Depressing Thoughts

Robert Samuelson writing in the October 5^th Washington Post: “Depression is a term of art. It's more than a serious economic downturn. What distinguishes a depression from a harsh recession is paralyzing fear of the unknown -- so great that it causes consumers, businesses and investors to retreat and panic. They hoard cash and desperately curtail spending. They sell stocks and other assets. A devastating loss of confidence inspires behavior that overwhelms the normal self-correcting mechanisms (lower interest rates, inventory resupply, cheap prices) that usually prevent a recession from becoming deep and prolonged: a depression.”

Consumer confidence levels were actually higher in the earliest days of the crash that started the Great Depression in 1929 than they were when Lehman Bros. fell and tripped the worst part of this downturn; people didn’t really know what to expect in a modern economic world. But as pain lingered in those days so long ago, as folks saw the rise in the stock market that followed the crash collapse again, the long food lines, unemployment that was staggering even under today’s 9.8% level (the worst in over a quarter century)… and the never-ending downturn that lasted more than a decade… hope was the rarest commodity in the nation.

Samuelson continues in his analysis: “Comparing 1929 with 2007-09, [Christina Romer, the head of President Obama's Council of Economic Advisers] finds the initial blow to confidence far greater now than then. True, stock prices fell a third from September to December of 1929; but fewer Americans then owned stocks, and prices had risen early in the year. Moreover, home prices barely dropped. From December 1928 to December 1929, total household wealth declined only 3 percent. By contrast, the loss in household wealth between December 2007 and December 2008 was 17 percent -- more than five times as large. Both stocks and homes, more widely held, suffered larger losses.” Romer believes we were microns away from Depression 2.0, but the government stimulus package held us back from the brink; but then, she’s a part of the administration that implemented much of that government action.

In this decline, consumer confidence dropped like a stone off a bridge. “In September 2008, the Conference Board's index of consumer confidence was 61.4. By February, it was 25.3. Shoppers recoiled from buying cars, appliances and other big-ticket items. Spending on such ‘durables’ dropped at a 12 percent annual rate in 2008's third quarter and at a 20 percent rate in the fourth. With a slight lag, businesses canned investment projects; that spending fell at a 20 percent rate in the fourth quarter and a 39 percent rate in 2009's first quarter.” Samuelson

But then, maybe none of this bothers you because you have those dollars salted away. Dollars?! Let’s add inflation to depression! The October 6^th NY Times after the market rally: “Investors clamored to buy pretty much anything on Tuesday [Oct. 6^th] — as long as it was not the dollar… A seven-month slide in the value of the dollar gained force as investors migrated to other markets and fretted over a report that crude oil could one day be priced in other currencies, hobbling the dollar’s role as a vehicle for global trade.” The price of gold soared too. So you’ve still got your job, right… Oh…

I shudder every time I hear the words “jobless recovery.” The excuse that “employment is a trailing economic indicator” masks a paradigm shift that maybe many of the jobs we had are substantially irrelevant, that the future belongs to a new set of skill-sets that we seem to be ignoring by cutting back on our educational and training programs, despite Presidential words to the contrary. Look at Chrysler and General Motors. Do they look like companies that are where the growth is? Do they even look like they can survive at all, even in their reconfigured structures? How about all those other “rust belt jobs” in the Mid-West and across this great nation? Do we really believe that when the economy rebuilds… eventually… these fields will be the robust spheres of growth and expansion? Increasingly, the official words that this recession is over ring hollow. By any individual measure of well-being, we are right smack in the middle of a seemingly never-ending economic malaise.

Sure economists predicted that unemployment would rise above 10%, maybe even to 10.5%... that’s not the issue. It’s the question of what exactly is it that is going to bring that number back down below a quiveringly acceptable 5%? President Obama’s economic team is beginning to appreciate the magnitude of this quandary. On October 3^rd, in his radio address, Obama noted that his staff intended to “explore additional options to promote job creation.”

Perhaps a second phase of the stimulus plan would address job-creation in the private sector; jobless benefits would be continued, particularly in the hardest-hit states. On the table are plans provide tax credits for new hires, extend the ability for employers to deduct operating losses and maintain the tax credit for first-time homebuyers. But many of these programs assume people can afford a new home under any circumstances, that companies have income where a tax credit would be valuable.

So far, the best that can be said for this stimulus plan seems to be that it replaced some of the consumer demand with government demand, and most of the new jobs have been in the those sectors where stimulus money was directly applied. Just about everywhere where consumers are the driving force, demand has been profoundly slack and unemployment has been inordinately high. When someone wakes up and finally appreciates the reality that the future of jobs in America depends much more heavily on innovation, invention, new technologies and a highly-skilled workforce, perhaps the focus will finally shift away from bringing back unsustainable jobs from the past to reinventing America the way Americans have always survived crises.

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