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Economic Recovery is Wishful Thinking
The media has been touting whatever good economic news it can find. But the truth is economic recovery is nowhere in sight
Last week we got a whole series of bad reports on the state of the economy. New and existing home sales both remain near their lowest level for the downturn, as house prices continue to drop at the rate of 2% a month. New orders for capital goods, a key measure of investment demand, fell by 2% in April. Excluding the volatile transportation sector, new orders were still down by 1.5%.
On Friday, the Chicago Purchasing Managers Index fell by more than 5 percentage points from its April level, approaching its low for the downturn. The employment component of the index did hit a new low.
These reports might have led to gloomy news stories, but not in the US media. The folks who could not see an $8tn housing bubble are still determined to find the silver lining in even the worst economic news.
For example, National Public Radio told listeners that the new home sales figure reported for April was up from the March level. While this was true, the April figure was only 1,000 higher than a March level that had just been revised down by 5,000. April new home sales were 4,000 below the sales level that had originally been reported for March. USA Today touted a "surge" in durable goods orders, which was also based on a sharp downward revision to the prior month's data.
The media have obviously abandoned economic reporting and instead have adopted the role of cheerleader, touting whatever good news it can find and inventing good news when none can be found. This leaves the responsibility of reporting on the economy to others.
Any serious examination of the data shows that recovery is nowhere in sight. The basic story of the downturn is painfully simple. We have seen a collapse of a housing bubble which has devastated the construction sector and also caused consumption to plunge.
The construction sector is suffering from the enormous overbuilding during the bubble years. Measured in months of sales, the inventories of both new and existing homes are close to double their normal levels. This inventory will ensure that construction remains badly depressed at least through 2010, if not much longer.
The plunge in house prices has sent consumption plummeting. The problem is not consumer attitudes, as many commentators seem to believe. Rather, the reason that most homeowners aren't buying a lot right now is the same reason that homeless people don't buy a lot of things: they don't have the money.
The decline in house prices since the peak in 2006 has cost homeowners close to $6tn in lost housing equity. In 2009 alone, falling house prices have destroyed almost $2tn in equity. People were spending at an incredible rate in 2004-2007 based on the wealth they had in their homes. This wealth has now vanished.
Housing is weak and falling. Consumption is weak and falling. New orders for capital goods in April, the main measure for investment demand, is down 35.6% from its level a year ago. And, state and local governments across the country, led by California, are laying off workers and cutting back services.
If there is evidence of a recovery in this story, it is very hard to find. The more obvious story is one of a downward spiral, as more layoffs and further cuts in hours continue to reduce workers' purchasing power. Furthermore, the weakness in the labour market is putting downward pressure on wages, reducing workers' purchasing power through a second channel.
Happy talk will not turn this economy around. The economy needs more demand, which can only be provided by another larger dose of stimulus from the federal government. There are easy, quick and effective ways to boost the economy with additional stimulus.
First, let's give more money to state and local governments so that they don't have to lay off workers, cut back services and raise taxes. This should be a complete no-brainer since this spending will immediately boost the economy.
The government could also provide a large boost to the economy by jump-starting healthcare reform with an employer tax credit (e.g. $2,500 per worker) for firms who do not currently provide coverage. This could quickly get us to near universal coverage as Congress works to restructure the system to contain costs.
It could also provide a $2,500 tax credit to employers for giving workers paid time off. This should both increase demand in the economy and provide workers with more leisure and flexibility at the workplace.
There are other ways in which the government could quickly generate new demand, but these will not be seriously discussed until there is more general recognition that additional stimulus is needed. At some point it will be impossible to conceal the bad news and Congress' attention will return to stimulus. But the media's reality defying happy talk on the economy is delaying this moment.
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114 Comments so far
Show All"Rather, the reason that most homeowners aren't buying a lot right now is the same reason that homeless people don't buy a lot of things: they don't have the money."
This statement, in a nutshell, shows why the "bailout" took the wrong direction when Paulson and Geithner determined that preserving their buddies' lifestyles was more important than saving the economy.
I think that it was Warren Buffett who made the observation years ago that giving $1000 to each of 1000 people would do far more to help the economy than giving $1,000,000 to one person. Of course, Warren has made his own contributions to our current disaster.
This article is just the beginning of the documentation of the bailout's failure. Eventually (maybe in 5 years), NPR and the rest of the mainstream media will start to tell at least some version of the truth (but don't bet on it).
q
That's it. The $$ went to rich folk who can hoard it until the crash levels.
