Is the recession over?

That appears to be what Brad DeLong thinks, although he predicts a sluggish recovery with no real job growth. But Paul Krugman points out that consumer spending is going nowhere at all. It's still sitting at 5% under last year's average -- which itself was brought down significantly by the disasterous 4th quarter of 2008 -- and he agrees with Harvard's Martin Feldstein who says what we're seeing is an inventory bounce as excess inventories are depleted and manufacturing starts back up again. Both Krugman and Feldstein attribute positive value to the stimulus package (and when those two agree on something -- which they don't do all the time, they tend to be rather rivals -- it's worth listening to them), which Krugman asserts has prevented the economy from falling into a new Great Depression. And finally, Nouriel Roubini seems to largely agree with Feldstein, Krugman, and DeLong. In short, even though we may be moving into "recovery", it's going to seem an awful lot like recession for a lot of people for a long time.

From a standpoint of economic outlook, I tend more towards Paul Krugman's view than Brad DeLong's. Yes, we're getting a manufacturing bounce as inventories are depleted and companies like GM and Chrysler re-start their long-idled factories. And the stimulus package plus the Fed's monetarist interventions appear to have averted a new Great Depression, perhaps because deficit spending saved the economy from utter collapse. But Krugman holds economic activity is not going to return to previous levels -- and drop unemployment significantly -- at any point in the near term future. The current stimulus package clearly isn't enough to make up for the decline in consumer spending, and runs out of steam at some point next year anyhow. Yet President Obama, scared of being accused of being a "socialist" (bwahahaha! As if the Rethugs weren't going to call him one anyhow), has decidedly ruled out another stimulus package, thus condemning over 30 million formerly-employed Americans to utter impoverishment and homelessness within the next year.

So what's going on here? Clearly demand is low, and is not rising. Furthermore, it's not going to rise, because of the US's poor social safety net. Unemployed people aren't spending because they're trying to survive on unemployment checks and odd jobs, employed people aren't spending because of the horrendous state of what qualifies as "unemployment insurance" today. If people had some assurance that if they became unemployed, their home and car payments would be taken care of, they would not be so reluctant to spend. But unemployment insurance in most states is a joke. For example, unemployment benefits were capped at something like $500 per month in Arizona last time I lived there, which would not have even paid the rent on my apartment.

As a result of the failure of the U.S. unemployment insurance system, if people see a possible period of unemployment coming up because of an economic downturn, they quit spending and instead start saving so that they won’t lose their home and car during that period of unemployment. That puts us into paradox of thrift territory, where individual thrift makes unemployment that much more likely. At this point, even if car and mortgage loans were available on the loose terms available pre-2008, I doubt we would see a serious uptick in demand — people are too worried about their own jobs to spend money on major purchases right now.

What this points out is that a social safety net is not only good for the working Americans who would fall into it during a recession or even a depression. It is also good for business as a whole, since it moderates the economic cycle by keeping consumers spending even if the economy appears to be in a downward cycle, by adding a measure of insurance that would otherwise be achieved by increasing their savings rates (and thus plunging us into paradox of thrift territory). No sane economist should oppose a reasonable social safety net — it is an excellent way to keep demand high even during recessionary periods, and thus an excellent way to prevent a recession from turning into a depression — but, sad to say, sane economists get little face time in today’s government and press :(.

But we don't have such a safety net, and we have a President so terrorized by the thought that Republicans might call him "socialist" that he won't propose one, just as he refuses to propose job creation credits, a jobs program, or any other mechanism for dealing with the misery that this jobless "recovery" is going to bring to far too many Americans (but not to our ruling class of course, who got a TRILLION dollars in freshly-printed Fed bills during the course of this disaster). I guess the end conclusion is that we're fucked, we're fucked up every orifice, and we're going to stay fucked unless every one of these ruling class motherfuckers who don't give a shit about America and Americans (except for millionaire-Americans like themselves) is hanging from the end of a rope strung over the nearest hefty oak tree, at which point we're *still* fucked because rule of gun inevitably leads to rule of thug and we just get fucked a different way. The end game I see is Somalia writ large. I hope I'm not alive to see it... but I fear I shall. Alas.

-- Badtux the Apocalyptic Penguin