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It's a Depression
The March employment numbers, out this morning, are bleak: 8.5 percent of Americans officially unemployed, 663,000 more jobs lost. But if you include people who are out of work and have given up trying to find a job, the real unemployment rate is 9 percent. And if you include people working part time who'd rather be working full time, it's now up to 15.6 percent. One in every six workers in America is now either unemployed or underemployed.
Every lost job has a multiplier effect throughout the economy. For every person who no longer has a job and can't find another, or is trying to enter the job market and can't find one, there are at least three job holders who become more anxious that they may lose their job. Almost every American right now is within two degrees of separation of someone who is out of work. This broader anxiety expresses itself as less willingness to spend money on anything other than necessities. And this reluctance to spend further contracts the economy, leading to more job losses.
Capital markets may or may not unfreeze under the combined heat of the Treasury and the Fed, but what happens to Wall Street is becoming less and less relevant to Main Street. Anxious Americans will not borrow even if credit is available to them. And ever fewer Americans are good credit risks anyway.
All this means that the real economy will need a larger stimulus than the $787 billion already enacted. To be sure, only a small fraction of the $787 billion has been turned into new jobs so far. The money is still moving out the door. But today's bleak jobs report shows that the economy is so far below its productive capacity that much more money will be needed.
This is still not the Great Depression of the 1930s, but it is a Depression. And the only way out is government spending on a very large scale. We should stop worrying about Wall Street. Worry about American workers. Use money to build up Main Street, and the future capacities of our workforce.
Energy independence and a non-carbon economy should be the equivalent of a war mobilization. Hire Americans to weatherize and insulate homes across the land. Don't encourage General Motors or any other auto company to shrink. Use the auto makers' spare capacity to make busses, new wind turbines, and electric cars (why let the Chinese best us on this?). Enlarge public transit systems.
Meanwhile, extend our educational infrastructure. So many young people are out of work that they should be using this time to improve their skills and capacities. Expand community colleges. Enlarge Pell Grants. Extend job-training opportunities to the unemployed, so they can learn new skills while they're collecting unemployment benefits.
Finally, accelerate universal health care.
Every lost job has a multiplier effect throughout the economy. For every person who no longer has a job and can't find another, or is trying to enter the job market and can't find one, there are at least three job holders who become more anxious that they may lose their job. Almost every American right now is within two degrees of separation of someone who is out of work. This broader anxiety expresses itself as less willingness to spend money on anything other than necessities. And this reluctance to spend further contracts the economy, leading to more job losses.
Capital markets may or may not unfreeze under the combined heat of the Treasury and the Fed, but what happens to Wall Street is becoming less and less relevant to Main Street. Anxious Americans will not borrow even if credit is available to them. And ever fewer Americans are good credit risks anyway.
All this means that the real economy will need a larger stimulus than the $787 billion already enacted. To be sure, only a small fraction of the $787 billion has been turned into new jobs so far. The money is still moving out the door. But today's bleak jobs report shows that the economy is so far below its productive capacity that much more money will be needed.
This is still not the Great Depression of the 1930s, but it is a Depression. And the only way out is government spending on a very large scale. We should stop worrying about Wall Street. Worry about American workers. Use money to build up Main Street, and the future capacities of our workforce.
Energy independence and a non-carbon economy should be the equivalent of a war mobilization. Hire Americans to weatherize and insulate homes across the land. Don't encourage General Motors or any other auto company to shrink. Use the auto makers' spare capacity to make busses, new wind turbines, and electric cars (why let the Chinese best us on this?). Enlarge public transit systems.
Meanwhile, extend our educational infrastructure. So many young people are out of work that they should be using this time to improve their skills and capacities. Expand community colleges. Enlarge Pell Grants. Extend job-training opportunities to the unemployed, so they can learn new skills while they're collecting unemployment benefits.
Finally, accelerate universal health care.
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I know what needs to be done.
You know what needs to be done.
Pres. Obama probably knows what needs to be done.
But I watched the fight over the first stimulus package, and unless, somehow,in the name of all that's holy, we get President Collins and all the other flaming moderates to this level of enlightenment.
She and her shadow government are evidently prepared to ride this all the way to the bottom, armed with their safe seats, clutching their magical binkies of bipartisanship.
April 3, 2009 2:05 PM | Reply | Permalink
I agree completely with you. I wonder what Obama thinks of all that BS now after having encouraged it so strongly during the campaign and even in his first few weeks in office not to mention as a Senator.
April 3, 2009 2:14 PM | Reply | Permalink
Nonsense. This has nothing to do with a valiant effort at bipartisanship which has been thoroughly rebuffed. Don't blame Obama's efforts to reach out for the extremist intransigence of the GOP, which have apparently decided to reject and oppose any and all efforts to solve our enormous problems. The blame should be placed firmly on the GOP, which would have opposed all legislation no matter what 'tone' Obama struck.
The key problem for us is the Senate, where the stimulus got watered down, and now a craven, cowardly Arlen Spector will prevent other bold efforts at reform. If Al Franken could be seated, we may make progress, but until then, we are being held hostage by so-called Republican "moderates".
