Paul Krugman finally came out and said it on his NY Times blog today:
"The fact that the economy may be technically in recovery is irrelevant."
It's linked here in a brief comment: "The purpose of stimulus."
The purpose of stimulus
Paul Krugman
September 4, 2009, 11:42 am
Just a brief reminder. Industrial production is now rising; so, probably, is real GDP. Given the way the official business cycle dating committee dates recessions, this probably means that the recession -- again, as officially defined -- is over.
Krugman continues...
But unemployment is still very high and rising. As Calculated Risk points out, long-term unemployment -- which is the most destructive in human terms -- is at its highest level recorded since the Depression.
And the purpose of stimulus is, first and foremost, to mitigate unemployment. The fact that the economy may be technically in recovery is irrelevant.
For the record, I've been saying this for many months, and catching quite a lot of grief for it, as well. But, from a sheer political standpoint--and this is a political blog--common sense dictates that as long as we have high unemployment (anything over 8%, IMHO), any talk of a recovery is going to fall on voters' deaf ears.
This is not "gloom and doom," it's a massively negative political reality that's already biting a lot of elected Democrats in the ass, too. The fact is the situation is far more severe than the MSM is letting us know. IMHO, the very last thing that the administration should be doing is downplaying the severity of the situation. Instead, they should be reminding us, everyday, that we're, indeed, in a Depression (and we should be calling it that, too--again, never mind the "official" and/or "technical" definitions), primarily caused by eight years of Republican mismanagement of our economy.
Lastly, the administration should be reminding the public--every damn day--that if it wasn't for their insistence and decisive action when they took office, 'if we think things are bad now, imagine how bad they'd be if we didn't at least have the first stimulus program in place and being implemented now.'
But, that's not what's happening. Appeasement of the GOP continues--no matter what the topic--across the board. What's the point? It's is a lost cause; especially when more stimulus funds are needed on Main Street, right now, to support the shredded social safety net which is also a legacy of Republican mismanagement and Democratic appeasement (of the right) of/in administration's past, as well.
If we keep saying "things are getting better," while, in fact, things continue to deteriorate--because the situation was/is far worse than most realized, both in the previous and current administrations and even in some parts of the blogosphere--this does little more than strengthen the case against political support for additional, badly-needed stimulus for Main Street; and, conversely, it supports the Wall Street mentality which is to suck as much cash and related commitments from taxpayers as is possible.
The truth is, this economic nightmare--again, everyone, say it out loud and keep saying it--"that Republican mismanagement has wrought" isn't even close to being over (see additional info and links, below). Glossing over it undermines our entire Party's positions on most issues, too--from healthcare to other social programs to drawing down our military forces abroad to support for the jobless, and on and on.
It's "old school," and dammit, it works! (Okay, dress it up and update it, but this is a long-proven, effective tactic.)
I could recite a litany of reasons why this methodology hasn't been used more extensively, to date (i.e.: "deep capture," deficit hawks, "the banks own the place," etc., etc.), but what's the point?
Do you really think downplaying the suffering on Main Street, and hyping an "irrelevant technical recovery" does anything other than build a case for driving more funds to bailing out Wall Street? (And, yes, the vampire squids are out already with their hats in their hands and that lobbying fervor is just going to escalate over coming months, too.)
Not only is downplaying of Main Street's suffering wrong from a political standpoint, but from a professional standpoint--as someone who's spent the better part of his career in the media--it morphs into a textbook example of what not to do, too!
Yves Smith, over at Naked Capitalism had something to say about this very issue this evening, in her own words: "Stiglitz Doubts Recovery Can Be Sustained."
Stiglitz Doubts Recovery Can Be Sustained
Friday, September 4, 2009
Yves Smith
Naked Capitalism
Joseph Stiglitz takes issue with the view of economists (well, economists surveyed by Bloomberg and the Wall Street Journal, which not surprisingly have a Pollyannish optimistic streak) that the economy is in or on the verge of a recovery.
The real issue is the ongoing con job. Team Obama has made it clear that it sees restoring confidence as paramount, when anyone with consumer marketing experience will tell you that advertising campaigns that make exaggerated claims about the product often don't simply fail (as in customers see through the hype) but often backfire (buyers discount future ad messages about the product). The press has had a manipulated feel, with readers on sending news stories that have misleadingly positive stories with Panglossian headlines and upbeat initial paragraphs that are often undercut by other material in the same article.
So in our new branding, "the economy is no longer in a freefall" has become "recovery." The self-congratulatory tone among US financial regulators (who should instead be engaging in serious self-recrimination for failing to foresee and prevent this crisis) is premature. The financial system has been patched up and put back together with considerable continued official support, and more important, policies in place that allow banks to go back to the craps table with the taxpayer sopping up any mess. This is not a sound foundation for growth...
Yeah, the truth hurts, I know. But, this marketing problem is fixable!
NEW STATISTICAL DATA TELLS US THIS REALLY IS THE WORST ECONOMY SINCE THE GREAT DEPRESSION:
As I indicated above, new information (available for the first time over the past couple of days) is now coming to light which is outright telling us the economy's in far worse shape than many realize (again, please do not look at my words and conflate this with criticism of the current administration--it's not--it's about emphasizing the mess team Obama's had to contend with since the very first day they were in office), and here are just three really prime examples of this from the past 48 hours (and, IMHO, you really should take the time to read this fascinating new material--complete with compelling graphics):
Links to three sets of graphics--info that many in this community may not have seen before--that support the harsh realities discussed herein:
From Yves Smith, over at Naked Capitalism, we have her graphic synopsis of a much greater body of work at the Economic Policy Institute: "Unemployment: The Harder You Look, The Uglier It Appears." The small charts here give the reader virtually irrefutable detail and confirmation that what we're experiencing now is the worst economy since the Great Depression.
