Why We're Falling Into a Double-Dip Recession
We're falling into a double-dip recession.
The Labor Department reports this morning that the private sector added a measly 41,000 net new jobs in May. But at least 100,000 new jobs are needed every month just to keep up with population growth.
In other words, the labor market continues to deteriorate.
The average length of unemployment continues to rise - now up to 34.4 weeks (up from 33 weeks in April). That's another record.
More Americans are too discouraged to look for a job than last year at this time (1.1 million in May, an increase of 291,000 from a year earlier.)
Of the small number of jobs created by the private sector in May, many came from temporary help services.
Which is one reason why the median wage continues to drop.
Why are we having such a hard time getting free of the Great Recession? Because consumers, who constitute 70 percent of the economy, don't have the dough. They can't any longer treat their homes as ATMs, as they did before the Great Recession.
Businesses won't rehire if there's not enough demand for their goods and services.
The only reason the economy isn't in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can't continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories). Oh, and, yes, all those Census workers (who will be out on their ears in a month or so).
But all these boosts will end soon. Then we're in the dip.
Retail sales are already down.
So what's the answer? In the short term, more stimulus - especially extended unemployment benefits and aid to state and local governments that are whacking schools and social services because they can't run deficits.
But the deficit crazies in the Senate, who can't seem to differentiate between short-term stimulus (necessary) and long-term debt (bad) last week shot it down.
In the longer term, we need a new New Deal that will bolster America's floundering middle class.
Most prior recessions were caused by the Fed over-shooting in trying to control inflation by raising interest rates too high. So the garden-variety recession could be reversed by the Fed reversing itself and lowering rates. But the Great Recession was caused by the bursting of a huge housing bubble. And that can't be reversed without a major restructuring of the economy because housing prices won't be back to where they were -- and won't be rising above that peak -- for years.
Where to start? Expand the Earned Income Tax Credit and extend it up through the middle class. Finance that extension through higher marginal income taxes on the wealthy, who have never had it so good.
Further government subsidies for consumption will just lead to more government debt and a temporary increase in GDP. It is not a long term solution.
Further government spending should be directed towards investment which will restructure the economy and pay off in future growth and tax revenues to pay for the government borrowing.
For example, further spending to restructure the energy industry away from a dependence on deep offshore drilling should be both politically popular and a valuable long term investment.
And in the interim, futher spending to establish effective regulation of deep water drilling and to engineer technologies to make the deep water drilling and production safer would also be wise.
June 4, 2010 10:39 AM | Reply | Permalink
I agree about making some investments that will pay off (education, infrastructure including energy, universal broadband) but the other problem is that most Americans don't have enough money. That does need to be fixed and rather soon.
June 4, 2010 11:01 AM | Reply | Permalink
A new 'New Deal', higher taxes, more welfare. What the hell is wong with you Reich, are you permanently stuck on stupid? The New Deal did nothing to end the Great Depression, look at the stats, unemployment was little el falı changed up until 1942. Temporary government kahve falı spending provides temporary fixes, that kahve falı disappear when the spending stops. And it has to stop at el falı some point. We need to revitalize the economy. Eliminate all corporate taxes on income produced domestically, by domestic el falı bak workers. Assemble you türkçe el falı bak crap in China, pay tax. Make it kaHVE FALI here, no tax. Slash capital gains taxes to kahve falı zero and dividend taxes to zero. Encourage investment. Cut taxes on everyone. Eliminate wasteful spending and focus on infrastructure and energy. Stop proposing to do more of the same old things that have been proven not to work.
January 24, 2011 10:39 PM | Reply | Permalink
I heard a WS type say this morn that unemployment figures are as high as they are because a lot of Americans have decided that "they just don't want to go back to work."
I would expect the same fellow to decry unemployment benefits for those out of work because they only perpetuate idleness and sloth and probably sin besides keeping people unemployed because they so enjoy being out of work.
June 4, 2010 12:28 PM | Reply | Permalink
Yeah, a lot of them are just lounging around their beach houses, paid for by unemployment checks capped at a measly $400 a week.
June 4, 2010 12:50 PM | Reply | Permalink
I think there's a difference between "Don't want to go back to work", and "Have given up looking for work out of discouragement". When you're out for a long time, you lose confidence in your ability to perform satisfactorily for an employer. The WS types just don't get that.
June 4, 2010 4:03 PM | Reply | Permalink
We're falling into a double-dip recession because economic dinosaurs like Robert Reich don't understand that this isn't your father's recession, and it can't be cured by more welfare payments. Rather, a fundamental restructuring into a green economy is needed.
Reich is strong on BP but weak on Washington. Let's put the US government into "economic receivership" and get the job done.
June 4, 2010 12:41 PM | Reply | Permalink
The White House is counting on a strong jobs report on Friday to reassure Americans that its programs are bolstering the economy. . . . Friday . . . the president will visit a commercial truck dealership and truck parts supplier in Maryland to highlight the jobs report in the morning . . . . The Times 6/5/2010
Guess there must have been some last minute revisions to the President's remarks.
June 4, 2010 1:47 PM | Reply | Permalink
A new 'New Deal', higher taxes, more welfare. What the hell is wong with you Reich, are you permanently stuck on stupid? The New Deal did nothing to end the Great Depression, look at the stats, unemployment was little changed up until 1942. Temporary government spending provides temporary fixes, that disappear when the spending stops. And it has to stop at some point. We need to revitalize the economy. Eliminate all corporate taxes on income produced domestically, by domestic workers. Assemble you crap in China, pay tax. Make it here, no tax. Slash capital gains taxes to zero and dividend taxes to zero. Encourage investment. Cut taxes on everyone. Eliminate wasteful spending and focus on infrastructure and energy. Stop proposing to do more of the same old things that have been proven not to work.
