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TechnoratiThe Green Shoots are Dead
The latest jobless figures show America's economy is stuck in the doldrums. The US urgently needs a new stimulus injection
The June US employment report should convince even the determinedly ignorant that the time has come for another round of stimulus for the American economy. The economy is continuing to shed jobs and work hours at a very rapid pace. The unemployment rate is virtually certain to cross 10% by the end of the summer and will likely hit 11% before we are very far into 2010. This is a scenario much worse than the Obama administration had expected when it crafted its stimulus package. It is time for it to adjust its plans accordingly.
When the Obama administration put together its stimulus package in January, it was projecting that, in the absence of any stimulus, the unemployment rate would peak at just over 9% early in 2010. With the unemployment rate reaching 9.5% in June, they clearly underestimated the size of the downdraft hitting the US economy.
The June data showed the economy shedding 465,000 jobs – but even more striking was the fact that hours worked fell by 0.8%. This rate of decline in hours worked is the same as in the period of economic free fall from October to April. It's good that employers cut back hours per worker, rather than lay people off, but it still means that the demand for labour is plummeting. If hours per worker did not change, this would be equivalent to a loss of more than 900,000 jobs in June.
While few would argue that the economy is already turning, some economists maintain that we have to wait longer to feel the full effects of the stimulus package. To refute this argument we need only look at the size of the package.
More than 60% of the stimulus package ($480bn out of $790bn) was in the form of either tax cuts or mandatory spending such as expanded unemployment benefits. These tax cuts and spending measures have already fully kicked in. While most of the money has not yet been spent, we are already paying taxes at a lower rate, due to the tax cut, and collecting higher benefits as a result of the stimulus package.
Consumption in April, May, and June was undoubtedly higher as a result of these stimulus measures, but there is no reason to believe that they will provide further additional boost in July, August, and September. In other words, we are now feeling the benefits of this stimulus, and we will continue to feel the benefits. But it is just not sufficient to offset the downward momentum from the collapse of the housing bubble.
If we expect a further boost from the stimulus, then it has to come from the direct spending portion. As many commentators have rightly noted, most of this money has not yet gone out the door. However, the amount at issue is too small to have much impact.
The Congressional Budget Office projects that we will spend $110bn from this portion of the stimulus package in the fiscal year beginning in October. However, almost $30bn of this spending is designated as a state and local fiscal stabilisation fund. This money will prevent cutbacks at the state and local level. This is very useful spending, but this money is just preventing further contraction, not pushing the economy forward.
That leaves us with just $80bn as a net stimulus for 2010 compared with current tax and spending levels. This is just a bit more than 0.5% of GDP. It is less than one-fifth as large as the falloff in housing construction from its peak at the height of the bubble. It is only a bit more than one-tenth as large as the falloff in consumption due to the disappearance of housing bubble wealth. In short, it cannot possibly be large enough to turn the economy around.
This is why we badly need a third stimulus package. There is nothing on the horizon to prevent the unemployment rate from staying high long into the future. As I have written before, the obvious form for a third stimulus would be an employer tax credit to give workers paid time off.
This "pay for play" tax credit would give employers an incentive to shorten work time with paid family leave, paid sick days, paid vacations and/or shorter workweeks. It is likely to have an impact very quickly, since employers would be throwing money away by not moving as quickly as possible to take advantage of the tax credit. As a result, it would both put more money into the economy and also redistribute employment so that fewer workers are unemployed. If we all worked five per cent fewer hours, then seven million more workers could have jobs at the same level of demand.
The people who make economic policy gave us this recession because they were too bullheaded to see an $8,000bn housing bubble right in front of their face. There are ways to get us out of the mess they created, if our leading economic policymakers could finally start to open their eyes and think seriously about the economy.
19 Comments so far
Show AllThe green shoots are only dead for economists, capitalists, and the government. Green shoots are merely denial repackaged as hope, a farce.
Real green shoots are however growing in the alternative economy, not that an economist would notice, their noses in in the clouds. The simple more sustainable, anti-corporate and anti-corporate government lifeways are taking hold and working for those who are engaged. National Corporations are feeling the pinch and beginning to squeal. I'm waiting to hear their death cries. Local economies based upon the new economy are doing better while the old economy is dying. The World de-dollarization will bring down the old rather quickly, and with them the Greenspans, Bernanke's, Paulsons, and other banking potatoheads.
