Tuesday, April 20, 2010

Economic Deja Vu?

I've featured this Time Magazine article before, but thought it might be worth a re-visit:
If America’s economic landscape seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent, epochal change, the sort of upheaval that happens once in 50 years. Even the economists do not have a name for the present condition, though one has described it as "suspended animation" and "never-never land."

The outward sign of the change is an economy that stubbornly refuses to recover from the recession. In a normal rebound, Americans would be witnessing a flurry of hiring, new investment and lending, and buoyant growth. But the U.S. economy remains almost comatose a full year and a half after the recession officially ended. Unemployment is still high; real wages are declining. At a TIME economic forum last week, forecasters predicted that U.S. growth would amount to only 1.8% this year and 2.6% for 1993, about half the speed of a normal recovery. The current slump already ranks as the longest period of sustained weakness since the Great Depression.

That was the last time the economy staggered under as many "structural" burdens, as opposed to the familiar "cyclical" problems that create temporary recessions once or twice a decade. The structural faults, many of them legacies of the 1980s, represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought, the debt hangover, the defense-industry contraction, the savings and loan collapse, the real estate depression, the health-care cost explosion and the runaway federal deficit. "This is a sick economy that won't respond to traditional remedies," said Norman Robertson, chief economist at Pittsburgh's Mellon Bank. "There's going to be a lot of trauma before it's over."
MP: Sound familiar? It could easily have been written to describe the current situation, but it was actually written at the end of September 1992, a full 18 months after the 1990-1991 recession had ended in March 1991. More importantly, it was written in the early stages of the longest (120 month) and strongest economic expansion in the history of the U.S. economy that lasted until March 2001. Maybe media "gloom and doom" is a good leading indicator of future economic expansion. Hopefully it's "déjà vu" all over again.

24 Comments:

At 4/20/2010 8:42 AM, Blogger juandos said...

Time magazine, eh?

It suprises me that anyone reads that rag...

Especially after the libel Time committed regarding Operation Tailwind...

Then of course there was the infamous photo of Gen. Nguyen Ngoc Loan shooting a Cong...

No context, no facts - Time magazine...

 
At 4/20/2010 8:47 AM, Anonymous morganovich said...

http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_kd_zg&idim=country:USA&dl=en&hl=en&q=us+gdp+growth

and isn't it interesting that in this "long, strong recovery" that we never saw the kind of growth that had been present in the previous ones?

and that the "recovery" after 2000 was weaker still.

could it be that these "structural factors" will keep piling up and creating more and more of a headwind?

and isn't it interesting that each of the last 2 "recoveries" have had dramatically larger governement assistance?

this sort of Keynesian manipulation is like using cocaine to cure a hangover. sure, you might feel better for a bit, but overall, you are in worse shape than before. the bill always comes.

 
At 4/20/2010 9:11 AM, Blogger sethstorm said...

One would hope, but there are more weapons in the arsenal for businesses, in figuring out how to avoid hiring US citizens.

Yes, that is a problem.

 
At 4/20/2010 9:38 AM, Blogger Michael said...

Mark, this isn't economics, it's politics. Clinton ran his campaign on the recession being the wost since WW2 (Great Depression). This was just Time magazine lying to the public to get Clinton elected.

I remember Rush Limbaugh covering this. He reviewed 5 recessions before the one in 91-92 that were worse since WW2. The story's just political.

 
At 4/20/2010 9:43 AM, Anonymous Anonymous said...

exponential math has caught up with us, our leadership is way worse, and other world players are more competitive.

I don't think the outlook is very rosy.

 
At 4/20/2010 10:11 AM, Blogger Michael said...

OT, but I'd like to see information on the number of small businesses that fail do to government tax and regulation policy.

Cash flow seems to be in the top 4 reasons businesses fail, but I can't find data on the effect of government on businesses that fail due to cash flow.

RI has been shutting down business that can't meet it's total tax bill, so it has to be a contributing factor to business failure.

 
At 4/20/2010 11:27 AM, Anonymous Benny The Man said...

At the bottom of every recession,the doomsters come out, and say it will never be the same again (despite improving worker productvity and technical advancements in all areas).

At the top of every boo, the blue-skyers come out an pronounce a New Order, Pax Americana, or Greenbacks Utopia. Sadly, not the case either.