And, in line with Yves' commentary, there's this from Ed Harrison, publisher of CreditWritedowns.com--a genuinely compelling "100-month" chart reviewing unemployment, dating back to 1939:
"Unemployment Claims Stuck at 570,000."
A powerful document, with tons of graphics in it, as well, from David Rosenberg, a person who was considered (until he left BofA, our country's largest bank, a few months ago), arguably, Bank of America's leading analyst on the economy: "Lunch with Dave." Dave's observations about yesterday's Employment Situation Report from the US Department of Labor are nothing less than stunning! Hold onto your hats and say a few prayers, because the most recent BLS' Household Survey tells us (barely, as Rosenberg notes, they definitely downplayed it in the press data) 1,000,000 people lost their jobs in August, an all-time record.
And, anecdotally, from the pundits:
We're being told by many that we're looking at a "recovery" that, from a technical standpoint, may actually take from 10-20 years to fully materialize. Here's Bill Gross, CEO of PIMCO, the largest bond fund in the world, and the person who's taking credit for the phrase, the "new normal," "On the 'Course' to a New Normal."
Ambrose Evans-Pritchard is saying it's going to take up to 25 years until out economy regains the ground to return us to where we were at in 2006-2007: "Our quarter-century penance is just starting."
But beyond the pundits, it's getting to the point where the reality--even in the MSM--is beginning to dispel the spin in a series of very human analysis pieces of the damage being done on Main Street right now: "Housing's `Poverty Effect' Fouls Up U.S. Rebound."
Housing's `Poverty Effect' Fouls Up U.S. Rebound
Commentary by John F. Wasik
Sept. 2 (Bloomberg) -- The loss of some $7 trillion in household wealth is an albatross around the neck of the economy.
This dour effect is clipping a robust recovery. Millions who have little or negative home equity are shackled to houses they can't sell and a debt burden that keeps them from moving ahead. They can't save, either, although they desperately need to boost their cash reserves.
Not a week goes by when I don't hear from a friend or neighbor who can't sell their home or get a decent price for it. They were counting on the proceeds to fund retirement or simply get on with their lives and careers. They weren't planning to go out and buy boats and big-screen TVs. Most Americans are suffering from the opposite of the wealth effect: a creeping sense of poverty.
The loss is about $54,000 per home if you average out the $7 trillion among 130 million U.S. housing units (including rentals), according to an estimate by the economic blog http://www.newobservations.net, based on Federal Reserve data.
And, some more substantive reportage:
"Retailers report sales declines for August."
"Death of the Consumer."
"People in poverty increased at least 12.7% in 2008."
"Number Of Poor In U.S. Likely Increased By 1.5M Last Year"
Tonight, as we head into what may very well be the most ironic Labor Day in our nation's history, I wanted to leave you with more of Harrison's sentiment, since I think he's pretty much hit a bull's eye in his assessment: "Weakest employment market since the Great Depression."
Weakest employment market since the Great Depression
Edward Harrison
Credit Writedowns.com
...So, my conclusion is three-fold.
1. This is not the Great Depression II, but it is indeed a serious crisis - much more serious than 1973-75. That makes this downturn more akin to the Great Depression than it does to other economic recessions in the post World War II period.
2. The downturn would have been greater had it not been for the policy response. Policy makers have thrown everything they could at the problem - some would say too much! It is simply misleading to suggest that economic stimulus including fiscal stimulus has not pumped up the economy. I would argue that we are about to see that not enough stimulus was provided to avoid a potential relapse - something I have been saying since before Obama came to office. It is this fact that has left the door open to claims like Meltzer's.
3. I will leave it to the ideologues to debate the correct response. But if a 1937 outcome arrives, you will know why. I have said my piece about easy money; it was ineffective in bringing on sustainable recovery in 2001 and precipitated a more calamitous downturn. I don't think things will be different in 2009. But, that leaves the question of budget-busting fiscal stimulus - the crux of Meltzer's article. There are some who think it better to swallow a bitter pill and let the downturn happen a-la Warren Harding in 1920-21 (see Wikipedia here and here). I have sympathy (as I suspect Meltzer does) for that view because of malinvestment that stimulus is likely to induce; Just look at China today. But I do think it is that sort of severe downturn which gave us Hitler and Mussolini and I worry about a 1937-style outcome.
There are no easy answers here. Difficult policy choices must be made and the outcome based on these choices is far from clear...
And, again, with regard to my Labor Day sentiments, with record amounts of Americans heading into--or already in--poverty right now, as well as 500,000 people going off of their jobless benefits in the next 26 days, followed by another one million Americans doing the same over the fourth quarter of this year, and with the extent of our unemployment crisis pretty much trumping everything else, it's well past time for a second Main Street stimulus, with intensive WPA-like employment programs as an integral part of it.
Because when everything's said and done, on Labor Day Weekend 2009, while "...there are no easy answers here," the one thing Main Street's definitely not experiencing anytime soon is a real recovery.