When Does A Great Recession Become a Full-Fledged Depression?
Economists have their standard definitions. They work their numbers and proclaim when we are in a recession, out of a recession, when an economic recovery is taking place, and when that recovery is merely hitting a “soft patch.”
But really, who but the media, government officials, and economists themselves take these definitions seriously anymore when it comes to reflecting reality as experienced by most Americans? These days, not many people.
For most Americans, the recession didn’t end two years ago, economist definition notwithstanding. A recovery did not begin then. And the “soft patches” that have been occurring regularly in the last two years are not natural and unavoidable dips on the road back to traditional American economic well-being.
The country is still wallowing in recession. Unemployment has been vacillating between awful and getting more awful. Employment itself, except for those in the top economic rung, is not leading to any improvement in economic lifestyles, but rather a slow contraction of these lifestyles.
Given these realities, and the curiously detached mode of economist reportage, it is unlikely we will hear the “D” word uttered soon by these bean counters, or the media and public officials who employ economist terminology in their own economic descriptions. From them you won’t hear that we are on the lip of of full-fledged depression. But we are.
The tipping point that will push us into this full-fledged depression is the imminent dramatic cut back in federal spending. A dominant Republican fringe demands it. A beaten Democratic Party, unwilling to fight for the sensible alternative, taxing the cosseted rich, will enable it.
Unemployment will rise dramatically in the wake of these cuts. The spending power of a large segment of the population, already spending stressed, will evaporate further. A now virtually growth-less economy will remain officially flat or sink — though not enough to evoke the official “D” word.
An economic depression, though, isn’t really about numbers. More than anything it’s a frightened and beaten feeling that spreads through a national population. A pervasive feeling that no matter what most people want, how hard they work or seek work, how thrifty and prudent they become in their personal lives, the only major changes that will actually result are those that serve the wishes of an all-powerful minority. Which leads to a loss of hope that undermines an ability to rise out of a downward spiral.
So then, When does America’s Great Recession morph into a new Great Depression? I’m pegging the start date as this coming Tuesday, when our addled political class somehow manages to avoid formal default by agreeing to screw almost everyone else while defending the inalienable right of our top 1 percent of earners not to be deprived of a tiny slice of their wealth.
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5 Responses to “When Does A Great Recession Become a Full-Fledged Depression?”
No, the financial system is broken — hopeless broken. The politicians either can’t or won’t (same dif) fix it, and the real main street economy is teetering under its weight.
We’re drawing out a great depression into a really long recession, and since that won’t fix anything, we’ll probably end up in a depression anyway.
… or something worse.
A federal government debt trap (from grossly excessive spending, which many on the Left want) or significant inflation (which many on the Left want) will likely be the things that would make things worse.
(And the spending in no way guarantees anything good other than for that and those on whom the money is spent, and even then not always.)
What no one is willing to admit is that we are in new territory here. With oil between $90 and $100 bbl growth will be anemic. Between 100 and 110 it will be stagnant and above 110 it will be negative. It’s not the debt, it’s not taxes – it’s the oil. And drill baby drill won’t work. The US does not have enough reserves to impact the global price of oil. Many of the new sources of oil will take more than $110 bbl to produce so no help there anyway. The world economy is going to be reinvented whether we like it or not.
The debt has nothing to do with job creation.
There would only be two reasons why national debt ruins job creation:
1) the government eats up all available capital. This makes the cost of borrowing so high the cost-benefit analysis for expansion or improvement starts to fall apart, hence businesses don’t invest & grow. This is not happening, interest rates are still at record lows.
2) taxes end up eating into profits or gains so much it takes away from companies’ ability to invest and grow. This is not the case, taxes as a % of GDP are at their lowest level (http://blogs.reuters.com/felix-salmon/2010/12/06/chart-of-the-day-u-s-taxes/).
Not saying that debt isn’t bad, just pointing out that, factually, our current deficits & debt are not what’s hampering our job creation.
What is hurting job creation is:
– banks have tightened their lending to cure their own shredded balance sheets (although apparently that’s turning around)
– more importantly, labor costs in this country are so much higher than in competing countries, savvy companies are moving production offshore or investing in existing operations offshore
– 20 years worth of production offshoring means the U.S. economy is based more on consumption than production. An economy that is based more on consumption than production cannot be sustained.
If we want jobs back, a) banks must begin lending again, b) the cost curve needs to shift to make this country affordable again, and c) the economic balance needs to shift back to production and away from consumption.
And before you say “well, taxes hurt that cost curve”, remember that labor costs greatly outweigh tax expenditures for businesses by a great deal. Nothing beats offshoring of labor for saving money.
Barky, the interest rates are only a rough indicator. If businesses don’t want to take risks, they won’t be issuing bonds, so the markets will be left with government bonds, which will lower the rates on government bonds.
QE1 and 2 also artificially lowered rates.