Well, you see the key to economic recovery is "consumer confidence" and the pom-pom girls of the media are on the same team as Treasury and other government officials. You have to cheer even when your team is losing 28-0, to restore the confidence of the boys. Surprised you didn't know that, Dean Baker.
Hey it pays to get up early, you can get a first comment on CD.
Uh, he pointed out the problem isn't consumer confidence, it's that nobody has money to spend. I know I sure don't.
Right or not, it is fairly infuriating to read articles advocating another stimulus package when this lies directly OPPOSITE to the policies the US pushes on other countries when THEY experience fiscal crises.
It is advisable for those whose economies are married to the US market to take heed and look elsewhere, because is it not yet obvious that when we say the "market" is failing, we are not really speaking of those controlling it? Instead, as these people withdraw their assets, money that has never seen the light of day - literally, as most economic transactions are now electronic - is withdrawn into private hands and we hear about an "economic crisis". Stated more clearly, the US will drag down other economies before it allows Wall Street to fail, and foreign investors, traders, and state leaders should be wary of this basic capitalist instinct.
Obama didn't even push for passage of the cram-down legislation which would've allowed underwater homeowners to renegotiate their mortgages before a bankruptcy judge.
This stimulus wouldn't have cost a red penny in taxpayer money (as opposed to the trillions of dollars thrown at bankers which has been swallowed by a black hole never to be seen again).
This is legislation which could've potentially kept 1.5 million homeowners from living on a park bench.
It was the ultimate no-brainer.
But because a small minority of criminal bankers didn't want the legislation passed, their pawn, Barack Obama, remained silent.
Not only that, but now that bankruptcy laws changed, and those homeowners have become the slaves of their mortgage holders forever.
This whole thing is so ridiculous. Want to have an "economic recovery?" Buy locally! Get our money out of gigantic banks, stop using credit cards, put our money in locally-owned banks and credit unions. Buy from local farmers and ranchers and artists and local bakeries and stores.
Demand locally produced and United States produced goods and then BUY THEM! Buy as local as possible. Buy used.
Even better: Just don't buy anything. We all own enough stuff that it would take more than one planet if everyone lived like us. We've got enough.
We are in this mess because we listened to Reagan and Bush I and Clinton and Bush II that globalization was it. It was "it" alright: $#it.
Oppose the Empire: Buy Local
Want change? Keep it in your pocket. Your dollar is your vote.
Good advice. To be fair, not everybody listened to the rogue's gallery of presidents over the last thirty years.
I don't agree with Mr. Baker that more government stimulus is needed. What's needed is an orderly and fair way to distribute goods and services, which are abundant, to the people who need and want them.
Purging the body politic of parasites would propel the U.S. along the proper path.
"To be fair, not everybody listened to the rogue's gallery of presidents over the last thirty years."
To be even more fair, President Clinton presided over the longest sustained economic expansion in U.S. history, with higher income at all levels. In this context, what he said about globalization is irrelevant.
Clinton was also paying off the deficit. And he was also tied with FDR as most popular President of the 20th century.
People forget this stuff--no doubt because it confutes the "rogue's gallery" paradigm.
Nor was Clinton a rogue. His administration had the lowest number of convictions and forced resignations of any two-term Presidential administration since Teddy Roosevelt--making it the cleanest administration of the 20th century, by a fairly objective measure.
But...but...he sullied the Office of President of the United States! He's evil!
well, yes; he didn't break very many laws. But he:
1. Dismantled the US social safety net in a manner that went far beyond anything Reagan/Thatcher could even have dreamt.
2. Devised and coordnated an deregulatory-driven economic "boom" wich was specifically designed to create the greatest real wage declines, and the most massive upward-transfer of wealth since the 1920's.
3. Worked hard to push through Global and Regional "Trade Agreements" which subsumed the world's nations and communities sovereignty to corporation's and the wealthy's "right to enjoy their investments".
4. Killed hundreds of thousands of Iraqis under his targeted economic blockade and bombings,
5. Killed hundreds to thousands of Serbians - including targeted attacks on Serbian civilian TV studios. Bush would later copy these attacks against the press in Iraq.
But no, i guess he didn't break many laws.
Clinton was a vile self-serving scumbag.
I forgot one more thing:
6. In a time when the whole world has abolished or is abolishing the death penalty, Clinton pushed through and signs the "Anti Terrorism and Effective Death Penalty Act" Hang-em high!
was a vile self-serving scumbag
IS
Thanks for the correction. Bill Clinton or his similarly self-serving honeybun of convenience, the Sec. of State, aren't through doing damage yet.
Perry Logan,
Do you work for the Clinton's or something? Because, if not, almost all of your posts make me think that you wish you could have been in Monica Lewinsky's position under that desk in the Oval office.
