What Does Recession Mean? It Means Economic Suffering

You must have noticed that a minor debate over semantics in the media since last Friday's devastating employment report. Lost were 80,000 jobs in March. The unemployment rate rose. Is it technically a recession? Does language matter?

What to remember about the silly debate over the nomenclature is that recession affects most of us. Here's the upshot, and I will repeat it: It is entirely possible that the median American wage in 2010 will be what it was in 1995 or 1996.

Recession means a general decline in the national income (GDP), which includes wages, salaries, profits, interest and rental income shrink.

It is always accompanied by a rise in unemployment. So what? So half a percent of the population loses their jobs, or maybe one percent or even two percent. That leaves 98 percent or so in good shape.

But focusing on unemployment rates confuses matters. It is only an indicator, not the sum and substance of all the pain in the economy. There will be more lost jobs, it will be hard to find new ones, especially jobs that pay the same as the ones lost. And nowadays, when people lose jobs it also means lost health insurance and pension benefits that are seldom regained.

Here's the gist of it. Even for those who retrain jobs, however, recession means salary cuts, no raises or skimpy raises, even as one's rent, college tuition or health bills remain the same or increase. Recession means falling profits for many if not MOST businesses. It means many more bankruptcies. It means dried up opportunities to start new business or launch new products. It means stalling innovation in general. It means reduced tax revenue for government.

What worries me most is that this recession has arrived after a recovery and expansion in which workers were left out. Average wages barely rose while profits soared and productivity increased. Family income is up only slightly and largely because the spouse is working. Now wages are going to fall even before they got a chance to rise. So workers are starting in a hole. They should be making five to ten percent more now than they did at the start of the decade. Average wages will probably bottom out around their level in themed-1990s.

Each recession is unhappy in similar ways and in its own way. This recession is being led by rapidly declining house prices, which is pretty unusual. Many will lose their houses, many more will be unable to refinance to meet rising mortgage costs or pay the bills, whether a new kitchen table or the child's college education. Then it spreads to jobs, wages, business profits, R&D, and so on.

Here are a few particular worries about this 2008 recession, even apart from the credit crisis. It is also unlikely that, when we pull out of the recession, jobs or wages will bounce back rapidly. The nature of recoveries seems to have changed. Job and wage recovery will be slow. So the worker relief will be postponed an especially long time. It is entirely possible that the median American wage in 2010 will be what it was in 1995 or 1996.

Then, of course, there is the credit crisis. No one knows where it will end because the vast web of risky and weakly collateralized loans is simply unknown. And consumers will not be able to borrow their way out of this recession, as they had in the past, because of low home values and hesitant banks.

Oh, yes, we're definitely in recession. The technical definition is that GDP, the nations' total income, declines for two consecutive calendar quarters. That, technically speaking, hasn't happened yet. But recession has a bigger and "badder" meaning then that. We are deep into one.

These concerns make warnings about inflation from people like the head of the Dallas Fed, Richard Fisher, almost laughable. There are inflationary issues, some of them the consequence of goods news. The lower dollar has energized American manufacturing by making exports cheaper. A lower dollar usually frightens the inflation warriors. The banking system seems to have calmed down since the Bear Stearns purchase.

So, yes, we may engender a little more inflation down the road, if we're lucky enough to recover quickly. The alternative is far more frightening. It would be nice to have a unidimensional view of the economy -- stanch inflation at all costs because it is the only variable that truly matters. It would also be wrong.

Meantime, Congress should get to work on that plan of Barney Frank's and Christopher Dodd's to undergird the bad mortgages. And it should prepare a second stimulus package as well, as Speaker Pelosi announced, but one with some long-term investment in infrastructure as well as unemployment insurance extensions.

If this recession is tamed, it will be because Congress and the Fed moved rapidly. Bush climbed aboard the house stimulus package, to his credit. But now he is dragging his feet.

Comments

[NJFAC]

The Congress should enact a 2nd economic stimulus package that goes much farther to assist unemployed workers and their families, assists strugging state governments, and reinvests in US infrastructure and public services.
Even when unemployment is relatively low, America has a huge chronic deficit of decent work.
In the short term, Congress must do more to directly assist unemployed and underemployed workers with unemployment compensation and food stamps, which are more likely to be spent immediately than tax rebates. It should also provide financial support for state and local government, whose tax receipts will decline precipitously with an economic downturn. Helping the states would help cushion the blow from the sagging economy, and bolster local spending by staving off harsh cuts in health care, education and social services.
But looking down the road, the stimulus package enacted by Congress should ideally link short-term actions to stop the economic pain to long-term policies that will restore infrastructure and services, and create hundreds of thousands of living wage jobs. The US faces a chronic deficit of investment in vital human and physical resources, including clean energy and conservation, roads, bridges, dams, drinking water systems, schools, health and child and elder care.
In "Shared Prosperity and the Drive for Decent Work," available at www.NJFAC.org, the National Jobs for All Coalition is proposing a comprehensive plan to address these unmet needs and create millions of living wage jobs.

