A Pew Research Center survey (summarized in the June 30th Washington Post) paints a pretty bleak picture of the impact of this long-standing (with many miles to go) “recession that looks more like a depression”: “Nearly half of the survey's respondents say they are in worse financial shape as a result of the downturn, which destroyed 20 percent of Americans' wealth.” I remember one comment from some inane observer: “Where did that money go; somebody’s has to have it?” I guess a “Dude, stuff is… like… worth less, you know, man” wasn’t enough of an explanation. Over sixty percent of us borrow less, maybe because no one will lend it to us, but more likely because either we don’t have it or we don’t believe enough in the future to believe we will still have it. 35% of those over 62 have elected to postpone retirement (what does “retirement” mean, again?), and 60% of workers between 51 and 62 think they will as well.
The Post lays it on: “Four in 10 adults say they have tapped savings and retirement accounts to make ends meet. Others have sought help from friends and family. Almost a quarter say they have borrowed money from someone. And one in 10 -- including 24 percent of workers from 18 to 29 years old -- say they moved back in with their parents to weather the economic storm… Hardest hit are the 9.7 percent of workers who have been out of a job for an average of nearly six months… ‘We're going to see much lower consumption going forward,’ said Dean Baker, co-director of the Center for Economic and Policy Research. He blames diminished spending on the drop in housing prices. ‘People who thought they had equity in their homes have seen it disappear,’ he said.”
So let’s see, if governments apply austerity programs, basically raising taxes and cutting their own spending, those governments are pretty much saying that they are not going to be the segment of the economy that will stimulate growth… indeed laying off government workers (and a few vendors along the way), spending less on infrastructure repair and development as well as other governmental programs and projects, while taking away money in the private sector by raising taxes may well produce the opposite effect: deflation and contraction. And if it isn’t the government that will restart the economy, who will?
The June 29th New York Times puts it pretty simply: “The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome… In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.”
Bottom line, it’s a bet. Obama thinks we need more in the way of government stimulus to let the nascent trends showing mild economic growth continue, fearing that excessive concern with budget deficits resulting in premature cutbacks will plunge this country into an extended drought. The stock market, reacting to the G-20 emphasis on austerity and controlling national budget deficits (the other side of the bet), seemed to agree with Obama. The markets plunged after the G-20 summit. Whatever the result, the individual choice of each nation on this issue will be a judgment call that could go either way. Treasury Secretary Tim Geithner called for a more balanced approach between austerity and stimulus, but by the time we find out which side was right, it may be too late to stop a bad trend from becoming worse.
Even some of those “attractive” employment gains we’ve seen recently were based on very temporary jobs, many relating to the U.S. Census. The July 2nd Washington Post tell us that analysts expect the next Labor Department report will show “that employers cut about 110,000 positions in June, reflecting the loss of about 240,000 temporary census jobs. Investors will be focused on hiring by businesses because that is a key factor needed to revive the economy.” The economy is anything but stable, and the underlying markets are anything but clearly optimistic. The unemployment percentage might be down (from 9.7% to 9.5%), but the number of workers looking who are unemployed is up as is the number workers who’ve just plain given up.
My personal belief is that we are in for a multi-year downturn that will leave permanent changes in our social structure, and unless we can find new industries and technologies to replace those which are clearly being left behind – which I think requires a strong emphasis on rebuilding America’s skills and learning – the polarization of haves versus have-nots will only increase and change the essence of America. I also believe that we are entrepreneurial and creative enough to find those new paths.
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