Ah, I always love to read comments by the Clinton lovers. You still buying that crap? Don't you get it? It was all a scam to get everyone to think globalization was going to make everyone in America RICH.
Like Clinton (or any president) could control the stock market and the government. What a laugh.
It was all smoke and mirrors and it sure worked on you. Clinton is one of THEM. I guess you never read about the Iran-Contra/Mena, Arkansas connection, eh?
Absolutely right!
Sioux Rose
LOUISE: You're a smart, articulate "cookie." Welcome to the forum.
Thank you.
I would think and HOPE that Obama has a team of very smart people quietly working on the best ways to use vastly more government stimulus money to create good jobs that will also benefit greatly when the economy finally does begin to recover. I was incredulous when the last report of over 600,000 more unemployed was somehow seen as slightly favorable. Somebody has to begin hiring and the federal government is the only game in town. If you're out of work, you're not paying taxes and probably are on unemployment/welfare with non-paying trips to ER, and likely lots more bad shit. If Washington does not get their act together, we could see 5 or 10 years of desperation for a hell of a lot of Americans. The suddenly 'fiscally conservative' Republicans must not be allowed to stand in the way.
I would think and HOPE that Obama has a team of very smart people quietly working on the best ways to use vastly more government stimulus money to create good jobs that will also benefit greatly when the economy finally does begin to recover...
____________________________________________
The operative word here, of course, is "HOPE". It really DOES spring eternal, it seems.
Why would Obama throw away good money after bad paying "a team of very smart people" etc., when he began his history-changing administration by outsourcing the US Treasury and turning it into a division of Goldman-Sachs?
THOSE very smart banksters are quietly working on the best ways to use vastly more government stimulus money to create more wealth for the wealthy. Why give them competition?
· Yr Obd't Servant
Don't even think of correlating bank bail-outs and economic stimulus programs. Republicans love to try to associate the two. I know some wish to see America turn into a stagnant second-rate nation (and there are a few good arguments for it), but I'm not radical enough to risk what could become something quite terrible. Without more government stimulus money, something quite terrible will be brought closer to hand.
We still have a long, long way to go. The economy will not come roaring back - the game has changed. The standard of living (for certainly half the population, probably more) will be forever changed and things will never be the way they used to be. It takes a long time to heal 20 to 30 years of abuse.
There isn't going to be any economic recovery. The human race has overshot the ability of the planet to provide resources for our continued survival and we are headed for a die-off. Just wander over to http://dieoff.org/ and you can get all the details.
The banksters know this and have arranged for one last round of looting before everything goes to hell. You can be sure that long after the aged are abandoned in nursing homes and there are no funds for unemployment, welfare payments or food stamps there will be plenty of police keeping your homeless ass out of the houses the banksters "own."
Does anybody wonder why we are continuing two pointless wars in Afghanistan and Iraq long after it's obvious that muslim fanatics have ceased to attack the US? It's to keep the oil price up for the Saudi's and prevent the worlds people from understanding that there really isn't enough oil to go around.
The party is OVER. Finish your bottle and wait in line for the suicide booth.
Bingo! So our choice is the "suicide booth" or finally standing up and saying, "enough is enough" and having an orderly descent.
It seems impossible for most people that anything but chaos could occur, and it can occur, but it can also be a time of great change on the earth in a good direction.
It's totally up to us.
Get to know your neighbors and, as someone said yesterday, "Plant a garden!"
"Furthermore, the weakness in the labour market is putting downward pressure on wages, reducing workers' purchasing power through a second channel."
Meanwhile, the blood-sucking banks have been and continue to raise interest rates on credit card balances which will lead to more credit card defaults along with considerable mortgage defaults as thousands more ARMs adjust this year and next.
The economy doesn't stand a chance to recover with this stupidity taking place.
"The economy doesn't stand a chance to recover with this stupidity taking place." There is a fundamental flaw in this statement. The(ir) economy is doing fantastic. OUR economy is going the way of the dodo. The entire point of this exercise is to finally remove the middle class in America.
I agree they want to remove the middle class. But let's examine it for a minute. They built the middle class because they wanted to sell a bunch of crap they were manufacturing. Moreover, they were worried about an unemployed populace after WWII.
I wonder, if instead of wringing our hands over the demise of something they created for their own benefit, we might step back and imagine a different world, without them?
I think they are manufacturing the "revolution" (civil war,) as well with their tea bag parties and Fox News and Glenn Beck and all those jackasses constantly yammering on and on about "revolution."
