I never liked the term "The Great Recession," because this is not an ordinary recession, not even a great one. It is a period of protracted deflation, where weak demand, declining incomes, and falling asset prices keep dragging the economy downward into a self-deepening sinkhole.
With the latest unemployment numbers, the evidence keeps accumulating that this will be a prolonged economic stagnation. The unemployment rate -- stuck around 9 percent -- is not as bad as that of the Great Depression, but in some respects the prognosis is equally grim.
We are already entering year four of the crisis, with a strong recovery nowhere in sight. Household income has declined by 10 percent since the recession began in 2007. GDP growth improved slightly, to 2.5 percent, in the third quarter, but only because households began borrowing more, and that can't continue for very long. Consumer income was actually down 1.7 percent.
If you compare our progress with the comparable period in the Great Depression, things actually looked more promising in the mid 1930s. By late 1933, on the fourth anniversary of the stock market crash, strong economic growth had resumed. The economy expanded by 11 percent in 1934, 9 percent in 1935, and 14 percent in 1936.
By contrast, optimists today hope the economy will somehow reach 3-percent growth. The Federal Reserve, once again, has just revised its growth forecasts downward to well under 3 percent, and expects unemployment still to be in excess of 8 percent in 2013.
By the end of year four of the Great Depression, the banking crisis was over. The 1933 Glass-Steagall Act, deposit insurance, and the Reconstruction Finance Corporation stabilized the financial system. Bank failures ceased -- while in the current crisis our banks are still a mess.
The Roosevelt administration dealt forthrightly with the housing crisis of that era, creating a Home Owners Loan Corporation that made direct loans to one homeowner in five, to keep people from losing their homes. In the current crisis, some 10 million homeowners are still on track to default, and the Obama administration keeps producing half-measures too feeble to solve the problem.
Four years into the Roosevelt administration, unemployment was still high, but Roosevelt was re-elected by a landslide in 1936 because things were improving and people felt he was on their side. It's anybody's guess who will win the White House in 2012.
A lot of pundits seem to think that the current crisis has no solution, and that we just have to get used to a prolonged period of slow growth, high unemployment, and general belt tightening. This is nonsense, but the remedies that might actually solve the crisis are mostly outside mainstream debate.
A real recovery program would be one part massive public investment -- partly financed by higher taxes on the wealthy, partly by deficits -- and one part a complete reconstruction of the financial system so that it returns to its role of servant of the real economy rather than master.
Neither party is proposing this, and proponents of a new political center are mainly promoting austerity.
The Republicans would drastically cut taxes, shrink public spending, and repeal regulations. All this, presumably, would liberate businesses to create more jobs.
However, taxes were cut several times under President Bush, but that didn't prevent the recession. Government revenues are already at their lowest share of the economy since the 1950s.
The financial collapse was caused mainly by the repeal of regulations that had contained the speculative tendencies of bankers. It's hard to see how more deregulation would promote entrepreneurship in an economy when consumers lack money to buy products.
Centrist groups like Third Way and No Labels decry the extreme partisanship and call for a new consensus to deal with the crisis. These and similar groups begin with a plea for budget discipline.
But austerity would not solve the economic crisis either. With unemployment high, consumer demand depressed, and businesses understandably hesitant to invest, more belt-tightening will only worsen conditions.
The Obama administration, for its part, has tried a blend of modest economic stimulus and a long-term path to budget balance. Obama's latest jobs program proposed a total of $447 billion over 10 years -- better than nothing but far from enough to produce a sustained recovery. Even if by some miracle Republicans were to relent, the stimulus is insufficient.
Obama's original Recovery Act, enacted back in February 2009 when the Democrats controlled both Houses of Congress, spent $775 billion over three years. But during the same three years, state and local governments cut about $460 billion. So the net government stimulus was barely $100 billion a year in a more than $14-trillion economy. Obama's own top advisers considered the sum inadequate.
In the Great Depression, it was the massive spending of World War II that finally cut unemployment to less than 2 percent and then powered the postwar recovery. The wartime deficits were astronomical -- nearly 30 percent of GDP in the last year of the war. But after the war, high growth paid down the debt, which was nearly twice the level of the current debt relative to GDP.
Nobody in mainstream American politics is proposing public outlays anywhere near this scale. So the likelihood is for continued economic deflation -- and deepening voter frustration.
Absent a more radical recovery program than anything on offer in mainstream politics, the chief executive elected in 2012, whether Obama or his Republican opponent, is likely to be the next Herbert Hoover, presiding over a prolonged economic slump with popularity to match.