Economists will seek therapy, and governments will bail until they sink. When we see the David Rockefellers of the world dumpster diving, only then will they admit their foolishness.
Meanwhile, the New Economy will feed the people of America who invest in cooperation and local community, and no, we will not feed the military or the mic. We have been down so long that down don't bother us. It is the thieves and crooks cloaked in false legitimacy that will suffer the greatest fall. Their beliefs will be shattered and their ideology will fail them. They will be transformed by hardship and reality into a clear realization of their wrongs. Will they repent? Probably not. Instead they will die broken old leaches.
Baker is way behind the curve ...
We need an economic restructuring not a stimulus. Re-stimulating a dead economic model is just a waste of money.
Here are seven policies that we must implement to start to change our economy
~ Nationalization of all banks ... to get liquidity and trust back into the banking system.
~ Nationalization of the Fed ... Why should we borrow our own money? We need a Public Central Bank that creates our currency and credit for the benefit of the public who underwrite its value and shoulder the risk.
~ HR 676 Medicare for All ... Saves millions of jobs, helps the under and uninsured, helps business, helps the states and can start to be implemented within a month or two and finished within 18 months.
~ Higher taxes on the well to do, the closing of loopholes and all income counted as ordinary income. The top rate, on over $1 million, should be at least 60%... A Carbon Tax, A Tobin Tax .... The budget deficit must be contained.
~ A shorter workweek ... Why should we have a 40 hour workweek? Efficiency has been going up for decades, yet real wages and benefits are flat and falling and it now takes two incomes instead of just one! The new economy won't have tens of millions of jobs in retail anymore, we have to spread the work. How about a 30 hour workweek? We went from 48 to a 40 hour work week six days to five and it worked just fine.
~ Bankruptcy "CramDowns" for consumers to get them back on the right track. Acorn and other social agencies could prepackage BKs for bankruptcy judges. And then credit has to get much tighter.
~ Cut the Defense Budget by 70% ... we spend more than almost all other countries combined! Military spending is dead end spending.
Baker's approach is to resurrect a broken and unjust economic model. We have already seen how that worked out ...
Mmckinl, it's hard to be as correct as you are and yet realize that these policies are beyond the current political possibilities. I believe that we will need to experience a collapse before such a consensus will be realized, so down we go.
The company I work for just had their best month ever. We wholesale sporting goods such as camping, fishing and hunting equipment. The gun stuff kept us going great from November and even though it is long past hunting season we are still selling a lot of gun related stuff. Somehow this is supposed to be due to fear of gun control by the Democrats. Now it turns out that people who would normally spend their vacation while staying in hotels and motels in places such as Vegas or Disney World are instead buying a few hundred dollars of camping gear and going into the woods. Campgrounds in State Parks etc. are relatively cheap and camping just about anywhere in a National Forest is permitted and costs nothing outside of a campground. Add a cheap fishing pole, badminton set etc. and you have yourself a vacation.
There is nothing on the horizon to prevent the unemployment rate from staying high long into the future.
Yes, there is. It's called the Republicans. They want as much disaster as possible so they can retake the congress and the executive in 2012.
Good grief, frank and Super, Baker has a plan that sounds great to me, an admitted non-expert. This plan is good for business and good for workers. This makes it much more feasible to actually find consideration in the real world. Super, you're the one in the fantasy world, politicians don't automatically do the right thing, they need incentives. They're not some kind of humanitarians or miracle workers, their politicians for Christ's sake. Frank, to avoid confusion, most economists use the unemployment figure that is the most often quoted. Sure it's basically bs, but settling on one of the unemployment numbers as the basic figure is less confusing.
Nonsense, this author is living in a fantasy world. Paid vacation time cannot stop a depression. All of Dean Baker's former economics teachers should be fired immediately.
DB's been really disappointing lately. Even 'The News Hour' reports the 'real' unemployment rate as 16.5%...
Meanwhile, what the hell is he talking about? Why give an employer a tax credit to pay an employee not to work? Why not just give the day's pay directly to the employee and send him off fishing - er, I mean shopping for crap he doesn't need...
And this: "If we all worked five percent fewer hours..." We're already down to an avg of 33.5/wk. And, B) So then there are a few more temporary menial jobs available - not quite the 18+ million needed ASAP.
