Early on Thursday morning, New Year's Eve Day, Joseph Stiglitz and Simon Johnson, two of the folks whom I believe are among the most intelligent and spot-on economic thinkers in the world--while they were roughly 12,000 miles apart--came to some surprisingly (if not downright eerily) similar conclusions in the same hour. More about that in a moment. But first, since just about every armchair blogger with an opinion on the economy has been providing their prognostications about the economy in the new year, ahead, I thought I'd provide you with some "predictions" on our economy, as well.
ECONOMIC "FORECASTS"
Here are some "predictions" on the economy for the decade ahead:
"ECONOMIC FORECASTS" (continued)
a.) The labor force will become older and much more racially and ethnically diverse, as will our society as a whole.
b.) The long-term shift we've been witnessing in our economy, moving away from the manufacturing sector to the service-providing sector, will continue throughout this period, to the point where the service sector--not the manufacturing sector--will account for almost ALL employment growth in the labor marketplace.
c.) Total employment will increase by only 10.1%, through 2018, and this will concurrently mean that the labor force participation rate--those holding jobs or seeking work as a percentage of our society--will continue to drop to record lows in the 54%-55% range (since we're already setting new records with regard to this statistic, as I write this).
d.) Young people--those 16-24 and in a demographic group that is among those most severely affected by the current recession--will find it increasingly difficult to find work; almost half of all people in this age segment that want to work or are looking for work will not find employment.
e.) The unemployment rate will drop to 5.1% by 2018.
f.) The average annual rate of gross domestic product (GDP) growth during this entire period will be 2.4%.
According to most economists, and referring to Okun's Law (which really isn't a "law," but what most economists reference when discussing the correlation between gross domestic product and employment/unemployment), we need real GDP growth between 2.5% and 2.75% in order to add jobs (net positive job growth) to the economy. Alternatively, through attrition and/or folks who may just give up seeking work and/or extremely modest job growth, if any (as prognosticated above), the unemployment rate may improve.
By the way, these are NOT my predictions, stated above. (Remember? Up above, I said I'd "...provide you with 'SOME' predictions on our economy, as well.") They're the most recent forecast(s) from the U.S. Department of Labor's Bureau of Labor Statistics (BLS), for the period 2008-2018, as published on Thursday, December 10th, 2009. You may read all about it, right here: "Employment Projections: 2008-2018 Summary."
Yes, reiterating:
1.) our government's now forecasting that GDP will be, on average, quite sluggish for most of the next decade;
2.) as a percentage of those in our society, fewer people will have jobs than is the case as I write this (in the midst of our nation's most difficult unemployment slump since the Great Depression);
3.) and, the overall unemployment rate will return to--a level that we used to know as--"normal" in about nine years!
Please consider these truths the next time you read something in the blogosphere that throws around a bunch of government-provided eye candy (i.e.: charts, graphs, etc.) as you're being told all things relating to the economy are "stabilizing." Yes, please ask that diarist about the December 10th, 2009 Bureau of Labor Statistics' forecast through 2018, as I'm indicating the talking points related thereto, herein.
The Angry Bear had some interesting commentary on all of this from a couple of days ago: "Older workers working longer; labor-force participation falling."
Now, on the other hand and as some of you may already know, if you've been reading my diaries over the past couple of years, I'm not a big fan of our government (regardless of whomever's in power) when it comes to the accuracy of their statistics on the economy, in general. (So, based upon what I've just mentioned, above, that is a good thing!) In fact, I've provided numerous diaries demonstrating sound quantitative and qualitative reasons for my position on this issue over the past few months. (Here's one of my more recent posts on this topic: "Breaking: BLS, Fed, BEA, et al 'Overstate Strength of Economy.' ")
THE TRUTH ABOUT INACCURATE GOVERNMENT STATISTICS CUTS BOTH WAYS;
AND, "...THAT'S A HELL OF A HUGE 'LAGGING INDICATOR' YOU'VE GOT THERE!"