April 3, 2009 2:28 PM | Reply | Permalink
I am sorry but I disagree with you. You can try and blame Arlen Specter, but it was the muscle provided by conservative/corporate Democrats masquerading as "moderates" that watered down the stimulus and is going to derail other of Obama's plans. Specter and the two from Maine would not have had near the influence they had, nor would they have gotten as much as they did if those "moderates" hadn't provided all the aid and comfort they did. It isn't nonsense at all to suggest that Obama himself encouraged this. He most certainly did.
April 3, 2009 4:45 PM | Reply | Permalink
When you've got real unemployment at 15% and Evan Bayh playing anti-Robin Hood (I can just seem him in a little green cap and tights) robbing from the poor and middle class to give a better estate tax break to the top 0.02% (I don't do math but is that really the center they keep talking about?), you can't just blame Republicans.
April 3, 2009 8:06 PM | Reply | Permalink
I beg to differ.
Let's recall:
*the Dems had drastically watered down the HOUSE bill to attract Repubs,
*the Repubs stuck their noses in the air and voted against it en mass,
The Dems should have, instead of sending this crap-bill to the Senate, pulled the ORIGINAL [pre-watering down] bill of the shelf, passed IT and substituted it for the crap-bill, and sent THAT to the Senate.
The Senate would then have had to reconcile whatever IT passed with a GOOD House bill, instead of that junk the weak Democrats had passed as a love letter to Repubs.
The Dems did 50% of the Republicans' "water down the Stimulus" work for them. Don't let Democratic stupidity off the hook for the resulting travisty.
April 4, 2009 5:40 PM | Reply | Permalink
I think this sentiment reflects a couple of common misunderstandings.
Obama explicitly campaigned not on the basis of bipartisanship, but on the basis of "post-partisanship." The idea behind post-partisianship, as I understand it, isn't to find solutions that stake out some kind of compromise between the various partisan approaches to a policy matter, but to throw all the partisanship out the window and consider what solutions are most effective with as sober and clear-eyed a view as possible, regardless of the partisan interests at stake. That's not exactly the same thing as bipartisanship.
Post-partisianship begins from the assumption that neither party has a respectable track record of crafting effective, long-term solutions anymore, so it's time to reexamine the very core dogmas both parties have embraced with an eye toward finding more practical, less ideologically-informed approaches to policy-making. That's my understanding of it anyway.
April 3, 2009 2:42 PM | Reply | Permalink
Bravo! Spot on.
April 3, 2009 4:31 PM | Reply | Permalink
That is nothing but a semantic game.
April 3, 2009 4:46 PM | Reply | Permalink
It always cracks me up when people use the phrase "But that's just semantics..." because you know what semantics means? It's the study of what words mean. So when you're arguing semantics, you're trying to define the terms of your argument.
The reason, in academic circles, phrases like "quibbling over semantics" are used dismissively is because, often, in very specialized fields, there are very out-sized debates about the tiniest nuances of specialized technical terms.
In ordinary, everyday discussions though, what could be more important than establishing in a way that's clear to all the participants to a discussion what the terms used in your discussion actually mean? Any coherent argument has to begin with settling on reasonably clear definitions of the terms used on each side.
And I just explained how bipartisanship is an entirely different concept than post-partisanship. Bipartisanship always tries to find solutions in compromises that incorporate ideas from both sides of the ideological spectrum. Post-partisanship is willing to look outside of the prevailing ideologies for solutions. That kind of distinction wouldn't qualify as a semantic game even if you had meant to use the term semantics correctly.
April 6, 2009 10:10 PM | Reply | Permalink
It always cracks me up when people use the phrase "But that's just semantics..." because you know what semantics means? It's the study of what words mean. So when you're arguing semantics, you're trying to define the terms of your argument.
The reason, in academic circles, phrases like "quibbling over semantics" are used dismissively is because, often, in very specialized fields, there are very out-sized debates about the tiniest nuances of specialized technical terms.
In ordinary, everyday discussions though, what could be more important than establishing in a way that's clear to all the participants to a discussion what the terms used in your discussion actually mean? Any coherent argument has to begin with settling on reasonably clear definitions of the terms used on each side.
And I just explained how bipartisanship is an entirely different concept than post-partisanship. Bipartisanship always tries to find solutions in compromises that incorporate ideas from both sides of the ideological spectrum. Post-partisanship is willing to look outside of the prevailing ideologies for solutions. That kind of distinction wouldn't qualify as a semantic game even if you had meant to use the term semantics correctly.
April 6, 2009 10:10 PM | Reply | Permalink
you mean pragmatism (in the ordinary use of the term).
April 3, 2009 8:24 PM | Reply | Permalink
I'd give Mr. Reich a lot more credence if he had actually defined what a depression is before declaring we are in the midst of one. Or if he had proposed any program with even a modicum of ingenuity. Nope, Mr. Reich declares we are in a depression and his solution is ... to implement the exact same programs he's been championing for 20 years. How convenient.
