Talking Us Into A Depression
At what point do politicians bear some public accountability for their public statements and the effect those statements have on the economy? I almost want to ask Obama and Pelosi -- what is the minimum size of pork-spending bill you will accept so we can just go ahead and pay the money and get you and your cohorts to shut the hell up on trying to convince everyone we are in the Great Depression. Because, to some extent, such statements can be a self-fulfilling prophesy. Seriously, the biggest stimulative effect of passing this stimulus bill will be, almost without doubt, that it will end the felt need for Washington weenies to create an atmosphere of panic.
Now, I suspect that I would have a different observation if I lived in Detroit, but I ask every business owner or manager I meet for the personal evidence they have of economic cataclysm. Is their business down? And in a surprising number of cases, I get the answer that their business is doing OK, but they are cutting back because surely the worst is soon to come, based on everything they see in the media. And do you know what? I have done exactly the same thing. I had one bad month, but since then things have been pretty steady, but I am cutting like crazy anyway, because I can't ignore the only other information source I have on the economy, which are pronouncements in the media.
I strongly believe that public pronouncements of doom, starting last October with Henry Paulson and continuing now to almost daily excess by Obama (today's statement: the economy is in a "virtual free fall") have measurably contributed to job losses in this country. Many people who are on the street without a job today can probably trace their unemployment to "just in case" cuts made more in response to government assurances of doom as on actual declines in output.
I can't prove this, of course, but I will present one pretty good pointer that I might not be totally full of it. With the January jobs report, the recent recession has become one of the five worst since WWII in terms of jobs losses as a percentage of the work force (I know you may, from reading the paper and listening to Obama, think it is the worst, but it is still only the fourth or fifth worst). Let me compare the job losses and the output declines at this point in the recession for these 5 recessions:
As you can see, we have had far more job losses relative to output losses than any major post-war recession. This does not mean that more output losses are not coming, but it means that, perhaps unique to this recession, job losses are preceding rather than following output losses -- in other words, job losses are occurring more than in any other recession based on the expectation of output losses, rather than in reaction to them. I wonder who it is that is setting these expectations?
Wow, using panic to achieve political aims and in the process accelerating job losses. And they say we libertarians are heartless!
Data updated by the Minn. Fed here. They actually have job losses through 13 months, but I jused 12 months because there are only quarters for the output numbers.
Update: Via the Washington Times:
Just Friday, Mr. Obama said a report that 600,000 jobs were lost in January meant "it's getting worse, not getting better. ... Although we had a terrible year with respect to jobs last year, the problem is accelerating, not decelerating." Last week he said, "A failure to act, and act now, will turn crisis into a catastrophe."
But he isn't the only Democrat ramping up the rhetoric while talking down the economy. House Speaker Nancy Pelosi of California said last month that our economy "is dark, darker, darkest." Rep. David R. Obey of Wisconsin said, "This economy is in mortal danger of absolute collapse." And Sen. Claire McCaskill of Missouri said of the economic-stimulus bill, "If we don't pass this thing, it's Armageddon."
Link:
We haven't had a real recession in a while, but I'm 51 ... old enough to remember the recessions of the 1970s and the early Reagan years, and the one we had in 1990-1991.
We're already panicking with unemployment going over 7%, and it may hit 10%, but it's worth remembering that it was often 13% during the 1970s ... painful, but the world didn't end.
As to the stimulus bill, we're already running a deficit of over 8% of GDP ... so how much more extra government spending do we need. I doubt that "aggregate demand" is the problem. Longer term, federal spending commitments are already a big overhang.
I suspect the real issue is that our major banks are toast. Bank of America -- a "savior bank" -- is down 90% on the year ... its market cap is now less than the announcement value it agreed to pay for Merrill Lynch. This recalls our bad banks and S&Ls of the late 1980s, which led to the 1990-1991 recession. We need to address this quickly rather than letting it linger. If we don't, we'll have the equivalent of the Japanese zombie banks of the 1990s.
What's different this time is that the securitization market is gone. It used to represent trillions in lending capacity and was especially important for consumer finance. Excesses in this market are part of what got us into this fix, but it used to work well. We need a means to replace it. Fannie and Freddie are part of this equation. If they had stuck to only securitizing 20% down conventional mortgages they would have been fine.
I haven't heard anything about any of this out of Obama & Co. I hear they'll soon float a plan to rewrite mortgages to avoid foreclosures. I won't argue whether or not that makes sense ... I suspect the real answer will vary from mortgage to mortgage. But their focus on what's actually a relatively small part of the consumer lending market -- subprime and/or badly underwritten mortgages -- isn't a plan for how to move us all into the future.
I don't trust Larry Summers nor Tim Geithner ... they're both careerists and will tell the boss what he wants to hear. Watch their noses grow when they do the rounds of the Sunday morning news shows.