Why don't we all (left and right and black and white and orange and purple) wake up and look around at how we are constantly played against one another and just end it once-and-for-all. Hell, they even play the animals and us against one another, "The wolf is gonna KILL ya!"
How about acknowledging the demise of this way of life and realizing it's probably the absolutely best thing that could have happened? It may have happened too late. But it certainly is time. Then moving on and working together to change things.
We need to stop "demanding" they "do" something for us. We need to do it for ourselves, and the best place to start is right at home, in our own neighborhoods.
The very best place to start is in our living rooms: KILL YOUR TELEVISION!
"The entire point of this exercise is to finally remove the middle class in America."
XGen:
You're right!
On the other hand, the "money cartel" and their feudalistic approach to controlling the globe is showing its ugly face to the "many" who have lost their pensions; lost their investments & savings; losing their homes and losing any hope to retire and enjoy the few years they have left before they die. There are lots of baby-boomers who are ready to retire!
At what point will these people, with nothing to lose, rebel against a cartel-led-government that is concerned only with its own survival? Ben Bernanke and everyone else in this pitiful government knows that our economic survival is hanging by a thread!
When will they do something constructive to stop the hemorhaging of the majority?
http://www.financialsense.com/Market/wrapup.htm
But the market is rallying!!!
At least until Obama's Wall St speculators gamble away all our money.
No confronting reality is allowed because that would have negative psychological effects and we all know the entire balloon is inflated with happy talk.
Exactly.
The market is rallying, and that's all Obama's friends care about.
From the article:
"In 2009 alone, falling house prices have destroyed almost $2tn in equity. People were spending at an incredible rate in 2004-2007 based on the wealth they had in their homes. This wealth has now vanished."
This "wealth" was never real. It was fictitious, a textbook bubble---right up until the point at which we taxpayers were handed the bill. At that point, finite and irreplaceable hours of our lives, laboring for the bourgeoisie, were transmuted into legal tender going forward indefinitely. That's where the real wealth is, and always was.
Homeowners using their houses as ATMs, speculators large and small, those who dreamed of house-flipping their way to Easy Street---all got stuck when the music stopped. This scenario is nothing new, a few minor details excepted, and was foreseen by many. The frugality practiced habitually by those folks will now be the default position for the rest, and is the only long-term solution.
Sioux Rose
JETHRO: Great points, and I'm surprised Mr. Baker didn't express them. Perhaps the length constraints of his article accounts for those missing links? It's important to remember that housing prices were ballooned in an unnatural way to rise far faster than any other cost of living element. And market values are based on the presumption of what the buyer will buy, thus these always represent a rather fluctuating basis for worth (or wealth). What went up too fast, is coming down; but as some have noted, the problem was not treated, instead more fuel was given to the disease (corrupt bankers and the phony "products" they devised as a means to send more wealth upwards and rob workers of equity and decent housing at affordable costs). I cannot imagine that treating the effect rather than the cause was anything but a premeditated crime with the criminals relying on enough obstruction by the press and the legions of "experts" in a chorus singing "all is well" to keep the con rolling. Is it that much different from the press telling us how swimmingly well things have progressed in Iraq when in fact the nation is a shell of its former self, little that was broken actually repaired, a million lives rendered volition-less martyrs?
I know a millionaire who was very kind to me allowing me the use of one of his homes as a writer's retreat for several months. Each day he'd say that it was another beautiful day as I corrected him stating it had not rained in months and this was neither a good thing, nor natural. He is of that school that trains the mind to ONLY see positive outcomes and he has indeed manifested millions and millions of dollars. I think, however, a price is paid in that when one forfeits the truth of the world around them to fashion a cocoon based on empowered mental disciplines and specific style envisioned outcomes, one forfeits one's humanity and true connection to the state of the world and its beings.
"The frugality practiced habitually by those folks will now be the default position for the rest, and is the only long-term solution."
I don't think that being frugal will be the default position automatically much as we would like to see that be the case. Frugality will be the norm only when more people stop belittling those who are frugal and give it a chance. For those of us who are frugal, I'm afraid we have our homework cut out for us and that is convincing others to be frugal and proud of it. I don't believe in laughing at people's suffering because they foolishly fell for it. We would do better to reach out, create incentives and reward one another for being frugal. Take credit cards as an example. If you have come across those shopping for points, you probably know what most people will do. What if there were a tax credit for being frugal instead? That's where we need to get the ball rolling.