April 3, 2009 6:35 PM | Reply | Permalink
if there is any respect due to your comment, then I give it. however, what you write sounds like sour grapes to me, though I could be wrong.
it seems to me that if you'd given a modicum of thought to the subject you're kibbutzing about, you'd have realized that, if the last 20 years had been spent enacting Reich's economic suggestions and philosophy (even if the monopolistic banks still had managed to sink the economy by their greed and anarchic ideology), then at least the United States would have a much bigger and more comprehensive, functioning economy, where things are actually built here along with the local, state, and regional services that accompany the industrial, engineering, installation, and maintenance that an astute green-plus economy would require.
in short, Reich was right 20 years ago, and he's still right now, despite your and others' apparent misguided preferences for an eviscerated and outsourced economy that has left the U.S. with only the shell of a real economy.
Reich, yes! unthinking comments, no!
April 3, 2009 7:30 PM | Reply | Permalink
My point, which may have been a bit obtuse, is that Mr. Reich raises the specter of a depression without any supporting information merely as a means to champion the same causes that he has championed for the last 20 years. Contrary to your inference, I have not taken any position on whether those remedies would be effective or not.
I'm merely pointing out that Mr. Reich is using fear mongering to advance his longstanding agenda.
April 6, 2009 12:17 PM | Reply | Permalink
this is a very legitimate gripe.
what definition is reich working with?
obviously there's no consensus on how to define a depression let alone how to numerically quantify what constitutes a depression. but the only relevant numbers reich offers for his conclusion are unemployment figures and even those aren't put into any context of trend. he only hints at what i think is the key when he mentions productive capacity...
even though i agree with reich's prescriptions for treating the underlying causes of the symptoms he describes, i can't agree with his diagnosis of 'depression' without a clear definition of what he means by it. and he isn't going to convert or persuade any skeptics by just dropping the 'd' word and moving on like it's self-evident.
April 5, 2009 9:21 AM | Reply | Permalink
There is no universally accepted definition of a depression. Per Wikipedia, "A proposed definition for depression is a sustained recessionary period in which the population is forced to dispose of tangible assets to fund every day living, as was seen in the U.S. and in Germany in the 1930s."
http://en.wikipedia.org/wiki/Economic_depression
April 6, 2009 10:20 AM | Reply | Permalink
Oh, dear -- this sounds like a recommendation that real people do real work helping others. How does anyone write a CDO or a derivative on that sort of thing?
Sounds far too sane, too grounded, and too practical for the MastersOfTheUniverse on Wall Street and various tax havens to be able to cream the profits off. Therefore, I anticipate the Investor Class and the Tax Haven Honchos will scoff vehemently at Reich's proposal.
April 3, 2009 2:06 PM | Reply | Permalink
The problem with Reich's argument is we can't just "forget about Wall Street." If we completely turn our backs on financial services entities like AIG and CitiGroup, we're going to end up with massive, backbreaking FDIC deposit guarantee obligations soon after, as the complex web of trillions of dollars of swap contracts and synthetic derivatives written by AIG and other deranged actors on Wall Street quickly drain all the operating capital out of large numbers of deposit banks, state and municipal governments, triggering much more rapid economic decline.
We have to fix the Wall Street problem at the same time as we address the grassroots-level problems because Wall Street has managed to put itself on the hook for very real capital obligations in a range upwards of $5 trillion that, if not dealt with directly now, will eventually become the responsibility of the taxpayers whether we like it or not. The financial sector carefully hamstrung us into this position using elaborate daisy chains of derivatives contracts and precisely targeted regulatory capture to increase the overall level of risk in the economy and to unload that risk squarely onto the tax payers. This dual-pronged strategy of increasing overall risk while shifting it to the taxpayers has been in the works for a long time. So it's not going to be easy to extricate ourselves, and the process will be a painful and messy one. But ultimately, it's unavoidable.
April 3, 2009 3:06 PM | Reply | Permalink
"Wall Street has managed to put itself on the hook for very real capital obligations in a range upwards of $5 trillion"
Better try 100x that amount:
Derivatives the new 'ticking bomb'
Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen
By Paul B. Farrell, MarketWatch
Last update: 7:31 p.m. EDT March 10, 2008
"Charlie and I believe Berkshire should be a fortress of financial strength" wrote Warren Buffett. That was five years before the subprime-credit meltdown.
"We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."
http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid={B9E54A5D-4796-4D0D-AC9E-D9124B59D436}&print=true&dist=printTop
April 5, 2009 8:33 AM | Reply | Permalink
excellent way to phrase it - you cut right to the chase.
April 4, 2009 9:17 AM | Reply | Permalink
The major differences I'd say between the 30's and now, are the safety nets in place. FDIC, unemployment, social security, food stamps just to name a few. On top of that, the Government injected over a trillion so far in capital into the banks.
I'm no economics expert or banking expert but I get the feeling that what happened in the financial industry was very serious. If all those safety nets hadn't been in place and the U.S. Govn't hadn't reacted in the way they did, I wonder if we would have surpassed the tragedies of the 30's. The runs on the banks could have been catastrophic.
