Saturday, June 22. 2013
The single most important thing you should understand about the economic debacle that started in 2007-08 is summed up in this chart, courtesy of Paul Krugman: A Potentially Tragic Taper:
What you see is that the percentage of the entire US civilian population that was employed was inching up from 2003-07, then took a deep plunge in 2008-09, and since then hasn't moved a bit. The gray band denotes the calendar quarters when US GDP actually shrank, which is the technical definition of a recession. However, the economy was still cutting jobs in the quarter after GDP turned positive. And while the GDP figures have been positive ever since, denoting a "recovery" (even if a rather weak one) that hasn't even begun to restore employment levels, much less make up for the lost output.
You may think that unemployment rates have declined a bit. Indeed, the headline figures have dropped from 10% to about 8%, but as this chart shows, that drop has been nothing but a bookkeeping convenience: all that has dropped is the number of people actively seeking work (as counted by the Labor Deptartment).
Under different circumstances, these numbers might mean something else. For instance, the slight increase in percentage employed from 2003 to 2007 is mostly due to the declining fortunes of labor even in an expanding economy: what you have are more spouses working, more students working, more people coming out of retirement to pick up a little extra income to compensate for higher tuition and declining living standards. If the Obama administration had made strong moves to shore up wages and welfare standards, as the New Deal did in the 1930s, you might still see a similar decline in overall employment rate, but it would have been coupled with an increasing standard of living.
But Obama was no Roosevelt. Both dealt with banking crises, but where Roosevelt saved the banks by strict regulation and insuring deposits, Obama bailed them out and force-fed them cash until they were liquid again. And aside from an inadequate stimulus bill, he did nothing more: credit froze, employment crashed, first the banks then everyone were allowed to merge and crowd out competition, the labor market was crushed, then austerity came into vogue and how you can't even get the House to fund the food stamp program -- which, by the way, is welfare for agribusiness and low-wage employers like WalMart as much as it is for the recipients.
Krugman's piece mostly talks about the Fed and what little it can do. For a broader picture of what happened, see Brad DeLong's review of Alan Blinder's After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead: The Second Great Depression: Why the Economic Crisis Is Worse Than You Think:
If you look at output charts of the first six months of this depression versus the one in 1929, the rate of collapse is almost exactly the same. What was different this time was that the free fall -- those days when financial writers were aghast at staring into the abyss -- was halted by a combination of automatic stabilizers and emergency acts by government. The single biggest one was that the public sector is much larger now than it was in 1929, so the collapse of the private sector took less of the overall economy down with it. Also measures like unemployment insurance kicked in. And the central banks cut interest rates and pumped more cash into the economy -- something that was near impossible in 1929 when most of the world's nations were stuck on the gold standard. Then the banks were flooded with trillions of dollars, while companies aggressively cut jobs and deleveraged to restore profitability. A year after the plunge, no one was talking about abyss any more, even as employment continued to wane. So we had reason to believe that this time was different, and that led to a false sense of security, and a sudden rightward turn in politics. And that, in turn, manically, insanely, turned against the very forces that had just saved the world from economic collapse. The result is that: purely for political reasons we have turned the recovery around and are headed once again for collapse.
At the moment, this is more evident in Europe than in the US. In the Eurozone that's because the single currency does not allow for rebalancing of debts and exports, a situation which is exacerbated by conservative control of the central bank. (Much as peace is too important to be left to the generals, the economy is too important to be handed over to the whims of bankers.) Meanwhile, the UK, which is at least free of the Euro, is mired in a cult of austerity that already overturned the recovery. The US isn't in quite so bad shape because government isn't so centralized, but the Republicans at all levels are working hard to make life as hard as possible on working (and especially no-longer-working) folks, and the Democrats are at best passively dragging their feet and at worst, in thrall to the same bankrupt ideology (and the same moneyed corruptors), dream of "grand bargains" instead of fighting back against the assaults of the superrich.
Democratic presidents from Roosevelt to Johnson regularly came up with catchy slogans to sum up political programs that ultimately aimed at greater equality and economic security for all people -- the New Deal, the Fair Deal, the New Frontier, the Great Society. Obama has no such program -- at most he hopes to slow down the anti-equality, anti-security juggernaut -- so of course it has no slogan to sell. If he were honest, he'd call his program the No Deal, because he's offering nothing, and he's not even delivering that.
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