So, while I question much of the publicized government data about our supposed "recovery"--and our economy in general--I did want to make this effort to point out that when one takes the time to actually LOOK and LISTEN to what the government's telling us, statistically speaking (even if these are "forecast" stats that aren't receiving much notice), the reality is that our own government's forecasts should be looked upon with a big grain of salt, across the board. And, that goes for the bad news as well as the good! So, the next time you read a diary where someone's optimistically touting a myopic/selective set of supposedly-positive government stats, ask them about those "unstated" truths relating to the most recent, over-arching government prognostications that bring a new meaning to the statement: "...unemployment is a lagging indicator of a recovering economy!"
I mean, if nothing else let's get real in 2010 folks! Nine years--which is when our own government's most recent forecasts indicate we'll reach 5.1% unemployment--is one hell of a "lag!"
Restating the matter(s), as our own government is telling us now (see the link, above):
1.) A recovery that includes a return to a sustained period of reasonable unemployment levels--at least at those levels in line with what we've experienced as "reasonable unemployment" in the past--is not going to happen for at least another eight to ten years.
2.) Talk of improved numbers in the manufacturing sector, while the service sector (which accounts for more than 80% of our country's overall economic output) continues to tank, is really just a diversion from reality. This is further supported by the government's own forecasts/projections, too!
3.) Virtually all employment growth--whenever it occurs--throughout most of the next decade will occur due to traditional attrition, weak improvements in the job creation rate, and as a somewhat twisted result of a declining labor force participation rate.
But, to be clear about this, my opinions about our government's stats cut both ways. Contrary to the flames of some, I'm not about the "gloom and doom." I'm a realist and I'm at least as adversely impacted (if not moreso) by our struggling economy as most of those reading this.
You see, I truly believe that as long as we learn from our past mistakes, and combine that properly interpreted knowledge with a more creative approach and aggressive focus upon job creation--instead of opting to stuff the pockets of our status quo with every available taxpayer-funded Wall Street bailout penny--we may once again prove our government's numbers (whether they're extremely scary projections into the next decade or just the previous month's overstated employment situation report) wrong; but in the most positive of ways, going forward, as well!
Then again, what have we really learned from our past mistakes?
GREAT MINDS THINK ALIKE: "HARSH LESSONS WE MAY NEED TO LEARN AGAIN"
Nobel laureate and Columbia University economics professor Joseph Stiglitz (again, the person who still gets my vote for the most important thinker on the planet--an opinon that appears to be shared by most of the leaders of governments throughout the world except for the U.S.--but someone who's leadership on all things economic and ecological is all but deliberately ignored by our own government) provided us with his sublime wisdom, yesterday. IMHO, it truly is profound: "Harsh lessons we may need to learn again."
(I hope the irony isn't lost on those reading this as it relates to the fact that I'm referencing China Daily regarding the latest public comments from the world's most highly-respected economic thinker--a Nobel Prize-winner born in Gary, Indiana and a former head of the President's [Clinton administration] Council on Economic Advisors who's also a highly-distinguished economics professor at President Obama's alma mater.)
Harsh lessons we may need to learn again
By Joseph E. Stiglitz
2009-12-31 07:51AM
China Daily Op-Ed Page
The best that can be said for 2009 is that it could have been worse, that we pulled back from the precipice on which we seemed to be perched in late 2008, and that 2010 will almost surely be better for most countries around the world. The world has also learned some valuable lessons, though at great cost both to current and future prosperity - costs that were unnecessarily high given that we should already have learned them.
Stiglitz continued on New Year's Eve Day to explain those "...harsh lessons that we may need to learn again." They are:
The first lesson is that markets are not self-correcting. Indeed, without adequate regulation, they are prone to excess...
--SNIP--
Under the threat of a collapse of the entire system, the safety net - intended to help unfortunate individuals meet the exigencies of life - was generously extended to commercial banks, then to investment banks, insurance firms, auto companies, even car-loan companies. Never has so much money been transferred from so many to so few...
--SNIP--
...The second important lesson involves understanding why markets often do not work the way they are meant to...
--SNIP--
...The third lesson is that Keynesian policies do work...