June 4, 2010 5:13 PM | Reply | Permalink
and don't forget the Pentagon. Cut the nuclear carrier groups from ten to five, for one thing. Sure, we'll only be "half as secure" on the high seas but I can live with it.
June 4, 2010 8:04 PM | Reply | Permalink
You revise History like a true pro.
June 5, 2010 1:35 PM | Reply | Permalink
unemployment 1932 23%
1938 19%
not a huge improvement. new deal was from 1933 to 1936.
June 5, 2010 4:02 PM | Reply | Permalink
A fact which should be better known is that those unemployment numbers are garbage. As the clever bulldog says the first New Deal was from 1933 to 1936. It was very successful in reducing unemployment, from 23% and higher to single digits, about 9%. The discrepancy is because the Bureau of Labor Statistics counted all the people in the New Deal programs as still being unemployed - which is economically ridiculous, and only happened because of US inexperience with large nonmilitary public employment programs. The statistics began to be calculated the sensible way in the early 40s, but hardly anyone does their homework and adjusts the earlier ones. Second, there was a budget balancing reversing of the New Deal in 37-38 with the predictable consequence of a double dip for the depression, so the 1938 numbers did go up, but were not as bad as 19%.
June 6, 2010 10:15 PM | Reply | Permalink
The numbers I cited were from the BLS, they are the 'official' numbers. Personally I think it's ridiculous to claim someone is not unemployed because the government is giving them a check for a temporary make work phony job. Why not consider all people receiving unemployment payments as working?
June 7, 2010 9:27 AM | Reply | Permalink
Yes, I am saying the official BLS numbers are garbage because they compare apples and oranges - as I said, the BLS eventually counted them, but didn't retroactively modify the statistics before 1940 as they should have. They weren't "make work phony jobs". They were jobs that built an enormous amount of the USA's infrastructure. Unemployment checks are not comparable, because there is no new productive work needed to do to get them.
We don't count people in the military and "defense" industries among many others as unemployed. Their work is far more make-work than the New Deal. Trillions spent to make a few rich people richer, build golf courses for generals and murder innocent people for no reason at all in our inane wars. They are far more akin to unemployment checks than the highly productive New Deal public works programs.
Your tax cutting is reasonable, but it takes time to take effect, and seems to be angled toward the wealthy. Aside from creating more inequality in an absurdly unequal nation, the wealthy are the least economically effective to give $ to. A better proposal would be a year-long (say) FICA tax holiday, increasing everyone's take-home pay immediately, which would quickly boost aggregate demand and envigorate the economy.
The real loss due to a depression like the present's is the permanent loss of the work that the unemployed do not do during a depression. Immediate employment is just that, which is why New Deal solutions worked well. Roosevelt's New Deal was proven to work then and would work now, but there is an artificially hyped fear of the imaginary - of the utterly nonexistent problems of deficit spending or printing money in a depression.
June 8, 2010 12:03 AM | Reply | Permalink
lol
double dip??
in order to have a DP you need t ohave come out of the first dip and had a recovery, which we have not.
in fact i cant tell if reich is ignorant or just playing his same old elite insider self, because every economist with integrity realizes that nothing is going to halt the greatest depression that we are in the beginning of.
look for the EU to break up and riots and civil unrest to sweep across europe and behind that our economy to to go into free fall along with the stock market.
nothing will prevent this calamity as the corporate state will continue to plunge us deeper into debt to make war.
you aint seen nothing yet..................
June 4, 2010 8:49 PM | Reply | Permalink
what reich says is correct....but how can a obama get that through? he is beset from all sides......and it will be portrayed as an attack on the free enterprise system.......what we are suffering from is a collapse of reagonomics 30 years of aid for the well off which somehow failed to trickle down......what arthur brooks portrays as free market american exceptionalism at war with european statism....is in reality the attempt to reform a system which has been corrupted by unfettered and rapacious capitalism....which has left our institutions...infrastructure....health and well being of the average person in tatters....and yet it is an argument that seems to win adherents...as the obama camp is portrayed as smarty pants elitists who are good with words
June 5, 2010 9:34 AM | Reply | Permalink
Money McBags broke down the awful jobs numbers including the fictitious 215k birth-death model plug. These number were a lot worse than even the negative headlines.
http://whengeniusprevailed.blogspot.com/2010/06/6410-midafternoon-report-jobs-report.html
June 5, 2010 10:53 AM | Reply | Permalink
Money McBags broke down the awful jobs numbers including the fictitious 215k birth-death model plug. These number were a lot worse than even the negative headlines.
http://whengeniusprevailed.blogspot.com/2010/06/6410-midafternoon-report-jobs-report.html
June 5, 2010 10:54 AM | Reply | Permalink
Money McBags broke down the awful jobs numbers including the fictitious 215k birth-death model plug. These number were a lot worse than even the negative headlines.
http://whengeniusprevailed.blogspot.com/2010/06/6410-midafternoon-report-jobs-report.html
June 5, 2010 10:54 AM | Reply | Permalink
All we have to do is share the wealth... Right.
Or President must have the answer, he said that if he gets his Obama Health Care it will solve all our economic problems, and as I recall you had you wagon hitched to that star Mr. Reich.
Cap and Tax will be the dagger in the heart of the American economy as it is in the countries that have tried it.
The world does not work in the negative, it never has and never will. If we don't start droping the Obama Policy of negative growth we will be in the Obama Depression with out a Bush to hide behind.
June 5, 2010 10:41 PM | Reply | Permalink
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April 7, 2011 6:23 AM | Reply | Permalink