I wish I had enough knowledge of past banking systemic failures in the 30's and those today to be able to compare the severity of the two. I'd like to see someone with the brains and knowledge do a comparison and make an educated guess as to what our situation would be now if our Govn't was in the same form, both the framework and the mindset, as it was in the 1930's.
April 3, 2009 2:09 PM | Reply | Permalink
There are not a whole lot of safety nets left. Thanks to the Reagan 'Welfare Queen' to W. they have been so watered down, they are almost non-exsistant. Besides, have you ever had to go to apply for food stamps? They treat you like a criminal. They make you feel as though you are taking money out of their own personal pocket. My children and I need health care badly, I can prove that I am unemployed, and they still insist on documentation that does not exsist. That's whyy these freakin Red States have so many people who will never climb out of poverty. They make it feel as though you are begging.
April 6, 2009 12:13 PM | Reply | Permalink
It's been pretty clear we're in a depression for some time now, but I suppose we cannot simply announce the obvious without numbers that make it so.
I do think Prof. Reich is being rather optimistic about what the "real" unemployment rate is. Back in the Reagan years they started including the military as part of the civilian workforce and that distorts the numbers right off the top. And I think the number of people who quit looking, are discouraged or working part time because that's all the work they can find is gigantic. I would think we have closer to a 20% real unemployment rate right now than 15%. And it's going to get worse before it gets better, probably a lot worse.
I certainly agree with Prof. Reich about what we ought to do and how we should approach energy independence and electric vehicles, etc... but my guess is that our government will be far too timid to do as he suggests and we will have to endure this state of economic depression for a long time to come.
April 3, 2009 2:11 PM | Reply | Permalink
Re: Back in the Reagan years they started including the military as part of the civilian workforce and that distorts the numbers right off the top.
I'm not sure I agree that counting military personnel as employed distorts the numbers. Military people are employed after all. They are not idle or without income. Or if it's the fact that they are paid by the government, should we also then exclude every other government employee from the garbageman to the senators?
April 5, 2009 3:25 PM | Reply | Permalink
oleeb,
We also need to factor in the amazing number of Americans who are in prison or jail.
If we reform our criminal justice system (and we need to) we will have to find jobs for a lot of people with few skills and the handicap of a felony conviction on their records.
April 3, 2009 2:49 PM | Reply | Permalink
oleeb,
We also need to factor in the amazing number of Americans who are in prison or jail.
If we reform our criminal justice system (and we need to) we will have to find jobs for a lot of people with few skills and the handicap of a felony conviction on their records.
April 3, 2009 2:51 PM | Reply | Permalink
This is not a depression, yet.
But I think it's time for all good libs to start a list of scapegoats for when the trillions thrown around don't produce the anticipated results.
* Digging holes and filling them up again isn't going to grow an economy.
* The four buses I'm stuck behind trying to get through DC aren't going to grow an economy.
* Nationalizing GM isn't going to grow an economy.
* Universal Healthcare isn't going to grow an economy.
* War in Afghanistan isn't going to grow an economy.
Worse, there will be no way to avoid the responsibility of one party rule if failure occurs. Inevitably, taking from competent people and gifting that to incompetent people ends in fewer people having anything at all.
April 3, 2009 2:59 PM | Reply | Permalink
Shooter wrote: But I think it's time for all good libs to start a list of scapegoats for when the trillions thrown around don't produce the anticipated results.
You left out an important element.
The nay Sayers, who are determined to undermine the effort, bent on saying in the next election “See! we told you it wouldn’t work”
Never mind the nay Sayers, badmouthed every element of the program, attempting to throw in the poison pill, to assure the result they were wanting.
Failure of Obama’s plan makes them look like great Oracles.
It’s like warfare with terrorists; Obama has to be right 100% of the time.
The Republicans can throw out all kinds of scenarios, like some modern day Nostradamus es and then having thrown so much crap against the wall with some fulfillment and then they’ll crow about how smart they were.
See, I told you so
April 3, 2009 4:12 PM | Reply | Permalink
It is part of patriotism to dissent against ruinous policy.
April 3, 2009 4:18 PM | Reply | Permalink
did you dissent at all during the ruinous eight years of GWBush? didn't notice it in these comments, shooter - sorry if I missed your patriotism on display then.
btw, my dog sends regards to your dog
April 3, 2009 7:35 PM | Reply | Permalink
If it matters I dissent on Obama's crazy domestic spending policies, and I dissented on Bush's crazy war spending policies.
April 3, 2009 10:15 PM | Reply | Permalink
Then I would dissent against your ruinous policy of posting half-truths and lies at TPM.
Health care improvements could clearly improve quality of life and productivity, even if they move some parasitic private insurance jobs and investments into productive health care jobs and investments.
For instance.
Your small-minded negativity is annoying in the stupid sense, not in the inspiring sense.
April 4, 2009 12:09 AM | Reply | Permalink
You mean like Bank Execs? Those "competent" types?
