Americans believe the economy is in a recession. But is it true?
Just how bad is the U.S. economy? Who's asking? More important, who's answering?
The conventional wisdom is not always wrong. But because it depends so much on emotion, it can often mislead. As a result, it is in times like these that economic fundamentals become so important. Rather than dwelling on the bad news coming from the financial and housing sectors, we believe it is important to look at the underlying drivers of the economy. And those look very solid.
Back in 2002-03, the household measure of civilian employment was much stronger than the payroll survey, signaling economic recovery. However, at the time, many prominent economists, including Alan Greenspan, (wrongly) argued that the payroll survey was right about the economy, not the household survey.
Then, in late 2007, the household survey was weaker than payroll growth, signaling slower growth and gaining some adherents now that it was showing weakness. But in the past few months, the household survey -- which we have followed closely all along -- has turned up strongly. In the first four months of 2008, when the payrolls survey shows a loss of 65,000 jobs per month, the household survey shows a gain of 179,000 per month.
Look for more positive economic data in the months ahead, as the most predicted recession in U.S. history never comes to pass.
As of spring 2008, we're probably just a third of the way through the unfolding debacle in the housing, credit, and financial markets. In political and regulatory terms, the ultimate problems and remedies have only begun to define themselves.
We're not just looking at an ordinary recession. Since the 1970s, the United States has redefined itself from a manufacturing nation to a financial economy built on debt, leverage, and a considerable ratio of speculation. Both political parties have been complicit in this, and the downturn now beginning will be unusual and potentially tragic.
The lesson of history is that previous leading world economic powers, from Rome and Imperial Spain to the Netherlands (back when New York was New Amsterdam) and early 20th-century Britain, have been unable to reform themselves in time to avoid decline. Politics has failed in the face of entrenched interests. In the process, excessive debt and dependence on finance rather than production has been front and center. New nations move to the head of the line -- and these days we can see Asia smiling.
Government food programs are getting more business lately.
U.S. government statistics show that as a new economic recession stalks the United States, a record number of Americans will shortly be depending on food stamps just to feed themselves and their families.
It's been said the press notice the homeless problem only when a Republican's in office. The same could be said for food stamps, which the media now are using as an economic indicator.
Scary headline in Monday's Times: "As Jobs Vanish And Prices Rise, Food Stamp Use Nears Record." Scarier headline in Britain's Independent: "USA 2008: The Great Depression."Why didn't the Times editors just say: "Economy In Shambles — It's All Bush's Fault"? Or the Independent condemn the president for his war on the poor?
Despite the many reasons not to use food stamps to gauge economic health, the media still do it. They're sure that many voters will make their choices this fall based on what the press tells them. Things will change, though, if a Democrat is elected president. Expect to start seeing glowing reports on the economy about a year from now — no matter what shape it's in.
For more than a decade, we Americans have been living on an economic San Andreas fault--a foundation of fracturing competitiveness covered by unsustainable consumer spending with money borrowed from foreigners. A financial earthquake was inevitable. We don't know how high on the recession Richter scale the current crisis will take us, but it increasingly looks like, as they say in San Francisco, "The Big One."
But well short of such a worst-case scenario, the country seems headed for major economic damage that will severely test whatever we have left of safety nets. It took five years from the time the recovery began in 1983 for the unemployment rate to return to pre-recession levels. Once we reach the bottom of this trough, it could be a very long time before American consumers, whose spending accounts for some 70 percent of our economy, crawl out of the debt hole and back into the shopping mall. The Japanese have still not recovered from their similar housing/debt crash in the early 1990s.
Mister, we can't use a man like Herbert Hoover again.
Herbert Hoover is a catch-all for political and economic ineptitude in the face of a fiscal crisis. With the United States facing its latest economic slowdown, both parties are pointing fingers and accusing the other of embracing Hoover in some way.
Who is doing such pressuring these days? Not Bush, but that Hoovermonger, Charles Schumer. Schumer used the Bear Stearns collapse to call for "a greater degree of regulation" in the industry that is relevant this time, investment banking.
Hoover knew free trade was beneficial. But his party, the Grand Old Party, was the tariff party. So in spite of himself, he signed a big new tariff, the Smoot-Hawley act, triggering retaliation from U.S. trading partners.
For many decades now, Democrats have contrasted Hoover's concession to protectionists unfavorably with free-trade legislation written by Roosevelt and his globalization guru, Secretary of State Cordell Hull.
Today it is the Democrats who are doing wrong, and they know better. Candidates Hillary Clinton and Barack Obama are both internationalists by temperament, yet they seem to be in a race to see who can repeal the North American Free Trade Agreement first.
Though Bush may be viewed as a laughingstock, he won't have the zero-integrity factors that have kept Nixon and Harding at the bottom in the presidential sweepstakes. Oddly, the president whom Bush most reminds me of is Herbert Hoover, whose name is synonymous with failure to respond to the Great Depression. When the stock market collapsed, Hoover, for ideological reasons, did too little. When 9/11 happened, Bush did too much, attacking the wrong country at the wrong time for the wrong reasons. He has joined Hoover as a case study on how not to be president.
