Nouriel Roubini is as optimistic as he'll ever be that the current deep recesion isn't going to continue on into an outright replay of the total economic collapse of 1932-1933. He credits the government's interventions for averting total collapse, though he still gripes they aren't sufficient, especially when it comes to banks that he gripes are still insolvent no matter what the so-called "stress test" said. On the other hand, he still sees the global economy contracting this year, and stagnant next year.
For what it's worth, my reading of the tea leaves shows similar issues, but the main problem I see is employment. The main problem we're going to face here in the United States is that we're going to have 10% official unemployment (and 20% unofficial unemployment) by the end of this year... and no hope of jobs for those people since the economy is not going to grow next year. I worry that we're entering a time of structural unemployment at a time when the country is ill-suited to deal with that kind of problem. Unlike the 1930's people no longer have large extended families to help them through hard times, and unlike the 1970's and early 80's the social safety net has largely been dismantled and once unemployment benefits run out, there is going to be a *lot* of homeless people on the streets. And if you have that many unemployed homeless people, social disorder is sure to follow.
In short: Something has to be done here. I hope we can avoid FDR's make-work projects -- those basically institutionalized unemployment during the Great Depression, people "on relief" rarely looked for jobs elsewhere even after the economy turned up and jobs started being available again. But I am not seeing the sort of fiscal stimulus coming out of the Obama Administration that's going to result in a lot of economic activity to take the place of the failed businesses that are causing this unemployment. Given that, my fear is that there is going to be a *lot* of political pressure for "easy" but counterproductive things like extending unemployment benefits pretty much forever, thereby giving people no incentive to look for work... it is far, far better to have jobs, than to just give people money, because with jobs at least they're adding *something* to the economy, even if the government has to subsidize those jobs with "job creation tax credits" or whatever...
-- Badtux the Economics Penguin
OK , I see what you say , but what about Me ? And , people like me . I worked 25 plus years as a Mechanic , got run over by a car , in the shop . Healed up on 'workers comp' but now I have totally lost my nerve to work on running cars . I'm 55 going on 56 , besides my variouus automotive repair skills , I don't have doodly squat for back up skills . Before being a mechanic I worked in 'the woods' for almost 10 years . Waaay too old for that kind of shit (dodging falling trees) now .
ReplyDeleteSure , I have lots of building , plumbing and electrical/electronic skills . Hell I've fixed mine and friends microwaves , washing machines , minor computer repair as well as anything under the hood .
But here I am , ready (more or less) for another 10 or 15 years till I am qualified for my meager SSI (providing "they" don't F it up in the meantime). I unfortunately quit a really terrible mech. job like a year ago Feb. Lived on my "settlement" and some "side jobs" since then . Also since then , the economy has evaporated ! I would love about ten years of government paid
"trail building" or whatever they dream up . Sure I'd rather become an appliance repairman or IT. repair , or any one of a number of other jobs where I can use all of my "Life Skills" like auto parts or service manager . Right now ,
" frys with that " seems a long way off . A Gov. "shovel" job would be just perfect for me .
Stimulate away , however they can .
a soon to be broke w3ski
I do not agree with Roubini that enough has been done to avert a collapse ala 1932-1933. By my calculations we are mirroring the economic collapse of the Great Depression and we are at the same point in our trajectory of decline that the economy was in the spring of 1931. The economic shocks kept coming in the 1930's.
ReplyDeleteGoing forward we have to deal with two more economic shocks that are not part of the data to date. The Mexican economy has been devasted by swine flu and Mexico is our second largest export market behind Canada. We sell more stuff to Mexico than we sell to France and Germany combined. This does not count the large number of Mexican Nationals that enter the border states to shop in the U.S.
We also have to deal with the economic shock of losing almost two thousand car dealerships aligned with Chrysler and GM. In some cases profitable dealerships with no competitor within dozens of miles have been mysteriously and arbitrarily closed devastating many small communities.
We were heading to a 10% plus unemployment rate without these two shocks. More shocks are coming. The only solution is to reflate the money supply and fix the croken credit markets. So far Washington has accomplished only about 10% of the task at hand with all of its programs to date. Yes, something is better than nothing.
But the thing that caused the collapse of 1932 was the utter collapse of the banking system, leading to 20%+ deflation. The fact that the U.S. is no longer on the gold standard and can thus print all the money it wishes in order to keep the banking system from collapsing appears to be working here. I agree with Roubini that the current efforts appear to be working in that regard.
ReplyDeleteRegarding long term prospects for the economy, Roubini (and I) is expecting more at a Japan-style "Lost Decade" now, not a total collapse like the Great Depression. It's going to take a decade, at least, to fix the broken underpinnings of our economy, underpinnings that spun out of control over the past 30 years due to the collapse of U.S. manufacturing and a legal and financial environment that encourages short-term thinking rather than long-term thinking. So you appear to be overstating Roubini's optimism. It's not that he's saying that everything's going to be peaches and cream and so forth. What he's saying is that we've avoided total collapse and the current steps to deal with the situation seem sufficient to prevent total collapse for the immediate future. He's still predicting a decade of gloom, just more of a Japan-lost-decade gloom than a 1932-style gloom.