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.
Barack Obama chows on a burger with some supporters in Muncie, Ind., just like a regular guy.
Democratic presidential candidate Barack Obama, known for his skills as an orator, conceded today that comments he made at a private San Francisco fundraiser about working-class Democrats clinging to "guns or religion" were poorly chosen.
Barack Obama's condescension reveals a man out of touch with the rhythms of American life to a degree that's hard to fathom. As Michelle says, they "chose" to "leave corporate America", and Barack became a "community organizer" and she wound up a 350-grand-a-year "diversity outreach coordinator". I've no idea what either of those careers involve, and most of us seem able to get along without them. But their remoteness from the American mainstream perhaps explains why the Obamas seem to have no clue how Americans live their lives.
And yes, I'm a foreigner. But it takes one to know one.
It's worth saying that I'm not defending Obama here. I see nothing that he needs defense from. There's no actual attack being levied that anyone can rebut, or ideas being tossed out that anyone can argue. Instead, Obama has said something Politically Damaging. And it will Damage him. And we'll all watch to see how badly.
But let's be clear: It's not damaging because we think it foretells him doing something harmful to the country. It's not damaging because it suggests his policy agenda is poorly conceived, or his priorities are awry. It matters only because it matters, not because it means anything about Obama, or illuminates anything about his potential presidency. It's a hollow scandal.
Henry Paulson is under pressure to fix the economy.
Treasury Secretary Henry Paulson's plan to overhaul the U.S. financial system includes a crucial proposal: it would officially transform the Federal Reserve into a “market stability regulator” rather than merely a banker’s bank. Is that the kind of transformation the markets need? Does America?
The Bush administration's Homeland Security regime, a massive anti-terrorism overkill that continues to burden Americans with excess regulation (and Canadians with border paralysis), may not be cost effective, but it appears to be the model for the U.S. government's assault on the financial markets.
In the wake of 9/11, George W. Bush had the U.S. government consolidate scores of agencies into one big Department of Homeland Security. The result, by most accounts, has been a dysfunctional operation that, among other things, created an expensive bureaucracy that may or may not have been instrumental in securing U.S. borders. The indirect economic costs -- in lost border trade and efficiency -- would far exceed the direct billions spent screening trade and travel.
If it didn't work well the first time, let's try it again. Treasury Secretary Hank Paulson plans to bring the same thinking to police financial markets as Homeland Security brought to policing terrorism. Hit the problem with massive regulatory intervention, consolidate scores of existing agencies, and build a new, costly and more interventionist regime.
Paulson said this week, "The blueprint is about structure and responsibilities, not the regulations each entity would write." What those regulations actually say, and how competent the regulators are in enforcing them, are obviously critical.
New curbs are needed on mortgage lending; on off-balance-sheet risk; on the opacity of new financial instruments. The blueprint has nothing to offer on any of this. And even if you accept the plan for what it is, it has another big gap. The authority of its prudential regulator is confined to institutions that benefit from "explicit government guarantees" -- meaning deposit-taking banks. But the government's safety net is not confined to firms with explicit guarantees. In emergencies, it deems other institutions (such as Bear Stearns) too important to fail.
Ingenious as markets may be, an exaggerated cycle of credit-driven boom followed by panic-induced bust is neither desirable nor necessary. Better financial regulation can help to attenuate the ups and downs. It is a matter not of more regulation or less, but of making the rules smarter. How to do that is a discussion that has barely even begun.
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.
Kids living with their parents well into their twenties is an old story. But with a worsening U.S. economy and possible recession comes a bizarre twist, according to the Associated Press: "Kids" in their thirties, forties and even fifties are moving back home with their parents, the victims of a harsh economic climate.
So, if family members are helping each other out in times of financial stress isn't this a good thing? Is the AP against family members being there for each other in times of need, are they trying to say that families helping each other out is somehow a bad thing? Or is it that the AP would prefer the government to do all the "helping"?
In the final analysis, this story offers no proof of the claims made at all. But it does do one thing very well and that is the only purpose for this story. It gives an uninformed, unquestioning reader the distinct feeling that everything in America is bad today. And all this during a presidential election where news of a bad economy will help Democrats, too.
Imagine that.
Back in the 1950s, 1960s, and early 1970s, three factors helped facilitate the transition to adulthood. First, there were jobs that provided good wages even for high school graduates. A college degree wasn't necessary to earn a decent living. And if you wanted to go, college was far more affordable. The second was an economy that lifted all boats, with productivity gains shared by workers and executives alike. The result was a massive growth of the middle class, which provided security and stability for families. Third, a range of public policies helped facilitate this economic mobility and opportunity: a strong minimum wage, grants for low-income students to go to college, generously subsidized state college tuition, a reliable unemployment insurance system, enforcement of the right to join a union, major incentives for homeownership, and a solid safety net for those falling on hard times.
This world no longer exists.