April 3, 2009 4:13 PM | Reply | Permalink
That's right. They did what they were supposed to do. The regulators on the other hand, failed and failed miserably.
April 3, 2009 4:22 PM | Reply | Permalink
Well, that's why the banker and the regulator can't be drawn from effectively the same little insular clique or, indeed, be literally the very same person(s).
April 3, 2009 5:55 PM | Reply | Permalink
oh, now I get it, scooter. you really have nothing to say except nyah, nyah, nyah.
okay, can skip your comments forever now.
thanks for the tip.
April 3, 2009 7:37 PM | Reply | Permalink
That's right. [Banking executives] did what they were supposed to do. The regulators on the other hand, failed and failed miserably.
This is very revealing. Shooter is claiming that:
-- It is the mission of the people who run our financial institutions to ruin the American and global economy; and that
-- Deregulation, the hallmark of Reaganite Conservatism, was the major contributor to the current economic mess.
It's great to see you coming around to common sense, Shooter!
April 5, 2009 10:45 AM | Reply | Permalink
Someday, shooter242, you're going to have climb down from your throne (ab cathedra?), get in the trenches with the rest of us, and come up with some solutions (unless, of course, you think the 1998-2012 period is the best we can do).
Let's agree, for argument's sake, that the financial crisis is, first and foremost, the result of bad government policies promoted by Greenspan, Summers and Rubin, Gramm, Cox, Frank, and Dodd among others.
Do the Masters of the Universe who spent their money lavishly to capture (okay, influence) the government and to publicize (propagandize?) their ideology bear no responsibility?
April 3, 2009 9:19 PM | Reply | Permalink
Are you implying that I pontificate? Heh. Ab Cathedra is about right, no six-pack just a keg.
Sure, but pushing all the right buttons to maximize money is what they do. It's like the Scorpion and frog story... it's their nature.You can blame the financial industry for quite a bit, but they followed their goals to maximize growth and profit. Excess never seems excessive at the time.
Everything in life is a matter of degree. All the abused instruments were good ideas in moderation, disastrous in anonymity and excess. Which is why limitations and regulation exist.
Yet, even though there are limitations and regulations, human beings are seduced by success and crave it all the more, pushing the envelope, leading to the next cycle.
As for what to do about all this, just replace the regulation that was nullified and staff agency oversight with real overseers. It's that simple. And as for the crisis of confidence killing business, nothing is going to help until someone pro-business gets to the Presidency.
So, was that trenchant enough for you?
April 3, 2009 11:03 PM | Reply | Permalink
shooter242,
you are an idiot. It does grow the economy when people earn a paycheck (that's higher than min. wage). If they have money, they spend it.
Just common sense, man!
April 6, 2009 12:16 PM | Reply | Permalink
The three obstacles and two challenges that the Obama administration has to watch out for are the following:
Obstacles
1. The $787B stimulus is not getting out fast enough and there is not a quick way for this money to find its way into the economy, especially the infrastructure funds.
2. I agree with Reich, the stimulus is insufficient to increase aggregate demand - during the Great Depression Keynes used to write FDR complaining that FDR was not stimulating the economy enough, which was later remedied.
3. Even though the Fed is "pumping" money into financial institutions only a trickle is coming out the otherside, which is stymieing the recovery.
Challenges
1. In order for Geitner's plan to work, investors have to be willing to step in and buy these distressed assets. The investors know that they have the administration over a barrel and the investors will hold out for the best possible deal, which will cost tax payers.
2. Some economists think we have hit the bottom, but they are not factoring in all the CMBS that is starting to default. If we start to see commercial properties start to go into foreclosure like the residential properties, we are in for another round of bad tidings.
April 3, 2009 3:09 PM | Reply | Permalink
"The investors know that they have the administration over a barrel"
Really? How do you know they know this? I think the administration has investors just where Obama should want them. Investors stand to lose a lot if a bank fails. The scare tactics employed by Paulson and Bernanke are old hat by now.
Public opinion favors Obama, not the investors.
April 4, 2009 12:15 AM | Reply | Permalink
Is Mr. Reich the only political person reading economics or listening to working people. We made a mistake with Obama: Reich for President.
April 3, 2009 3:10 PM | Reply | Permalink
We need Robert and Krugman to start banging the drum on this. In fact, the Obama Admin needs to realize that they can use "Depression" to steamroll the bipartisan nonsense. Do the right of center "moderates" in the Senate want on their heads that they're not willing to do enough to right this?
John
April 3, 2009 3:30 PM | Reply | Permalink
Every time I read Bob Reich, I find myself cursing Tim Geitner...
April 3, 2009 4:17 PM | Reply | Permalink
Thanks for clearing that up. Wanna buy an apple?
April 3, 2009 4:27 PM | Reply | Permalink
i commented on this depression months ago and also was the first here to state that the DEMS would prevent obama from passing his programs.
not because i am some sort of genius, but because there are tons of people with integrity who have been far ahead of the usual suspects in telling us what is really happening.
why dont any of you here know who they are????
i guess now that reich says it, it must be true.