Link
February 6, 2009, 2:49 pmSaloner:
You've hit the nail on the head Mr.Meyer: For all the mathematical sophistication in Economic thought, it all boils down, at the end of the day, to unquantifiable psychology. Pity that unfounded expectations are likely to cause actual suffering.
February 6, 2009, 6:46 pmElamBend:
Paulson used brinkmanship to pass the first part of TARP, which did nothing and according to a new report was a ripoff for the government. (the improvement in the credit markets came from the Fed expanding its balance sheet, something it didn't need congressional approval for). Now, Obama is using the same brinkmanship to pass this enormous poo-sandwich that we all have to take a bite off.
February 6, 2009, 6:56 pmI think he'll soon find that the boy who cries wolf is soon ignored. Bush at least took 5-6 years to spend this much with the Iraq war [note: I supported the war and admit it was ran poorly].
foxmarks:
I’ve begun calling the current President “Tokyo Rose Obamaâ€. Some simple math shows the January job losses to be .4% of non-farm employment. Four tenths of a percent doesn’t carry the same “surrender now†sense of panic.
When the previous President used the “act-now†shtick for Iraq, it still took months to go to war. And the enemy was foreign. Tokyo Rose wants to go to war against Americans without any scrutiny.
February 7, 2009, 11:17 amDoug:
I sometimes question if we are coming out of the Great Depression. For I hear that a lot of people are taking depression pills. Its all how you spin it. For my peers work 70-80 hour weeks with no time to see their family. Now that depresses me.
I believe that the current unemployment increase will actually accelerate. However, such decreases in labor wages and proportionate land rents will create an incredible opportunity to pursue a new economic system called Pluralism.
This opportunity that is in front of us is why it is so important to stay positive and keep our minds from getting depressed. The real leaders are talking about the opportunities in local organic farming and renewable energy.
February 7, 2009, 11:39 amMike:
My wife and I have made similar observations. While my line of work is directly tied to the auto industry, we are feeling the economic pinch. But we are seeing it very little everywhere else. When we do shopping at places other than Wal-Mart, such as malls, or Ikea today, we see a lot of people shopping. They aren't just window shopping either, they have bags full of stuff.
I think there is some slowdown in the economy, but not near as much as the politicians and media claim there is. The economy will really just recover on its own if its just left alone.
February 7, 2009, 6:56 pmCaptain Obviousness:
I agree that their negativity is harmful, especially when Obama Pelosi et al. aren't even negative about the right things. Nobody outside of the Austrian economists is even talking about the possibility of the dollar collapsing. We are paying off our current debt by selling more treasuries. This keeps us afloat so long as other countries keep buying them, but if they don't the only buyer left is the Fed. If that scenario plays out how could the dollar not massively devalue? It would be very painful, but at least it would lead to a resurgence of manufacturing in the US.
The dems are all negative about a lack of aggregate demand and consumer spending. They want to get the economy "back on track" by increasing consumer spending. The problem is that track is headed for a cliff. We shouldn't be trying to get back on it! I'd rather have the train derail than fall off a cliff.
February 8, 2009, 1:20 pmLorenzo:
If the title misspelling is meant to be some sort of pun, it has passed me by.
February 8, 2009, 7:26 pmFred Z:
I'm not sure I agree with the post or the pessimistic commenters.
We have just been drop-kicked into the era where all businessmen, large and small, know the government lies and steals, and distrusts the government. Europeans have always known this and it is the only area where they exceed us.
Credit markets (and others) will re-create themselves. The new ones will not involve the government. Paying Tony Soprano for enforcement will be cheaper. The Mafia has always had a decent regard for the proprieties.
Sooner or later someone will offer loans. The Medici? Some Jew/Paki/Chink/Raghead? Some squarehead Kraut from Frankfurt? Some drug dealer from Sinaloa with too much cash? I chose derogatory terms on purpose, so keep your PC comments to yourself. The state will say this and much worse about anyone who dares to do business without toeing their toxic line.
This time, the credit markets will be very wary. The SEC is dead, regulation is dead, the age of civil disobedience and revolution is at hand.
I would prefer we kill the fuckers, but I'll take what I can get.
February 8, 2009, 10:23 pmStuart Buck:
Another data point: http://stuartbuck.blogspot.com/2009/02/self-fulfilling-prophecies.html
February 11, 2009, 9:51 amCheers:
Watch the frontline pbs special (on web) the meltdown... Geithner went into Bear Sterns overnight and in one News cast they creamed them and the entire market tumbled. It's all been done with the media. Everyone had risky loans and the feds knew it for years they passed the legislation that let it happen. It was a precision hit. Now Mr. G looks heka stressed running the meltdown. But its a done deal and its not the time in history to take any mad, crazed or heroic stands against the machine. Civil disobedience and revolution will not succeed in this country. The technology you see today is decades old. Don't 4-get who invented the internet in the 60's...
March 8, 2009, 4:23 pm