A Recovery Only a Statistician Can Love

Numbers don’t lie, unless they do. What do you think about a “recovery” where wages are stagnant, unemployment remains high, borrowers (particularly commercial real estate) default, consumers don’t spend and home prices remain depressed? What am I missing here? That folks who have been on unemployment so long that they fall off the federal unemployment numbers (400,000 in July alone fell off the official tally!)?

That the stock market has soared based on new efficiencies brought on by layoffs and other cost-savings techniques without any increase in revenues? Welcome to Economics 2009-2010. Even with oil prices rising fast, the overall economy has contracted – prices have dropped, year-to-year, according to an August 14^th announcement by the Department of Commerce – 2.1%, the biggest decline since 1950. People just aren’t buying… bad news. But big, well-capitalized predators are cleaning up in this collapsed economy.

The financial institutions with inside information can find distressed debt that leads them to bargain stocks and real estate propositions, where a small assumption of debt can take over a huge equity base. When is our government going to require big, powerful investors to take on at least some portion of the debt structures they endorse onto their own books? Or should they simply punish the entire economy as they have in the unregulated past?

We’re talking about requiring banks to keep at least 15% of the mortgages they approve when they sell bundles of loans to third parties as they create tradable debt derivatives based on those loans. That way, banks and other lenders have to suffer when they lend bad money to worse borrowers. But why don’t we require private equity investors, who have traditionally placed 100% of the debt they borrow when they buy companies only on those acquired companies’ books (and not on their own books), to carry at least 15% of that debt on their own books? That would make their investments smarter, provide real value to the U.S. economy as a whole, and make them take some responsibility for their borrowings! Could it be because Goldman Sachs appears to be just one more cabinet appointment no matter who the President might be?!

The August 12^th Washington Post: “‘It's going to be a recovery only a statistician can love,’ Wells Fargo senior economist Mark Vitner said… A few recent pieces of data offered reasons for both hope and trepidation… The Labor Department reported [August 11^th] that business productivity jumped in the second quarter to a seasonally adjusted annual rate of 6.3 percent, far higher than the annual average of 2.6 percent from 2000 to 2008.

“Higher productivity helps raise living standards in the long run and is good for corporate profits because it allows companies to produce more without paying higher labor costs. But the boost in productivity was largely due to businesses slashing hours faster than output. Labor costs per unit fell, but so did the buying power of workers, further constraining already weak consumer spending, which accounts for 70 percent of the economy.”

But folks are working less, as a whole, than ever before. Nine million people are working part-time who want more. People who have been jobless for 27 or more weeks also hit a record of 5 million in July! If you are a human being living in the United States, we are deeply in a recession. It takes time after a huge economic contraction for normalcy to return. Even with lesser economic meltdowns. Like the recovery following the dot.com contraction in 2001. The Post: “Once it was officially over, it took 55 months before a greater share of Americans had jobs than when the recession ended, compared with 29 months after the 1990-91 recession and just seven months after the 1981-82 recession, according to an analysis of government data by University of California economist Brad DeLong.”

And here’s the simple truth. “‘Economists are using one concept of recession that is at total variance of how a normal human being thinks of it. A normal human being thinks of a recession as: You fell into a hole, and as long as you're in a hole, you're in a recession,’ said Lawrence Mishel, president of the Economic Policy Institute. ‘Economists think of [a recession's end] as . . . when the economy stops shrinking… We have excess capacity and high unemployment across the board…What we need is customers.’” The Post.

Make the bad man stop! At least make the bad man stop lying about our “recovery”!!!

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