--SNIP--
...The fourth lesson is that there is more to monetary policy than just fighting inflation...
--SNIP--
...The fifth lesson is that not all innovation leads to a more efficient and productive economy - let alone a better society...
--SNIP--
...innovation was directed at perfecting the exploitation of those who are less educated, and at circumventing the regulations and accounting standards that were designed to make markets more efficient and stable...
Less than an hour before Stiglitz' piece appeared in the China Daily, this was posted by Simon Johnson over at the NY Times Economix blog (where he ironically/eerily parsed some of Joe Stiglitz' thoughts, too): "Lessons Learned But Not Applied."
Lessons Learned But Not Applied
By SIMON JOHNSON
NY Times Economix Blog
"Today's Economist"
December 31, 2009, 7:06 am
...In the 1990s, the Clinton administration amassed a great deal of experience fighting financial crises around the world.
Some of the Treasury's advice at the time was controversial ...
--SNIP--
...Failing financial systems needed to be fixed upfront because it offered the best opportunity to address the underlying problems (e.g., banks taking excessive risks). If you delay attempts to change until a recovery has begun, the banks and other crucial players are powerful again, and thus more resistant to change.
In a speech to the American Economic Association in 2000, Lawrence H. Summers -- the primary strategist during the crisis -- put it this way:
"Prompt action needs to be taken to maintain financial stability, by moving quickly to support healthy institutions. The loss of confidence in the financial system and episodes of bank panics were not caused by early and necessary interventions in insolvent institutions. Rather, these problems were exacerbated by (a) a delay in intervening to address the problems of mounting nonperforming loans; (b) implicit bailout guarantees that led to an attempt to "gamble for redemption"; (c) a system of implicit, rather than explicit and incentive-compatible, deposit guarantees at a time when there was not a credible amount of fiscal resources available to back such guarantees; and (d) political distortions and interferences in the way interventions were carried out..."
Mr. Summers now heads the White House National Economic Council and is the Obama administration's top economic adviser. He is surrounded by experienced staffers from the 1990s, including Timothy F. Geithner (then the assistant secretary of the Treasury and heavily involved in the details of the Asian financial crisis; now Treasury Secretary) and David A. Lipton (then under secretary of the Treasury for international affairs; now at the National Economic Council and the National Security Council).
--SNIP--
We should ask ourselves whether this group applied in the last 12 months what it learned in the 1990s?
The group pushed early and hard for fiscal stimulus, which played the same role in stabilizing spending in the American economy as properly scaled lending by the International Monetary Fund did for weaker economies in the 1990s. At this level, the Summers group drew sensible lessons from the 1990s--listening finally to Joseph E. Stiglitz (then chief economist at the World Bank and now at Columbia), who stressed the importance of easing fiscal policy.
But in terms of the handling of the financial system, the Summers-Geithner-Lipton approach this time is at odds with the views and actions of a decade ago...
As we head into 2010, and to answer Stiglitz' question in the headlines above, I would posit that, based upon the current actions of our government--specifically, the totally "captured" reality and subsequent charade that's underway in our nation's legislative branch that is being referred to as "regulatory reform"--we haven't "learned" much.
In fact, I've blogged about this extensively over the past year: here, here, here, and here, to link to just a few of my more recent posts on these issues.
While some in the MSM and the blogosphere are totally ignoring these truths, others in the online universe would appear to concur with my sentiments, such as DKos and HuffPo diarist gjohnsit, as recently as New Year's Eve, in fact: "Washington prepares for another round of Wall Street bailouts."
And, in just the past day, after glancing through the list of diaries that have been posted here, I quickly spotted three others: here, here and here, from diarists TomP, Route 66 and deepsouthdoug, respectively, to cite a few others, as well.
However, when Joseph Stiglitz and Simon Johnson simultaneously tell us almost the exact same thing on New Year's Eve Day--within the same hour, albeit 12,000 plus-or-minus miles apart--maybe we really should pay attention to their warnings?
So, it is with sincere hope for our future well being--while still trying to do my part to keep it real--that I wish you all a very happy, healthy and prosperous New Year!
Peace!