bipartisan consensus!"