Thursday, February 9, 2012

Progressive Idiocy: All Economics Is Local

Two updates at the end of the article (4:20 PM PST).

Caption: When it comes to economics, these are the bumpy lines that really matter to most of us. That red one is unemployment for the current depression, which far exceeds all other economic downturns of the last fifty years in both magnitude and duration. In short, many more of us have been unemployed for far longer.

Lots of us know that already, with or without a chart.

Image credit: Calculated Risk

There's a fundamental difference between how economics professors view the economy and the way the rest of us do. Let me illustrate that assertion with a recent quote by Paul Krugman:
But there are reasons to think that we’re finally on the (slow) road to better times. And we wouldn’t be on that road if Mr. Obama had given in to Republican demands that he slash spending, or the Federal Reserve had given in to Republican demands that it tighten money.

Why am I letting a bit of optimism break through the clouds? Recent economic data have been a bit better, but we’ve already had several false dawns on that front. More important, there’s evidence that the two great problems at the root of our slump — the housing bust and excessive private debt — are finally easing.
But the bubble began deflating almost six years ago; house prices are back to 2003 levels. And after a protracted slump in housing starts, America now looks seriously underprovided with houses, at least by historical standards.

Is Our Economy Healing?
I have little doubt that the home real estate market is showing some improvement. I'd guess that this means the housing bust has bottomed out, and people are at least buying or renting houses to replace the ones they lost to foreclosure. That's a good thing. It's no doubt also a good thing that private debt is decreasing. Unfortunately, there are at least a few signs the economy isn't going well, too. Bulk shipping is down. Orders are down. On the plus side, hiring is up a bit. It's not looking all that cheery yet, even if all you do is look at the bumpy lines and try to figure out what they mean.

Of course, there are some other things to worry about on the macroeconomic front. Every day, it seems, Europe finds another way to trip over its financial shoelaces. Partly due to the incompetence and corruption of Greek and Irish governments, and partly due to the greed and fecklessness of the people who run the world's financial institutions, not to mention the politicians who are enabling them, the European Union looks to be on the verge of financial meltdown. If that happens, they'll take our "recovery" with them.

To Prof. Krugman's credit, he's written more recent columns that amply demonstrate that we're nowhere near being out of the woods yet. He's a real economist, and as new information comes in, he thinks about it and revises or elaborates his opinions.

When you get right down to it, though, that red line in the chart at the top of this article is the bumpy line that really matters. We've been suffering the effects of this depression for quite some time, and out here in the real world, most of us know it.

I coined the term idiot savant economics as a way of describing how I look at the economy based on my own experiences. Of course, everyone's experience differs, but the important point here is who is having the most common experiences. When I walk or drive around my city, I see signs like this on lots of largely empty office buildings:

Image credit: Cujo359

I took that photo two years ago. The building was largely empty then, and had been for some time. It's relatively new, so it probably never had lots of tenants. It was still pretty empty the last time I passed it, a few months ago. There are lots of such office buildings in Federal Way, buildings that are partly to largely empty. There are no factories here, so offices are where many folks make their livings, and there are rather a lot of empty ones.

Retail space is another indicator, and there are lots of these signs in the strip malls and retail spaces of my town:

Image credit: Cujo359

That particular store was photographed early last year. It had been empty for at least a year before that, and except for a couple of months when a seasonal store rented it out, it's been empty ever since. That particular mini-mall has a lot of empty store space in it, maybe a third, all of it empty for at least that long. There are lots more empty spaces just like it. In fact, see that Blockbuster sign reflected in the window? It closed down a few months later.

Retail's a tough business. Even in good times, lots of stores go under due to mismanagement or just being on the wrong end of a buying trend. It's also true that Federal Way is a bit overbuilt. The population was growing here more than some places, and when the economy started to go south, there were a lot of retail spaces under construction. But these spaces remaining empty is another indication that things aren't getting better around here.

That's the important point in all this - most of us don't look at those bumpy charts to try to figure out how the economy is going. We're all idiot savant economists. We know how our economies are going, and when you add up all those personal assessments, you have a sort of joint assessment of how things are doing at the moment. I don't know all that much about how things are going in Atlanta or Detroit, but people there know pretty well. If their experience is something like mine, they're not too happy with the economy right now, either.

And that may not be what the bumpy lines are telling the economists.

Things have been bad for a long time. What's worse, if the economy does get going again, it will be the most recently fired who are the first rehired somewhere. Anyone who has been out of work for a long time, and anyone who is under 25 or over 50, will have to wait a lot longer. (see UPDATE 2)

Which leads us to the other important point here. All those progressive pundits who think the recent jobs report and a slight uptick in some other economic trends means that President Obama is a shoe-in for reelection are morons. Just on the level of how things look right now, there should be very few people changing their minds about how the economy is going. Maybe, given half a year of solid growth, things will look better in the eyes of enough Americans to matter. Or maybe there won't be enough growth to make a noticeable difference.