Why do I even bother?... And notice how it's "job creation this and job creation that," but nobody dare talk about actual career creation. You know, something that might last longer than, say, a year or two?
I sure agree about DB. Some good ideas, but, like all the economists on the left, they are ultimately Keynesians. As others have commented, we need restructuring and downsizing, not more "stimulus" of the status quo.
It isn't even the banks we're trying to save, it's the whole d*** global economy which can only survive as a welfare client of us. All this money we're pouring down a rathole should have been saved, along with the above mentioned 70% cut in military spending, to make sure people don't freeze or starve during the transition. Now, there will be no money and all H*** could break loose. Of course, they're already planning for "mass unrest" and "mass demonstrations". You bet your jackboots they are.
Re: Keynesianism. What they never mention is the other side of Keynes' theory--that when good times come you raise taxes and pay back debt. WE HAVE NEVER DONE THAT.
Green shoots & leaves, bailing out of a free fall with his golden parachute - which, admittedly, may be a tad heavy.
All I ever read about stimulus limits itself to "more" or "less." Does no one imagine that it might matter WHAT the money purchases?
The rich do not pay the poor to make things that the poor need.
The money goes round and round, but as long as the poor are working for the rich, the rich get served and the poor do not.
Bailout? Sure, when we see a bailout that sends poor kids to school and not to Afghanistan, lets GM pay its labor contracts and not its stockholders and execs, forgives the unethical mortgage and not the unethical mortgager.
You know, Masai tribesmen traditionally lived in part from the blood of their livestock - and may they forgive me for involving them in an analogy I don't mean to imply that they deserve. They would bleed the animals for their food, but leave the animal alive to replenish itself.
Folks, we know who are the goats and who the tribesmen in this analogy, right?
The rich bleed the poor regularly, but while they exercise a (very!) little grace and judgment, the poor gather strength and stumble on.
But Rancher W & some cronies got thirsty and drank too much at once. That left folks dry, so now they all want to load up to be nice and strong to duke it out when the herd disappears.
They call that a bailout because someone finds it convenient that sheeple believe that somewhere there floats some boat that we're all in. But you don't see them buying the "same boat" metaphor when we ask for funds for health care, relief housing, childcare, education, or green energy.
Funds in any of those areas would tend to circulate within the US and, more importantly, would promote useful manufacture and services as opposed to manufacture and services designed only maintain hegemony, to keep the rich rich and the poor poor.
Any of you-all out there who don't have fangs had better know something about greener pastures or get ready to butt heads. The money the State of California just stopped spending was relatively domestic: health, education, and infrastructure. Those losses have not hit yet, but they will shortly.
"While few would argue that the economy is already turning." Really? Few? If you mean by "turning" the fact that the unemployment filings have moved a few degrees off from the virtual nose dive they've been in then...maybe. If by "turning" you'd include the drifting your car does while still staying in the same lane, then maybe. But I don't see that. Here is a better description of what our economy is doing: It's an SUV barreling along at 80MPH and it just went off a cliff, the driver noticing this event just removed their foot from the gas pedal. Got it? Why so pessimistic you say? Easy. Our economy has been based on massive, obsessive over consumption and that era will NOT return. The last big splurge will be the surge in HD televisions (noted by the numerous CRT TVs now residing on corners in every city with signs proclaiming, "Free" or "works fine" on them) which was really forced on us. Either get a new one or a converter, either way you have to spend money.
As for GDP. Please, this number is pointless in its current formulation. As any economist should know this number is meaningless because this is math where there are no negatives. Every fire, hurricane, and death make the GDP go up because those things all involve spending more money to fix them. A clip just the other day had a women in distress over losing her home or giving a relative a "proper" burial. She decided to use the $14,000 so she wouldn't be homeless. See? Whether she spent it on her home or the death of a loved one, the GDP went UP. Both events for here were negative.
And while we keep talking about these stimulus plans, shouldn't it always be noted what the national debt is each time? Oh, you don't know? At this writing it is $11.5 trillion... and growing.
I agree with what you are saying but you just needed to add one thing. Our economy has been based on DEBT BASED massive obsessive over consumption. Wages have been flat or falling for most people for decades and our binge consumption was done by running up credit card debt and pulling out money from the equity in our homes. Thats all done for two reasons, one is people are scared about the future, and most peoples houses are no longer worth anywhere near what they were at the top of the real estate bubble, killing those home equity checks.
