Unless you’ve been cut off from civilization since Friday morning, you’ve probably already watched and read countless stories of the news reported in this linked article, that the economy shed another 524,000 jobs in December, raising the unemployment level from 6.7 to 7.2%. So my purpose in writing this post is not so much to inform as to provide some additional commentary from a perspective missed by the mainstream media.
But first, since I’ve been maintaining a running tally for 2008, it’s appropriate to close the book by observing that a total of 2.6 million jobs were lost in 2008. And 1.8 million new workers entered the labor force during the same time, thanks mostly to immigration but also due to young workers entering the labor force faster than older ones retire. Thus, our economy actually came up short by4.4 million jobs in 2008, which is about 2.9% of the labor force.
At least one analyst has forecast that we could begin seeing job losses of one million per month. More economists are acknowledging that the economy is far worse than they realized, using terms like “deepening” and “severe recession.” Friday, Dr. Peter Morici, economics professor at the Univeristy of Maryland, was probably the first to assert that we have actually entered a depression, noting that a recession is self-correcting while the current economy, without massive intervention, is doomed to spiral out of control.
When I made my 2009 predictions back in November, including such things as a trillion dollar stimulus package and 10% unemployment, at least one reader called them “far-fetched.” In only two short months, not only do such things not seem far-fetched, they are beginning to look conservative. I’m beginning to think things could actually get much worse.
As the economic crisis has evolved, analysts have made comparisons to earlier recessions, but the comparisons are steadily moving backward in time. At first, conditions were the worst since some time earlier in the decade, like following 9/11. Then it was the recession of the early ’90s. Then the early ’80s or the ’70s. Now we’re beginning to see the specter of the Great Depression.
The U.S. economy slipped into recession in December 2007 and the 12-month downward spiral is already the longest since the early 198Os. If it lasts more than 16 months, it will be the longest recession since the Great Depression.
“We expect the jobs hemorrhage to continue through much of 2009,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.
“The current pace of job losses means that the unemployment rate will rise into the 9 percent to 9.5 percent range — at a minimum — before leveling off.”
The collapse of the U.S. housing market triggered the worst financial crisis since the 1930s, and businesses and consumers alike have retrenched, with shock waves spreading worldwide.
This financial crisis was not triggered by the collapse of the housing market. It’s no more valid to stop the backward retracing of the chain of events with the housing market collapse than it would be to stop with the collapse of AIG. Why did the housing market collapse? Because people couldn’t afford to pay their mortgages. Why? Because their low incomes made them ineligible for traditional loan terms. Why are their incomes low and declining? Because trade policies have exported more and more jobs, leaving labor in a state of over-supply. Ahhhh, now we’re getting somewhere.
And the unemployment situation is even worse than the headline numbers would have you believe:
More worryingly, the number of people working part-time for economic reasons reached 8 million in December, up from an already high 7.3 million, and the labor underutilization rate, which includes discouraged job seekers, jumped to 13.5 percent from 12.6 percent.
Not surprising when weekly first-time jobless claims are now consistently above 500,000, an annual rate of 26 million workers or 17% of the labor force.
In light of these conditions, isn’t it time to consider that economists really don’t know what the hell they’re talking about? Oh, they know a lot about economics, a field akin to contemplating one’s navel, in which each knows the other’s theory and all of the arguments for and against them, and they debate them endlessly. But all of it has little relevance to what’s happening in the real world. I once heard economists described as people who are good with numbers, but don’t have the personality to be accountants. I’m afraid it’s not true. They’re not even good with numbers. They can’t handle the rigorous addition and subtraction required to maintain a balance sheet. If they could, who among them would be advocates of a perpetual trade deficit?
It’s time to look elsewhere for answers. There are very logical reasons for our economic demise and equally logical remedies. If you’re a new visitor to the site, may I suggest that this site and my book, Five Short Blasts, would be a good place to start?