Unfortunately, the economy's performance is about all that Obama has to go on. There haven't been any fireside chats. We haven't seen our unemployed friends working in Civilian Conservation Corps projects, nor have we seen new safety net programs enacted. All we hear from Obama on the latter front is how much he needs to screw us out of our current benefits to help his supporters in the finance industry. That is, of course, when he's not calling us whiners for expecting him to actually accomplish something useful.

Image credit: Art by Shepard Fairey

There's a word that describes what's needed right now: Hope. Yep, that word. Irony abounds in American politics, doesn't it? If people have reason to hope that the economy will improve, Obama's chances are much better. In many parts of this country, that's going to take continued growth, thanks to our government's general commitment to inaction on the economy. There's really nothing else to inspire hope right now.

As our collective impression of the economy goes, so goes Obama's chance for reelection. Genuine hope, or real improvement, would definitely help that impression.

I wouldn't want to be David Axelrod the day after Greece leaves the EU.

I wrote all this at the beginning of 2010, by way of warning the Democrats that if they didn't do something soon to inspire hope that things would be better soon, they'd lose big at the polls. People who wrote what I did were routinely called alarmists, whiners, and so on. Yet somehow the Democrats got their asses handed to them anyway. Did that teach the folks who called us alarmists anything? Apparently not.

As I wrote at the time, stupid dies hard in DC. That's another thing that hasn't changed for the better in the last few years.

If I were a progressive pundit, instead of just playing one on the Internet, I'd be telling people what Krugman told them here, which is that this is no time for our "leaders" to be thinking about what their next Stupid Austerity Trick (tm) will be. It's time for the President and any other Democratic politician who wants his job in DC to make sure that we are feeling like they're on our side, and that they make sure that any and all useful stimulus they can apply to the economy is applied. It's time for him to change course and protect women's rights for once in his political career. It's time, in short, to remember who got him where he is.

Sadly for the President, given the chorus of sycophants and morons he's surrounded himself with, he isn't likely to listen.

UPDATE: In a blog post Tuesday, economist Dean Baker wrote this about the change in the unemployment rate since Obama took office:
[A]lmost two-thirds of the drop in the unemployment rate has been due to people dropping out of the workforce (and therefore not being counted as unemployed), not people getting jobs. Measured in terms of employment, the economy has improved very little from its trough, therefore it is not surprising that less-educated workers, like more educated workers, are still having difficulty finding jobs.

The Post Is Confused About Unemployment
Which, in one way or another, is something I've been writing around here for quite some time. The long term unemployment problem is not going away. Until it does, there is a very real drag on our economy, and until the economy starts growing a lot faster than it is now, no sane economist would expect that problem to go away.

UPDATE 2: Let's conduct a little thought experiment. Assume that last week's report on employment is the norm for the next few years. That's quite an assumption, by the way, given it is easily the best report we've seen since 2008. Using Dean Baker's assumption that we need to add 90,000 jobs each month just to keep up with increased population (which is the most conservative figure I am aware of), that means that we had a net increase of 150,000 jobs among those who were unemployed previously. There are roughly 1012.9 million people unemployed right now, according to the Bureau of Labor Statistics (BLS).

Here's your reading algebra problem: At that rate, how long will it take for all 10 million of the unemployed to find jobs?

The answer, of course, is about 6786 months, just a little more than eight years. That's assuming a very optimistic scenario. Now, imagine that you're fifty years old. How long will it be before you find work? I'm betting at least four years. A similar case could be made for someone who is twenty. In the old guy's case, that means four prime work years of idleness, or trying to get by in some other way. For the youngster, it means the time he spends learning how to work for a real enterprise will be instead spent doing whatever is available, assuming he's lucky enough to find jobs. Or, he'll live with his parents.

Neither case is a hopeful one, but that's what this economy means for a lot of people.

UPDATE 3: Fixed the numbers in UPDATE 2 to reflect this table, which states the unemployment numbers far more clearly than the report itself. That correction adds about two and a half years to the time it will take to employ all of the currently unemployed.

Of course, it's not unreasonable to assume that the really long-term unemployed are undercounted anyway.


Expat said...

You can do lots of apparent good when you feck with the numbers, denominators are especially handy. The great fall in unemployment so grandly announced happened because one million, two hundred thousand people disappeared from the unemployment rolls - pooft, they're gone, don't eat, don't buy, don't pay taxes, don't save for a rainy day. The spokesperson looks good, the administration looks like they are doing something, and everyone is happy with the lie, lies feel soooo good, no-one is willing to give up their lies. Here come the Emperor, got himself a new suit of the most splendid clothes so its reported, look how splendid they are and they look like they weigh nothing at all …

Cujo359 said...

Dean Baker estimates that roughly two-thirds of the drop in unemployment is due to folks being dropped from the labor pool. So, yes, most of the drop is illusory. I suspect that even among those now counted as employed, many are underemployed relative to what they really need.

Another disconcerting trend is that the unemployed are becoming more predominately long-term unemployed. There is a danger that they will become yet more marginalized.

When you add in that we need about 1 million to 1.2 million jobs each year just to stay even with population growth, it's pretty clear that we are just barely treading water, and that my estimates in UPDATE 2 of this article are wildly optimistic. Even that wild optimism, though, has some sobering implications.