Ours is a very resilient political system. But before America emerges from this combined economic and political crisis, it will take some new combination of mass reform movements at the grassroots and more effective leadership at the top than we've seen in a very long time.
Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril.
http://www.bellaonline.com/articles/art39058.asp
Obama should have let the Bush tax cuts expire.
The major difference between Roosevelt and Obama is Roosevelt bailed out the PEOPLE who were suffering the predation of the bankers, and Obama bailed out the bankers who are preying on the PEOPLE.
1. We are not in a deflationary period. By definition, in a deflationary period, prices decline faster than wages. It is the mirror of inflation, in which prices rise faster than wages. We are not in a deflationary period by any stretch. We are in a strongly INFLATIONARY period, during which costs are rising in absolute terms while wages are declining in absolute terms.
2. Your analysis of the Post WWII period is the same tired leftist gloss that has grown so stale this century. Get it right. WWII was a boom for one, and only one reason: WWII left every industrialized nation on the planet, excepting us, in smoking ruins. If the left wants a Post WWII style boom, they must accept the necessities of that desire. In other words, we will have to invade and destroy the industrial capacities of the BRIC nations. And, it would probably require another smiting of Germany. This, of course, is preposterous. The left should quit dangling the 1950's in front of the American proletariat. It's cruel and fails to serve even your purposes.
The conclusion is that the US market still rewards skills. What it is not so interested in is high cost, low skilled labor. It is no longer 1960...Capital has choices in terms of locations of production.
Why would any firm want unskilled or semi skilled labor for $50,000/year, plus benefits? Does that make any sense at all?
US labor is overpriced, and it is causing a shift in production. Hence, no real recovery for the remedially educated in the US.
At a micro level, if 'you' want to address this for your personal gain - acquire an education (state schools are still affordable), or invest overseas (if you have the $), and you can develop financial security.
At the macro level - the US is slightly screwed. There will be a continuous reduction in living standards for the next 20 years, at least.
High cost, low skilled labor is not an attractive option for Capital. And there's little the government can do about that.
What is coming in the next 17 trading days and concluding a perfect Lammert 21//52//(11/28/22/17) week fractal and 1982 34/85 quarter ::x/2.5x composite equity fractal is an unimaginable collapse of equity and commodity prices as the globe undergoes a connected sovereign debt default crises.
US long term interest rates will fall to historically 150 year low levels.
The macroeconomic debt-money-asset system is bounded. The system's asset valuation patterns operates in a quantitative patterned fashion that confer on the system the properties of a science.
30 years of bad debt leveraged accumulation will nonlinearly unravel. Derivative bets will exponentialize the nonlinearity.
Expect the unexpected.
"The unemployment rate -- stuck around 9 percent -- is not as bad as that of the Great Depression, but in some respects the prognosis is equally grim."
You are using a percentage that do not truly reflect the actual percentage of the unemployed. This percentage does not count those who have fallen off the unemployment rolls yet are still without a job. Nor do they reflect the numbers of those who did not qualify for unemployment for whatever reason and remain jobless. Taking those into consideration, you would find that the actual percentage would be closer to 20 to 25%. But even at 9% which you quote in your article, that is still nearly 30 million people.
The number of people on Foodstamps and other welfare has risen dramatically since 2007, which was the start of the banking debacle. This also points to a larger number of people jobless or working jobs that will not support a family. Minimum wage jobs that used to go to teenagers are being fought over by older people.
9% IS bad sir. It is VERY bad for those that are unemployed. Please do not make light of the situation as it is nothing to be dismissed as an inconvenience
"Many will ask for more of the same in the name of sheer ignorance and emotional convictions based on an ideology they do not master, to the benefit of a class to which they do not belong -- not even considering the ecological bind that will bring us all to the realization that a paradigm change is not only required but needed if the survival of all species is a desired and chosen outcome. To return to business as usual will lead to collective suicide, which Mother Nature will trigger in the not so distant future."
http://www.swans.com/library/art16/ga287.html
But that doesn't mean you have to let the banks run wild.
You could make a go of it by capping rates at 3% above whatever they pay for money from the Fed. Additionally, place a floor under interest paid on demand deposits at 2/3 the rate they charge for loans.
If the banks are getting money from the Fed at 0%, they couldn't charge more than 3% for loans, and they'd have to pay 2% for savings. There's plenty of profit there.
The biggest thing is to reinstate Glass–Steagall and prohibit banks from speculating with the customer's money.