TPM like most websites are only interested in being accepted in the main stream.
you all should remember that when you comment on what you think is really going on, having waited to hear it from people like "3months behind the curve" reich.
April 3, 2009 5:18 PM | Reply | Permalink
"Every lost job has a multiplier effect throughout the economy."
What Reich is really saying is that the economy has been highly inflated by such multiplier effects, and thus losing jobs or whatever has the same negative multiplier, more or less, as the job gained in the first place. Without such inflation, a deflationary spiral would be insignificant.
Why is this important? Because if we are to be realistic, we must prepare for a smaller sounder economy. That is, we must learn to have quality of life without recent so-called standards of living. Already people are doing this, as auto sales crashed last year. People are not buying new cars at nearly the old rates, they are making do with older cars and/or fewer cars. And this is a good thing for the most part. Waste is not good unless you feed on the waste. We've been feeding the global economy with out waste, and we've been churning internally too.
This doesn't mean our quality of life must decrease, it means cultural shifts are called for on a large scale away from consumer mentality materialism and towards other virtues.
Until energy becomes effectively free and infinite in supply and pollution becomes irrelevant (say we can ship our pollutants off in basically free rocket ships to the sun) and recycling keeps up with demand for scarce natural resources or mining becomes free, ...
... we must plan to live well within our finite resource means.
"the only way out is government spending on a very large scale."
No. That's only one way. And it's quite problematic in the long run if not done almost perfectly.
Who is hurt most by contracting economy? Government and government employees.
April 3, 2009 6:34 PM | Reply | Permalink
The unemployment rate is actually over 12% due to the use by our government of the birth/death model.
The headline number was -663,000 jobs (lost) for March. Though the number was ugly there was lipstick applied onto the pig via the Birth/Death model. Despite job losses being most felt by smaller firms, Joe entrepreneur is still cranking them out. I guess - 6.3% GDP was not enough to dissuade Joe entrepreneur from gaining full employment. The B/D model added 114,000 to the March total otherwise the headline number would have been - 777,000.
From a Reuters article this morning:
"The manufacturing sector shed 161,000 jobs in March, after eliminating 169,000 positions the prior month. Construction industries lost 126,000 jobs after bleeding 107,000 in February. The service-providing industry axed 358,000 positions after shedding 366,000 in February."
Link: http://news.yahoo.com/s/nm/20090403/bs_nm
/us_usa_economy_payrolls_5
So, we have -161,000 Manufacturing jobs lost in March but our buddies at the BLS (Bureau of Labor Statistics) say Joe entrepreneur added +6,000 the same month. The BLS in the report has Joe entrepreneur in the Construction industry adding +23,000 in March but the rest of the US lost 126,000 jobs. We look at the Service Industry shedding 358,000 jobs yet the BLS has +21,000 created in March in the services category and another +41,000 in the Leisure & Hospitality sector.
BLS Birth-Death Model Link: http://www.bls.gov/web/cesbd.htm
I think that the Congress should just pass a resolution to remove the "L" out of BLS, but perhaps that would be calling a spade a spade.
April 3, 2009 9:15 PM | Reply | Permalink
It is true that the B-D model tends to underestimate job losses when unemployment is rising; on the other hand it tends to underestimate job gains when unemployment is falling.
IIRC the B-D model is not applied to the "seasonally adjusted" figures; thus, you can avoid its effects by going to Table A, here. That table shows 13.16 million unemployed.
The broader gauge, Table A-12 (U6 -- unemployed plus marginally attached and part timers) shows 15.6% un- or underemployed.
April 3, 2009 9:52 PM | Reply | Permalink
Mish seconds Middle Finger Mary's advice.
April 4, 2009 1:25 PM | Reply | Permalink
Robert:
Not only are you correct on a macro sense but also on a micro sense. I lost my job in Dec 2007 when 19,000 jobs were lost. I thought it was a garden variety recession so I didn't go in to survival tactics until my first UE benefits were exhausted and the third supposed job fell through. You see I was an employment executive---of course when the nation loses 1/2M jobs in the first half of of 2008 well that is up hill. Since then 4.2M more job loss. I have finally found a survival job, substitute teaching a profession going back some 25 years when I was in between undergrad and graduate school. Yes it is part time, each day I rise at 4:45 AM to get online to beat the rush for the few jobs posted that morning.
Depression, that this is. I further read that Roubini, Johnson, Stiglitz, Krugman all concur that the Big Banks are insolvent, but simply delaying the inevitable where whatever you want to call it, nationalization whatever we must completely reorganize our finance system.
Untenable, unsustainable, socially unjust and corrupt. It seems this world was no different than how the Bush Justice Dept justified their legal positions---the same for the divestiture's as in the world of collateralized-debt obligations and credit-default swaps a fictitious illusions. In short the elite, the pirates created an illusion --a grand flim flam, where they loaned or promised money that they didn't have. They took the commissions and they want them.
