Weeds Growing Amid Economic “Green Shoots”

http://www.usatoday.com/news/nation/2009-05-04-new-homeless_N.htm

Amid the happy talk of “green shoots” in the economy – tiny increases in construction and new home purchases, retail sales holding steady, a soaring stock market and general rates of slowing decline in the economy, this may be a good time to remember that the only consequences of the economic decline that matter, unemployment and poverty, continue to grow like weeds.  The linked article is a good reminder of that, chronicling the tent cities now populated by the growing ranks of unemployed who now count themselves among the homeless. 

The story features a laid-off autoworker who fled to Florida looking for work, and now finds himself living in a tent.  The article closes with his outlook for the future, one that pretty well summarizes the state of the American economy:

At this point, he has lowered his expectations. “I don’t expect ever to make $50,000 a year working in the auto industry, but just enough to survive, have my own place, buy my own food, my own clothes,” he says. “What every American would expect.”

What’s so telling about this statement is that it not only applies to his situation but, sadly, echoes what a lot of Americans are feeling today – that they’d be happy just to have a roof over their head, clothes on their back and food on the table.  This is exactly the situation I warned of in Five Short Blasts, that our slowly growing problem of overpopulation and our practice of trading freely with grossly overpopulated nations would steadily drive up unemployment and poverty.  We kept it at bay for a while by building a mountain of debt, but that strategy could never work indefinitely.

In spite of the “green shoots” that Federal Reserve Chairman Bernanke speaks of, hoping to build a self-sustaining wave of optimism, there are problems brewing that may spell a turn for the worse.  The entire Chrysler Corporation is now shut down indefinitely, awaiting its fate in bankruptcy court, a fate not at all as clear as the government might like to believe. General Motors is now only weeks away from the same fate.  And the entire network of suppliers is teetering on the brink of bankruptcy as well.  In addition, the delusion of a recovering banking sector may be exposed when the results of the bank stress tests are released this week. 

The one real bright spot in the economy is the rapidly declining trade deficit, most of which is due to the recession itself, but some of which is a real shift away from imports to domestically produced products.  The real test will come as export-dependent nations become desperate and more insistent upon free access to the American market.  I see a major trade battle brewing. 

Regarding the surge in the stock market, a few words are in order.  It’s important to remember that the stock market is driven by corporate profits, not by the state of the economy and especially not by the economic plight of the masses.  Corporations will find a way to make money in any environment.  It may take a period of adjustment to new conditions, during which the market may decline, but in the end they will always make money.  Don’t confuse the stock market and the economy and expect the former to reflect the latter.

With the stock market soaring and economic concerns waning, let’s not forget that virtually nothing has been done to address the consequences of economic overpopulation, both home-grown and imported.  Without action to permanently restore a balance of trade and to stabilize our population, no long-term improvement in the micro-economies of folks like you and me is possible.  Our economic lawn will resemble a vacant lot overgrown by the weeds of unemployment and poverty.  A nice place to pitch a tent, perhaps.

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2 Responses to Weeds Growing Amid Economic “Green Shoots”

  1. mtnmike says:

    Pete,

    While I agree whole-heartedly with your arguments against massive imports, the core issue remains that we continue to pursue a growth economy at all levels which is patently mathematically impossible.

    We also agree that population growth is not the answer, but population growth is firmly connected to the economic growth format.

    GM, Ford, and Chrysler are all based on the same pyramid scheme of endless growth, these three companies pushed out countless other American auto makers to maintain their growth rate.

    That rate of growth is no longer possible, nor are the unrealistic promises made to the hundreds of thousands of retirees that are now being supported by a dwindling workforce. The pyramid reached maturity.

    Was this maturity hastened by free trade? Absolutely, but my studied opinion is that Detroit automakers were doomed by mathematical possibilities, not Japanese auto makers.

    • Pete Murphy says:

      I agree with you about the issue of economic growth and population growth. Economic growth that depends on economic growth is clearly doomed to failure, and the sooner we come to grips with that fact, the better.

      I disagree on the effect of free trade policies that have sent our “effective” population density soaring to 350 people per square mile (as opposed to our actual density of 85 people per square mile). Free trade policies have done as much damage to the economy in six decades as 140 years of population growth could have done. That’s not to say that population growth isn’t a problem. (I’d be the last person on earth to make that argument!) But the effects of our trade policy – importing the consequences of overpopulation much faster than we could have grown them here at home – are much more immediate.

      Regarding the automakers, whether or not they are dependent on exponential growth to meet all of their obligations now seems a moot point (at least for Chrysler and GM), since bankruptcy has or will erase all of their obligations. Ford seems to be doing much better, and I don’t think that Alan Mulally has any delusions about exponential sales growth.

      Also, couldn’t the same statement be made about any company that offers pensions with health care? My company is an example and they’re surviving OK. But they made the decision to eliminate both pensions and retiree health care. The point is that such companies aren’t doomed. They merely need to adjust or the government needs to fix its broken trade policies that are driving all of these companies into the ground.

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