[Ramirez]

From NRO:
****

Comparing Labor Market Data in 1996 and 2008

Democrats on the Economy in 1996:
“Our economy is the healthiest it has been in three decades.” (President Bill Clinton, State of the Union Address, January 23, 1996)

Democrats on the Economy in 2008:
“The bottom line is that this administration is the owner of the worst jobs record since Herbert Hoover." (Senator Charles Schumer, Press Release, March 7, 2008)

Key Labor Market Statistics in March 1996 and March 2008

1. U.S. Unemployment Rate:
Mar 1996 -- 5.5%
Mar 2008 --5.1%

2. Number of Long-Term Unemployed
Mar 1996 -- 1.33 million
Mar 2008 -- 1.28 million

3. Average Weeks Unemployed
Mar 1996-- 17.3 weeks
Mar 2008 -- 16.2 weeks

4. Median Weeks Unemployed
Mar 1996 -- 8.3 weeks
Mar 2008 -- 8.1 weeks

5. Not in Labor Force because discouraged over job prospects
Mar 1996-- 451,000
Mar 2008 --401,000

6. Democrats calling for Extended Unemployment Benefits?
Mar 1996 --No
Mar 2008 -- Yes

7. President’s Party Affiliation
Mar 1996 -- Democrat
Mar 2008 -- Republican

http://corner.nationalreview.com/post/?q=MDY5MzFmNTllNjlkM2U0YmQ3ODlhOGJkNDQ4M2U4ZjM=

[SonofLiberty1]

Does that mean early retirement?
Sheesh, I think we are in great need of another revolution.

Where's Robin Hood when you need him?

[cylindar]

This recession will not be tamed. It will eat Americans alive. Why? Because there are too many fat cats out there, too many soccer moms who thought they were entitled to drive huge SUV's to deliver their very small kids to sports events. I personally think that a recession is good for this country. It will level the playing field out, as it always does. When people lose their jobs and gas prices go up people start thinking about what went wrong and that it is time for a change. This is helpful and will almost certainly benefit the lower classes. I am all for people becoming more thoughtful about who they voted for in the last election and the results of their actions have been. Thus I am for more people losing their jobs and higher gasoline prices.

[jozap]

Main Street's resesion is due to inflation at this point.
Food and gas are what we buy everyday.

The next phase, taking Main Street deeper in, will be the inabilty to get a raise, a new job or a loan to buy a car.

After that things become a downward cycle, feeding on each other.

I see this time around as a 3 phase drop, at the least.

Maybe a new WPA program will help stem the tide.

[dadw5boys]

RECCESION FOR THE WEALTHY. What a joke. They caused it and now they have to postpone visiting their home in France a few weeks.
EXCUSE ME!!!!!!!!!!!

A recession for the wealthy is a MAJORY DEPRESSION for the majority in this country.
Espically the disabled on fixed incomes. Try being a disabled veteran with kids and taking care of your family. One mistake and our home is gone. Two mistakes and the family is gone. Try living at the pint of that gun.

RECESSION MY ASS!

[Shaddup]

Speaking as an exhausted worker, I don't think profits are going to soar, and I'm too exhausted for productivity to go up. Where's my cut?

[Aaror]

Here is the problem with inflation.
Say you get the same 3% raise you are used to. Inflation has made our exports cheap, so your job is safe. Then you take your wages to the store, and milk is $5. Oops, that's inflation, all the things you want to buy have gone up in price, by more than 3%, so your wage has effectively gone down. It is possible that inflation will do to wages what all the repubs couldn't, force us to the wage level of China.
Still, we spend a lot, on a lot of junk. Perhaps not having the money for the 14th pair of shoes or the latest gizmo advertised on late night TV would be a good thing. Maybe we should look at quality of living rather than cost of living. You know, make meals from scratch instead of eating out (saving hundreds of dollars), only owning enough clothing to fit in a standard closet instead of a walk in model, stuff like that.
We keep trying to buy more and more stuff, and stuff doesn't make you happy. You as a person are more than your job. Take time for your family instead of working extra hours for the promotion. Think about one spouse working part time so he/she can spend more time with the kids. Go camping, walking, hiking, biking. Play tennis, volleyball, catch. Run around your neighborhood and say hi to your neighbors instead of buying a gym membership.

[Herrington]

Americans have endured 8 years of recession already. Wages have not paced inflation. If broken out of the GDP, wages, as a percent of that total, have actually been dropping. So while the stock market has enjoyed some small measure of success, and even that has not beaten real inflation, and only appears to have because of CPI manipulations by the government.

It is time for economists to get real. To base an assessment of the health of the economy on a figure that combines two segments of the economy, investments versus wages, that are headed in different directions is to disregard the reality of what Americans are experiencing. We have not been creating jobs even strongly enough to match population growth and the real unemployment rate is double or better than the published unemployment rate. The CPI is being cooked to make the GDP look stronger than it is, and to give Americans the impression that the prices they see going up every day must not be really going up.

Ever try and find the list of items in the "market basket" on which the CPI is based? Its like a "need to know" secret. And it is that way so that the games they play with it, like calling a 40% increase in gas prices a 7% increase, will not be scrutinized by the public.

And Washington does not care because they think, hope, that you don't understand all this.

[maggiemae656]

The investors are making money because their companies are profiting at the expense of labor costs. Anyone who works for a living should be able to see this first hand. You can't bleed a turnip--companies have found that when the stockholders want more growth, there comes a point where the only option they have to work with is their labor expense. Sometimes I think investors forget there's a world beyond the passing back and forth of papers. There seems to be a communication gap between management and Wall Street/the government.

[Herrington]

Correct Maggiemae, cutting labor costs is the easiest and dumbest of all means to show profit increases. And to characterize it as growth, growth being the means by which securities are priced, completely overlooks the reality that a company cannot continue to grow by solely cutting labor paychecks. Simply, current valuations of stocks are basesless as the growth of the last decade is not sustainable.

What is really disturbing from the political aspect is that government has not realized the mega trend of cutting pay as a threat to the tax base and thus the actual security of these United States. Misery of the middle and lower classes may not be at the forefront of a CEO's thinking, but the decline of markets for his goods and security for his holdings should at least lead him to believe that screwing the working class is not a good overall plan.