Tag Archive for recession

Linkage: Sachs on Happinomics, Baker Kicks Double-dippers, Yves Kicks Ezra, More


I read so damn many interesting commentaries and articles every day, I couldn’t hope to blog even a fraction of the most provocative here. So I’m going to start posting links to good stuff with (very uncharacteristically) brief comments here, if I remark at all. Right? Sure. I’ll try it.


First up, a great piece I by one of the few progressive economists who really convincingly cares about people: Jeffrey Sachs. We disagree on solutions and some other big areas, but I can’t help liking this guy, and not just because he’s buds with my little brother. His latest commentary is on “The Economics of Happiness“, and it made me smile. A quick excerpt:

[T]o promote happiness, we must identify the many factors other than GNP that can raise or lower society’s well-being. Most countries invest to measure GNP, but spend little to identify the sources of poor health (like fast foods and excessive TV watching), declining social trust, and environmental degradation. Once we understand these factors, we can act.

Baker Kicks Double-Dippers; Rasmus Kicks Back

Notoriously prescient economist Dean Baker, whose prediction of a housing bubble and its effects I started paying close attention to way back in 2003, gained lots of attention yesterday with remarks in his own blog about the prospect of a double-dip recession, or lack thereof:

Of course consumption is not really growing that fast, more likely it is increasing at near a 2.0 percent annual rate, but maybe this number will shut up the arithmetic challenged economists who keep talking about a double-dip recession.

The implication is that tens of millions of people will remain unemployed or underemployed because of the Wall Street sleazes and the incompetent economists who could not see an $8 trillion housing bubble and still don’t know a damn thing about the economy. It’s a crime that they still have their jobs.

These fighting words — which really just pile on to a more detailed argument from last week — got noticed by some economists who foresee a second dip, including one of my other favorites, Jack Rasmus, who took exception:

Baker conveniently forgets that some of the most prescient economists who predicted the recession and financial collapse back in 2007 are also now predicting that a double dip in the coming months is increasingly likely. In other words, not everyone forecasting double dip today were the polyannas predicting no recession back in 2007.

Dean isn’t without friends, though. Karl Smith over at Modeled Behavior backs him up, tentatively.

Yves Smith vs. Ezra Klein on Refi Ridiculousness

One of the Obama administration’s hairbrained ideas for boosting the slouched housing market and economy is to offer a new federal refinancing program that would of course work with private lenders to help homeowners get a new life on their equity or maybe get out from underwater.

This is dumb. Thanks to Naked Capitalism’s Yves Smith (heavily citing Adam Levitin) for speaking direct, simple truth to this silliness. Levitin shuts the idea down effectively, but Smith locks the door by pointing out that there are real opportunity costs to pursuing mediocre-at-best policies, a lesson the administration seems determined not to learn. Whereas administration pumper Ezra Klein had said “it’s worth a try”. No, Ezra, it’s really just not.

‘Who Will Help the Poor?’

This is the title question of a commentary by Dominique Moisi, who worries (as do I) that in a belt-tightening frenzy ravaging the West, the world’s most vulnerable populations are without a helping hand. I wish I had time to critique this one, as I don’t totally agree with the premises, but I am so hungry for anyone actually caring about this matter, I wanted to draw readers’ attention to it even without remark.


Managers Shifting Growth Gains from Labor to Capital


Even when the US economy is technically “growing”, it is not “recovering” in any meaningful sense of the word. Aggregate demand is down, unemployment shows no real signs of improvement, and the most productive workers in the world go unrewarded (or really penalized).

Robert J. Gordon’s keen analysis of the latest figures puts this all into perspective. The key findings here, for those mainly interested in the human impact of economics, are that corporate management has favored cutting jobs over other strategies for surviving the economic downturn since ’08. This hypothesis isn’t new, but these figures offer a pretty good illustration of just how it came about, the effect it has had, and why it persists.

When the economy begins to sink […] firms begin to cut costs any way they can; tossing employees overboard is the most direct way. For every worker tossed overboard in a sinking economy prior to 1986, about 1.5 are now tossed overboard. […] My “disposable worker hypothesis” […] attributes this shift of behaviour to a complementary set of factors that amount to “workers are weak and management is strong.” The weakened bargaining position of workers is explained by the same set of four factors that underlie higher inequality among the bottom 90% of the American income distribution since the 1970s – weaker unions, a lower real minimum wage, competition from imports, and competition from low-skilled immigrants.

Gordon has been saying this for a while, so I’m eager to see if anyone can make a case that his latest analysis is somehow skewed to uphold earlier conclusions… or if he’s just been right all along.

Gordon’s analysis also demonstrates why aggregate demand and jobs have not recovered with growth. The technical causes are interesting (a “double hangover” effect rooted in the housing market — excess housing supply and excess consumer debt), but still it is the distinctly social factor of his findings that are most relevant, to my mind.

A change in labour market dynamics accounts for about 3 million of the over 10 million missing jobs in mid-2011. This shift can be traced to weakness of labour and growing assertiveness of management.

Now, if you’re thinking, “How can this be good for the capitalists in the long run?” — you’ve got a great point. In favor of fattening their short-term coffers, capitalism’s decision-makers are taking a huge bite out of domestic consumer demand, and this has an inevitable positive-feedback effect (that’s bad in this case) on the economy and thus private-sector revenues, not to mention government revenues.

This is just another failing of capitalism — it permits elites with inordinate power to make decisions that hurt working people and the economy overall, and even probably hurt themselves in the long run. Sure, capitalism allows them to not act irresponsibly, but given the nature of humans with elitist attitudes*, irresponsibility is what is to be expected, and there is no averting it without massive intervention against market forces — which won’t happen because Guess Who decides when and where the government intervenes.

* I won’t call it “human nature”, because it could be a self-selecting special “breed” that behaves this way; though I could be wrong, we’ll never find out, since capitalism will only ever allow the disproportionately greedy among us to be tested vis a vis how they prioritize constituents when setting major business policy.

Cartoon by Carol Simpson.


The Coming Second Dip


I don’t plan to spend a lot of time on this blog writing about acute economic scenarios like our likely double-dip Great Recession, as I have my eyes a good bit further down the road. But I’ve been seeing a lot lately about us being on the verge of that second dip. I don’t do analysis on this level, but I do pay attention to it, so I thought I’d share some. The stock market is beginning to bet on that second dip, which of course doesn’t help us avert one (if that’s remotely possible).

For a light listen, NPR is on the ball with “Double Dip: Is the U.S. Headed for Another Recession”.

So how much does this matter? This report from the Economic Policy Institute suggests the mere slow recovery is having a measurably negative impact:

[T]he last six months have seen an average growth rate of less than 1%, a rate of growth that fully explains why the previously declining unemployment rate reversed course in the past six months.

So imagine what another downturn would do.

For a slightly headier review of the prospects, check out Harvard economist Kenneth Rogoff’s analysis. He notes:

But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation.

Which of those sounds most enticing? (I know my choice, if I can’t have none of the above.)

For true long-game insights, never miss Jack Rasmus. On the impending “dip” (plunge?), and how it relates to the recent debt-ceiling “debate”, Jack’s take is cynical but probably very realistic:

No wonder the stock market shuddered on Monday, notwithstanding all the “good news” about the debt deal. The performance of the real economy was far more important and “real” than all the huff and puff about debt ceilings and defaults by the US government. The alleged “good news” of the debt agreement was overwhelmed by the undisputable “real news” that the real economy was heading for a relapse.