For the above reasons I really don't see a short term way out of this mess. We'll probably be like Japan with a loss decade or two, (or three?).
Me and my wife are in hunker down mode. Spending as little as we can, and growing, canning and freezing food to save a buck any where we can. We are checking out of this fraudulent economy as much as possible.
Of course it is easy to hypothosize macro-economic solutions to the recession. No doubt Congress has within its hands the means to do the job. The problem is the little matter of political attitudes and will; the huge inertia developed during the past three administrations and the failure of the present Administration to designate a path to real change, along with persuasive historical arguments to back it up. Furthermore as the depression extends globally, humanitarian, political and military problems requiring immediate solutions press upon us. Legislators remain fixated on satisfying the demands of lobbyists and the need to raise huge amounts of money for their next campaigns. Citizens continue to be distracted by false and superficial analysis of world affairs( an 'ideology of National Security'), pre-occuppied with their private affairs, unconscious of the serious deficiencies in their own government, with precious little exposure to the underlying faults in the present economic system.
Technocratic proposals offer little hope, they are invariably diluted in half-measures and the "Sending of Messages" which, in fact, Dean Baker assented to in his endorsement of Thomas Friedman's editorial praising the House's energy bill.
The important thing now is for individuals to hunker down, live as frugally as posibble, save whatever they can and act cooperatively, fairly and honestly in their neighborhoods,understanding that we are in for "the long haul". It would be better for whatever good sense and interest in the common good exists in our National government to concentrate on unglamarous reforms that point towards a better future like strengthening the investigative and legal arms of the IRS,OSHA,EPA, CDC and other regulatory agencies, straightening out the mess at the Department of Veterans Affairs and thinking seriously about the judicial reforms necessary to empty our prisons of non-violent offenders. Reforms that might have very little immediate macro-economic impact but will help build a better future for all Americans. It's NOT JUST THE ECONOMY, STUPID!
The Banksters have their's so what's the hurry? They need a vacation on their yachts or maybe another vacation home. The health Ins. Mafia will be the next big bail-out as the Change brigade hand them over all of us in a forced mandate to buy their lousy expensive Ins. policies. So whats the hurry lots of failed and even wildly successful Industries to help. As for the public what's their problem? Who cares anyway? Certainly not the Obamites or the DINOcrats in Congress.
Yea, that's right: vacation time for the rich and famous is coming up: the month of August. Brokers, Insurance Executives, Politicians, Bankers, Newspaper publishers, editors and all their top reporters are going to be out of town, enjoying their "hard-earned" leisure across the famous resorts and spas of America and the world... but don't forget, this will also be one of the busiest times of the year for most of the rest of us: serving up their fancy meals, turning down their sheets,cleaning their pools, pumping their gas, making change at upscale consumer emporiums. This is one of those times when "trickle-down" really happens. Arn't you glad!
"The Green Shoots are Dead"
They were killed by the governments "economic stimulas" packages.
total bs, henry8.
The 'green shoots' are really bread mold? My Uncle Sam's been Fable Tellen` again.
There were never any "green shoots." That was just a bunch of propaganda B.S. sold by the media to keep the retail economy limping just a few more months.
The global economy is based upon oil. There is less oil available this year than last year. The high prices of oil last year destroyed, permanently, millions of jobs. Any prospective economic "recovery" will be derailed by rising oil prices as consumption runs into production limits.
The vast majority of americans produce nothing of any value. Teachers and colleges teach non-skills and non-information. Your doctor's office is staffed by paper shufflers hired to deal with the insurance company's paper shufflers. Your dentist charges six times what a dentist in Mexico charges and double what Canadian dentists charge. Our doctor's produce the same life expectancy of Cuban doctors at twenty times the cost.
Vast acreages of retail space is devoted to the sale of crap. Vast slabs of asphalt are laid down to get you to the crap store. People drive to the gym to ride stationary bicycles.
We could convert our nation to wind and solar power and refit every house so that it's warm in winter and cool in summer. We could hire people to grow fresh fruits and vegetables close to peoples homes. We could restructure our medical and dental care systems so that people can afford to be healthy.
We're going to wallow in waste instead. Have fun.