The Barriers to Recovery

Toyota Motor is destined to succeed a severely damaged General Motors as the number one car manufacturer on earth. Toyota’s plodding steadfast growth (averaging 3% a year for the past decade) has been continuous for seven decades. Their hybrids have set the standards, their executives not overpaid or over-perked, and their factories are global with many plants here in the United States. They are the automotive barometer of what’s possible in this industrial sector; and they have announced that even they are going to lose money in the current fiscal year, slow down production, suspend expansion and readjust their near term goals. That’s a first for this car company, not one that they would like to repeat.

With new car factories scheduled to come on line in Brazil, China and India, to name a few, it seems that there will be a monumental pause in this growth statistic. According to the December 23 New York Times: “Global vehicle production fell 16 percent in the fourth quarter, according to the firm IHS Global Insight. ‘The collapse is far sharper than anything previously expected or previously experienced,’ said George Magliano, the firm’s head of auto industry research for North America.” U.S. car sales in November were off more than 37% from the year before.

With projections of hard unemployment reaching 9% in 2009 (almost 17% if you look at people who have given up looking or only can get part-time work), adding in the reductions in overtime, bonus compensation and raises, taking into account the reduced work orders for self-employed contractors, this is hardly the time for most folks to go shopping for a car, no matter what the bargains and incentives might be. It’s a time where consumer confidence has become earnings and employment confidence.

For those at the bottom of the economic spectrum, poverty just dropped a notch to dire poverty. But as far as the U.S. economy goes, the big slam goes to the middle class. They’re the ones whose retirement accounts were crushed, whose homes plunged in value and whose jobs are being sacrificed as “contractions” or “layoffs.” Sure rich folks lost big bucks, but with enough big bucks still present in their “net worth portfolio,” most still have more than enough to sustain a luxurious lifestyle. There are a few exceptions, of course, and Bernie Madoff didn’t help, but the American middle class pain is where this managed depression has taken its greatest toll and where the solution to recovery definitely resides.

So anything that keeps people in jobs or creates new work when old employment ends is the focus. Tax cuts, when you’re not paying taxes, most certainly are not the solution. Regressive tax increases (sales tax, use taxes, etc.) kill jobs and presses for further economic collapse. Incentives to “buy green” can also help create jobs, save energy costs and boost sales figures. And stabilizing the housing market becomes one of the pillars of any recovery.

This is most certainly a global meltdown, but some nations can weather this better than others. India, for example, never let its banks engage in any form of lending in the subprime market, insisted that borrowers clearly be able to pay their debts, and generally practiced fiscal conservatism. Contrast that to Iceland’s over-borrowed growth strategy that completely tanked an entire nation.

This managed depression will go a long way to change the attitudes that got us into this mess in the first place. The theory that deregulation and laissez faire always work best has been shattered. The test is now what this new government, in conjunction with its international partners, is willing to do and can do to reverse dangerous trends that could expand this meltdown further. The people are scared and need genuine leadership willing to take prudent risks to lead us back from these depths. 2009 could be a very long, sad year, or it could just allow us to hit that bottom from which there is no place to go but up.

I’m Peter Dekom, and I approve this message.