But that is only part of the issue. The big deal is how we get out of it. Well one is simply spending, saving society from itself and resetting the values as we go along hopefully in an an orderly way.
But one part of the order is the the rich get soaked. They didn't earn it they stole it. Break them up, and I don't think Obama and Co has an eventual choice. To spend he has to keep support and the pitch forks will not give him support without the justice and reconciliation.
In the meantime we are in a Depression waking up before 5 AM to get $100 day jobs. Lucky I am still a better teacher than most.
April 3, 2009 9:58 PM | Reply | Permalink
I hear you loud and clear. I'm afraid it's going to have to come to blows though because so far the rich are as arrogant as ever, and they refuse to budge an inch. I fact they had Republicans purpose lowering their tax rate a massive amount. This is going to have to get so bad people are starving to death before people get angry enough to act. Sad...
April 4, 2009 12:16 PM | Reply | Permalink
RWN I just have to comment about a couple of your comments:
"...the pirates created an illusion." Now that is a great line! Could I suggest you write an entire blog on that theme? The phrase is catchy and you will get everybody to open your blog.
"...the rich get soaked." Yep. And I like your honest way of putting it. Let's quit saying that the rich need to pay their "fair share". Nope, we are way past that. It is time to give them a bath. Soak them. When they get out of the tub, I want them to be naked, wet and a whole lot cleaner.
Hope things get better for you. I have done just a little bit of teaching. Loved it. It should pay more. Why do teachers get a hundred a day and paper oil traders use 100 dollar bills to light their cigars? Who is really of more worth to our society?
April 5, 2009 9:32 AM | Reply | Permalink
Whatever we do to help main street, I don't think we will ever really be able to sustain the type of consumer economy we have had for the past 30 years. A society where most people have no savings and high debt is inherently unhealthy. If people saved more and invested their money in safe havens with relatively low gain, banks would be more solvent and main street would be able to ride out a storm better. However, this will mean lower corporate profits (from decreased consumption) and the likelihood that the stock market will never regain all its losses. Lower corporate profits will mean lower tax revenues. Restoration of fair capital gains taxes will perhaps take up some of the slack, unless it decreases speculation and most people go back to holding their portfolios for a long time.
While all of this will be healthy for civil society, it will also reduce the sources of income for the government to run its programs—perhaps dramatically. This means in order to have an expanded social safety network, better education, and a well-maintained infrastructure, taxes will have to go up. And there is only one group who can really afford to pay the bulk of the bills, and that is very wealthy who have been hoarding it all for the past 30 years. Personally, I have no problem with this, even though I come from an affluent (and historically very fiscally liberal) family.
However, I believe the average person is also going to have to pay more, as well. I don't know what form it would take but hopefully something more reflective of the progressive rates of our boom decades—boom in the sense of rising middle-class prosperity. The European social democracies could not survive only by taxing corporations and the wealthy at higher rates. The question is whether main street is willing to pay more to get some of the things from government they once hoped would come from the market and home equity—things like a good college education, guaranteed healthcare, security in their old age, etc. One things is for sure, we better extract this money from the hoarders before they see the writing on the wall and just grab it and run.
April 4, 2009 5:20 AM | Reply | Permalink
"We should stop worrying about Wall Street. Worry about American workers."
I disagree. Congress--which should immediately stop allowing itself to be pushed aside by the criminal gang hanging out in the Oval Office--can certainly walk and chew gum at the same time.
One committee can look into the next "stimulus bill" and another committee can work on this:
http://www.pbs.org/moyers/journal/04032009/transcript1.html
April 4, 2009 10:59 AM | Reply | Permalink
I agree with you, Mr. Reich, about the schools and a green economy - I'm quite fond of Van Jones' ideas about that.
What I don't understand is how you and so many other people can talk about Wall Street as if it exists in a parallel universe populated by Republican billionaires and wholly separated from Main Street. I know you know better - that's our money - anyone who has a bank account, an insurance policy, a pension - that is the money that the banks used to make bad loans. That's the money insurance companies used to make bad investments. That's the money my retirement fund manager used to invest.
WE are Wall Street. It doesn't exist as a discreet entity in a vacuum, operating with its own motor and with no imput from the general public. If that was true,it wouldn't matter that the market crashed to anyone but investment dealers and stock brokers. But my retirement has lost half its value. I did nothing to cause that, except authorizing a manager to manage it which he has done well. It's not his fault the market dropped, either, and assets lost value. It's all tied together and it's all tied to the global markets. When Paulson let Lehman Bros go under, global markets experienced a techtonic shift and overnight we had a melt down that has affected virtually every American. Wall Street and Main Street are not separate entities - they are joined - they share vital organs.
April 4, 2009 1:05 PM | Reply | Permalink
I don't know where you're going with this, but ---
You're bank acount is insured by the FDIC; you're insurance company is sound if the state regulators you chose did their jobs; and your pension plan is safe if its trustees invested sensibly.
"Wall Street" isn't involved in any of your concerns.
