Caption: This is what our economy looks like when it's viewed through the lens of idiot savant economics.Image credit: Found here.
According to my keyword list, this will be my 100th article on the economy. Fans of Stargate SG-1 may recognize the origin of the title. If you don't get that one, check out the picture.
Yes, this will be as gloomy as any post I've done on the economy, I'm sad to say.
So, how's that economy going? you might be wondering. A couple of articles may shed some light on that subject. The first article is by Calculated Risk, an economics blog that, like its title suggests, tries to figure out what economic risks are out there:
This morning, in the "Negative News Flow" post, I noted that the unemployment rate will probably start ticking up again soon.
Here are a few reasons why I think the unemployment rate will increase (some overlap):
1) The main reason is the general slowing economy. There is a general relationship between GDP and the unemployment rate (see Okun's Law), and since I expect a 2nd half slowdown (from a sluggish 1st half), I also expect few payroll jobs to be added in the 2nd half - and that suggests the unemployment rate will rise.
Why do I expect the unemployment rate to increase?
The article goes on to list four other things that will contribute to increased unemployment. This article concentrates on the most widely quoted unemployment rate, which is now at 9.5 % or thereabouts. What I call the "real" unemployment rate, the U-6, is now at 16.8 percent, and at least some of the reasons CR predicts the "official" rate to rise apply to it, also, particularly the one I quoted.
In short, right now one in six of us is either unemployed or underemployed. That number will increase soon, possibly to one in five. Why that number? Because when you subtract the effect of the census and the effect of the stimulus, you're at somewhere around nineteen percent. That, and the ripple effect, is going to get us to twenty percent before too long. Right now, I don't see anything in the way of that kind of number.
There's nothing I can see right now standing in the way of its going higher, either, but that should take longer.
Yet, as Robert Reich pointed out yesterday, the government continues to do next to nothing to deal with this situation. He outlines the current situation pretty well, and then gets to the point here:
The central problem is lack of demand — and that’s what has to be tackled.
Three of the four sources of demand have stopped working. (1) Consumers can’t and won’t buy because they’re still under a huge debt load, can’t get more credit, are afraid of losing their jobs (or already have), depend on two wage earners at least one of whom is working part-time and pulling in less, or have to save. (2) Businesses won’t invest and spend on creating more jobs if they don’t see consumers willing to buy more. (3) Exports are stalled because the dollar is so high they cost too much, much of the rest of the world is still struggling with recession, and American firms can make things for sale abroad more cheaply abroad.
That leaves only one remaining source of demand — government. We need a giant jobs program to hire people and put money in their pockets that they’ll spend and thereby create more jobs. Put ideology aside and recognize this fact. If it makes you more comfortable call it the National Defense Jobs Act. Call it the WPA. Call it Chopped Liver. Whatever, we have to get the great army of the unemployed and underemployed working again.
Forget a Double Dip. We’re Still in One Long Big Dipper
Nearly every economist who doesn't have his head up some oligarch's butt knows this is true. High unemployment creates lack of demand, and we have that. There's capital available, it's just not being lent out to businesses. That's at least partly due to Reich's point number 2 - businesses and banks know there's not much demand out there, so the businesses aren't expanding and the banks don't want to lend to businesses that may not have as much business as they need for a while.
And it's not all about ideology, either. Part of the trouble is that austerity is great for the rich, as I've pointed out before. At least, it is when government policy ensures that they don't suffer a loss, and that's what's happening now.
Reich's conclusion is correct - government is the only source of new demand in the near term, and if it doesn't get off its ass and do something soon, you can probably drop the "in the near term" part.
Before too long, we'll be calling this economic episode "Depression X-treme". Well, maybe not. Economists aren't completely without mercy.
UPDATE: Corrected my arithmetic on total unemployment. The effect of the stimulus bill on the unemployment was estimated to be about two percent, which will now largely disappear. That gets us to somewhere around nineteen percent, roughly.
5 comments:
You have greater faith than the mustard seed - in the veracity of those figures. Maybe for some the earned cynicism after years of propaganda and lies of being best or number one in this, that and all else, disallows swallowing even those figures. The likely U-6 you quote is about 22% or even as high as 27%. There was no double dip recession, the economy is in a great depression and those in political power are making every effort to hide that fact. The only effect of that stimulus of trillions was a temporary slowing of the decline that hardly lasted several months. What a bargain.
Had there been an actual economic model in existence and an accurate historical economic record from which to discern the historical position existing, one factor would be apparent, the monetary relief of the fortune 500 would directly effect less than 10% of the employed (IIRC those were the portion of the workforce employed by those large national firms in the late 60's early 70's, not much since indicates any greater employment percentage has happened, the opposite is indicated actually). Only small and medium sized companies employing 90% of wage earners would show any stimulated effect on the economy, and nothing has been done there at all. Further trillions to the great multinationals is money down a rat hole and should be resisted, with revolution if necessary.