That's the only way I see a frugal economy growing and sustaining. Otherwise, it will still remain like what I see every day. Those of us who are the wise and frugal cannot afford to remain in the minority because whatever happens to the rest, we'll get dragged into it. Sustainability and basic comfort also come to mind. None of this will come short term but will most likely stretch out long term. Until most people can be convinced out of their consumerist ways, we're just raisins in a muffin.
people lose good paying jobs in manufacturing, get poorer paying jobs in sales and service...spending ability critically cut...many businesses, particularly the large number of them reliant upon frivolity and disposable income for activity, without customers...further layoffs...economic recovery reliant upon the devastation of the only known habitable world in our vicinity...
choice time...decision time...
the problem we're facing isn't a dying economy, it's a dying planet due to our economy...
Global Start Date: September 22, 2012...socialized, shared housing...let's get those gardens growing!
For example, National Public Radio told listeners that the new home sales figure reported for April was up from the March level.
NPR (Nervous Propaganda Radio, a division of Green Shoots Communications, Lawrence Summers, CEO) started going right several years ago and that's when I stopped bothering with it.
I've listened to NPR a few times when I got home late from work on my local radio station...they seem to be pretty fair to me. But the station I listened to only carries their special news or panel discussion reports, not much everyday news reporting.
About three years ago, an NPR reporter did a story about a 21 year old soldier who was killed in Iraq. At one point in his story the reporter said, " . . . and this young man who died for his country . . . " If you are killed in Iraq you've died for nothing. I don't expect NPR, especially then under the Bush regime, to say such an thing but the remark was the kind of flag waving BS that NPR never used to traffic in. Subsequently, other reports started engaging in the same kind of language and sentiments and I stopped listening altogether. NPR is now kind of the tame left wing of the MSM, if such a thing can actually be said to exist.
I'll just be thankful I haven't been exposed to that crap from them then. Then again, three years ago, I was much more right-wing when it came to national security.
Apt comment on and renaming of NPR!
That outfit is so nervously eager to serve the machine that it's perceptible in the obsequious -- at times falsely hesitant -- tone of voice of the newscasters, not to mention the totally nauseating content of some of its news reports.
It actually offers an excellent example of what the Nazis called "Gleichschaltung," the policy of setting into line whatever institution could further the agenda of the National-Socialist party and state.
As XGenman said, "the entire point of this exercise" really does seem to be to "finally remove the middle class in America." Can someone explain to me WHY the monied interests/MIC/their puppets in our government would want to do that? If it's not the plan, it's certainly steadily turning out that way -- so what's in it for them? I'm lousy with the math of even my own non-existent finances, but even I know that if millions of people have a little extra money to spend, it's going to benefit the economy; and surely that's good also for the owners of the companies, bankers, and therefore the elite eventually -- right? What do you guys think is the rationale for these policies that are driving the middle class to extinction? Cheaper and cheaper labor? Mere shortsightedness, the wealthy merely grabbing everything they can while they can? What are they thinking??
They don't need a middle class to buy their products anymore because the government is giving them the money directly. We've been bypassed and now if we'd just do the nice thing: starve, die and disappear.
They don't need as many middle class consumers here because they have an increasing number of middle class consumers to sell to overseas.
That's right. That is why this program really got going under Reagan, when the Reaganites could see the coming fall of the Soviet Union and that it would mean that the corporatists no longer needed to maintain a US middle class or to treat labor fairly. There would be a world full of foreign markets and cheap foreign labor. Also, there would be no longer a need to maintain the ideological competition with the Soviet Union which had required at least some degree of equal opportunity and widely shared prosperity in the US. And as a bonus the fall of the Soviet Union could be used to argue that socialism was always bound to fail, making it easier to compel third world nations to accept corporatism and more difficult for leftist groups to encourage an anti-capitalist rebellion in the US and around the world.
good point. can't underestimate the collapse of the soviet union for understanding where we are today.
To all above: yes and no and yes and no and yes and no.....
rush limbaughs taint is right.
You really have to get into some historic analysis if you want to make sense of the WHY.
Here you find THE answer: “Collateral Damage” by E. P Heidner, part I and II.
>>> www.scribd.com/people/documents/2169400-ep-heidner <<<
Globalization.
Overseas markets as producers and consumers.
Another thing the media likes to hype on is the Stock markets climb.
Stock market up 200 points!!
They fail to mention that poor performers have been delisted. As in Citigroup and GM and replaced by better performers.
This bit of manipulation is always used by Investment advisors who proclaim "Since 1930 the Stock market has returned more then any other type of Investment".
An easy claim to make when all the companies that go under are delisted.
Most Companies listed on the Dow of 1930 are long gone and no longer exist.
And yet, our whole economy is based on just such inanity.
Buying & selling worthless paper- or even worse- the "idea" of paper.
Wish a lot more people would see that "the Emperor has no clothes"!!