April 4, 2009 1:38 PM | Reply | Permalink
Hi ellen, sorry to go way off topic - but I'm confused about the Lowell piece you linked to on the FASB decision. Seems to me she's looking at the wrong part of the summary. This bit:
"The Board decided to replace the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert
1. It does not have the intent to sell the security; and
2. It is more likely than not it will not have to sell the security before recovery of its costs basis..."
seems like the bit people are getting upset/overjoyed about - depending on who you are. Basically opens up the possibility for much vaster transfer from level 2 to level 3.
April 4, 2009 2:22 PM | Reply | Permalink
Hi HTX I really don't think "we" are Wall Street. True, they have delt us into the game, by tying our pensions etc. into their game. But they (the ultra wealthy) are always the big winners.
I believe Wall Street's original purpose - to supply capital for emerging and growing companies - has been almost totally perverted. It is now little more than a casino. That was ok, maybe, as long as the gamblers gambled among themselves. Now, though, they have included us, whether we like it or not, in their gambling. Notice though, they win, always, and eventually we lose.
How did they get us all into their casino? Remember the core lie? "Just put your money in the stock market and hold on for the long term - it will always always go up in the long run."
I think the solution is straightforward. Simply make Wall Street return to its original purpose. It should be a vehicle to provide capital to emerging and growing companies. We need to write new rules:
1. One stock means one vote. Period.
2. If one buys a stock, it must be held at least for one year.
3. Officers are elected by the stockholdrs. No golden parachutes, etc.
4. Futures, options, derivatives, whatever they want to call them, can be bought and sold ONLY by entities with genuine interest. Ie, desk Jockies in New York may not trade among themselves "Paper Oil" and drive up the price of oil skimming off profits.
I could go on, but my soap box fell over.
April 5, 2009 9:13 AM | Reply | Permalink
Holy crap, she's alive!!
Nice to hear from you again, HusseinTenaX. Where have you been, young lady?
-- ARG
April 6, 2009 12:49 PM | Reply | Permalink
We need some violence. Wall Street CEOs with burning tires around their necks, that sort of thing. I'm serious. What these people have done rates getting killed. It's the only thing that will make them hesitate to do it again.
April 4, 2009 2:00 PM | Reply | Permalink
I'm all for peaceful protests to get the point across to the brain dead in D.C., but there should also be a new Peccora Commission created so as to name the failures from the banks, to the regulators as well as Congress and the Executive branch and the rating agencies. I'm all for looking forward as Obama likes to keep reminding us, but with all due respect Mr. President, if we don't uncover the mistakes of the recent past, we will be doomed to repeat them. That seems to be the road less traveled your taking.
April 5, 2009 12:42 AM | Reply | Permalink
Robert, Absolutely excellent article. I just simply agree, agree, agree. Thank you. I hope the powers that be will start listening to you and other experts who understand this mess.
April 5, 2009 9:15 AM | Reply | Permalink
Depressions are hugely deflating; we’re not seeing that today. In the Great Depression, the GDP deflator didn’t crawl back up to its 1929 level until 1944.
As for the “trillions thrown around,” the bulk of the money is going to replace banks’ core capital. It won't be lent, and it won't be inflationary.
April 5, 2009 9:41 PM | Reply | Permalink
I know it's a depression. I was one of the casualties at the end of 07. I am middle aged, handicapped, hearing impaired and I don't look like Ms America. So, you know my job prospects are very bleak.
But I have a question, maybe someone can answer for me. In President Obama's stimulas, isn't there money for an unemployment extension?
April 6, 2009 12:04 PM | Reply | Permalink
I agree with the general outlines Robert Reich lays out, especially the need for a massive mobilization of what I term "eco-industrialization", the necessarily state-led next phase necessary in the development of industrialism, if we are to avoid the kind of situation outlined in Whitman's anti-utopian poem "Respondez! Respondez!"
So, unless what Reich and Kuttner and Nader and Krugman and many many others have been saying (broadly overlapping views) are to remain little but idle chatter, more for entertainment of the 'political class' than any real leverage, leading progressives experts must get together in a kind of summit (or extended conference over web and telephone, followed by face to face meeting) to outline a UNIFIED progressive economic plan or platform. Then this can be circulated more widely among progressive groups, blogs and individuals for refinement and alteration (probably most likely adding in factors like withdrawal from Afghanistan) and then this unified platform should be presented as a PROGRESSIVES' contract with America. It would appeal to the populist impulse now as a practical matter mostly being bid for by the RW, provide a focal point for organizing, including within the Democratic Party against many "safe district" but not progressive members of Congress. Progressives must do more than not be silent -- we must have unity and numbers and organization.
It is unlikely that anything (except something totally watered down beyond recognition) like the EFCA card check will be past. I have suggested a strategic approach for that, but what is clear is that progressives have A WHOLE LOT OF WORK TO DO to get the leverage our at least potential popularity deserves
April 6, 2009 8:09 PM | Reply | Permalink
anyone who is interested in/supportive of the idea in the above semi-rant can email me at:
cloudynuageux(at)aol.com
April 6, 2009 8:12 PM | Reply | Permalink