At this stage, the actual economy will be going into a state of collapse, there is nothing economically structural to hold it up. The spiral of deflation has a firm grip of the economy and no economic theory presently in existence has any capability to address the situation. What the economic collapse of a super great power has no precedence in history outside Rome.
This collapse will bring down the house, economically, politically, socially. Those whose fortunes are based upon monopoly will loose it all, their fortunes are absolutely dependent upon maintaining the edifice at its greatest possible extent (but have chosen instead to see it destroyed for a short term gain).
May we live in interesting times!
There's been plenty of denial all around. I took the U-6 figure directly from July's BLS report, so that's what it is. Assuming the definition has been constant, it's a reasonably accurate reflection of relative unemployment over time. There are undoubtedly people who aren't considered unemployed who should be, but even in an economy where the U-6 was essentially zero, there'd be people out of work. Not everyone is "in the system".
I'll use it until something demonstrably more accurate comes along.
As for collapse, as I've said before, I hope we don't see that day. It might be bad for the rich, but it will be even worse for just about everyone else.
About the accuracy of governmental numbers (propaganda), Ilargi at The Automatic Earth has been writing about them for quite some time here: http://theautomaticearth.blogspot.com/2010/01/january-9-2010-drowning-by-numbers.html
scroll down to "The Lost Decade" by David Rosenberg and read the article, look at the charts, and consider the misleading propaganda from the governments BLS. At this point the BLS lacks any credibility but functions to divert public attention and prevent public panic. The only safe assumption that can be extracted is the BLS is economic with facts and has been for quite some time. Rosenberg has the U-6 at 17+% back in January 2010, nothing since indicates any improvement in those figures but the contrary (the basis of my remarks above).
As for collapse, with the decline in wages, household and property assets, spending, beginning decline in personal debts and general depression of economic activity, with no knowledgeable economic leadership and corruption stalking the halls of government, collapse or revolution are the only real options. Burry the head in the sand if that is what gives comfort, but it seems more rational to explore the possibility of collapse now, at leisure without pressure and have some ideas with which to work, rather than ignoring and in the chaos and press in the midst of collapse, to try to find ones bearings.
This collapse started with the collapse of the financial system, the most complex management of wealth system contrived. The probability now is the collapse will progress like the fall of a string on dominoes through most of the complex economic superstructures developed to meet economic needs, e.g. banking, transportation, energy, communications, etc. Some complex systems will survive but without support of surrounding systems will alter their forms for functioning. The Roman legal system survived the collapse of Rome, was adopted by others preserving its values and survives to this day in our very own legal system. The Roman Republic served as a model for our own. Collapse is not terminal unless the great weapons of war are unleashed, then all bets are off.
What is required to meet the needs of a collapse is the state of mind of a prince, to see clearly the necessities of power, its applications, its limits, and to set about providing the economic goals and directions that assure survival. Many answers are possible, some better than others, but the world of right/wrong, black/white, good/bad is a world that will not and cannot work.
Yours may be the way to go and this will end with that. All the best …
(I) About the accuracy of governmental numbers (propaganda), Ilargi at The Automatic Earth has been writing about them for quite some time here: http://theautomaticearth.blogspot.com/2010/01/january-9-2010-drowning-by-numbers.html
scroll down to "The Lost Decade" by David Rosenberg and read the article, look at the charts, and consider the misleading propaganda from the governments BLS. At this point the BLS lacks any credibility but functions to divert public attention and prevent public panic. The only assumption that can be extracted is the BLS is economic with facts and has been for quite some time. Rosenberg has the U-6 at 17+% back in January 2010, nothing since indicates any improvement in those figures but the contrary (the basis of my remarks above).
As for collapse, with the decline in wages, household and property assets, spending, beginning decline in personal debts and general depression of economic activity, with no knowledgeable economic leadership and corruption stalking the halls of government, collapse or revolution are the only real options. Burry the head in the sand if that is what gives comfort, but it seems more rational to explore the possibility of collapse now, at leisure without pressure and have some ideas with which to work, rather than ignoring and in the chaos and press in the midst of collapse, try to find ones bearings.
(Continued part (II)
(II)This collapse started with the collapse of the financial system, the most complex management of wealth system contrived. The probability now is the collapse will progress like the fall of a string on dominoes through most of the complex economic superstructures developed to meet economic needs, e.g. banking, transportation, energy, communications, etc. Some complex systems will survive but without support of surrounding systems will alter their forms for functioning. The Roman legal system survived the collapse of Rome, was adopted by others preserving its values and survives to this day in our very own legal system. The Roman Republic served as a model for our own. Collapse is not terminal unless the great weapons of war are unleashed, then all bets are off.
What is required to meet the needs of a collapse is the state of mind of a prince, to see clearly the necessities of power, its applications, its limits, and to set about providing the economic goals and directions that assure survival. Many answers are possible, some better than others, but the world of right/wrong, black/white, good/bad is a world that will not and cannot work.
Yours may be the way to go and this will end with that. All the best …
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