However, in the long run, living standards will improve and life will go on.

 
At 4/20/2010 12:24 PM, Blogger moneybagzz said...

Pure Hokey.
The media always has an agenda, whether its greater dependency or greater dependency, the facts are always disregarded in favor of pushing the agenda du jour.

I have not read Time in so long I can't even recall the last one I picked up.

Disregard the White House, Congress and the mouthpiece of the Democratic Party, a.k.a. The Liberal Media.

Make decision that are in YOUR interest, and forget about re-electing a tax-and-borrow-and-borrow and spend and borrow and spend and borrow Congress.

Throw them out in November. I am certain that the graduating class of the local clown college could do a better job of legislating than the current crop.

Moneybagzz out.

 
At 4/20/2010 1:46 PM, Blogger OA said...

Going to the Minneapolis Fed website, where they have those nice comparative graphs of past recessions, shows the last 3 recessions (including this one) to be outliers in job creation, or lack of.

http://www.minneapolisfed.org/publications_papers/studies/recession_perspective/index.cfm

Go to the tab in the grey "Compare Recessions and Recoveries"

Select "Compare Recoveries"

And then select the 3 latest recessions, 1990, 2001, 2007.

Change in US employment is right on the prior 2 recessions. But then add any prior recession to the graph and it is clear that "jobs always lag the recovery" is a new phenomenon.

Previously they jumped so soon after the start of the recovery, that the job increase numbers were probably out before the GDP figures.

If the recent pattern holds, it looks like more than 6 more months until job growth shows up. Of course the government component of GDP has never been increased so significantly since WWII, so maybe it flips sooner. With the majority of the "stimulus" being in this year rather than last, it was clearly intended to influence the election rather than speed recovery.

Although there are big tax increases coming in 2011, who knows what employers will do.

 
At 4/20/2010 2:10 PM, Blogger Ron H. said...

Michael said...

>"Cash flow seems to be in the top 4 reasons businesses fail..."

What am I missing? Offhand I can't think of any other reason why a business would fail.


>"...but I can't find data on the effect of government on businesses that fail due to cash flow."

Well, since government always has an effect on business cash flow, and it is almost always a negative effect *, I guess you could say that government contributes to all business failures.

It would be interesting to compare businesses that fail in a free market to those that fail with government help, but since there exists nowhere a free market, that's impossible.

*a few large businesses may experience a positive effect from government. ADM comes to mind

 
At 4/20/2010 2:25 PM, Blogger OA said...

Ron H. said...
...
What am I missing? Offhand I can't think of any other reason why a business would fail.


As the student loan businesses just found out, there's at least one other reason.

 
At 4/20/2010 2:36 PM, Blogger Ron H. said...

OA said...

>"As the student loan businesses just found out, there's at least one other reason."

Oh Ya! That's right, the government put an end to their cash flow.

Similarly, as Michael points out, businesses in RI are having trouble maintaining cash flow through closed doors.

>"RI has been shutting down business that can't meet it's total tax bill, so it has to be a contributing factor to business failure."

 
At 4/20/2010 3:38 PM, Blogger PeakTrader said...

Seth, maybe more people should start a business, like a Microsoft, instead of attacking businesses for making money.

 
At 4/20/2010 4:24 PM, Anonymous Anonymous said...

seth, get a job.

 
At 4/21/2010 12:23 AM, Blogger grant said...

Don't worry the creditors will be around with their vacuum pumps to give debtors a reverse blood transfusion so they can settle their indebtedness to them voluntary

 
At 4/21/2010 3:11 AM, Blogger sethstorm said...


Seth, maybe more people should start a business, like a Microsoft, instead of attacking businesses for making money.

Not everyone has the ability to suspend morality when doing so. Some are just good at what they do - and would rather not have to worry about anything more than a paycheck.

Oh, and Anonymous:
Unfortunately, I'm classified as long-term unemployed. Whatever experience I do have is considered less than the time outside of gainful employment is. Of course, I'd expect you to come up with some snappy answer that's worth less than the extended unemployment.

 
At 4/21/2010 9:40 AM, Anonymous Anonymous said...

Why not attack the consumer as well as business? They purchase goods and services made abroad. They subsequently have the power to demand that goods and services are produced here.

Businesses and consumers have the right to make these choices. We should not impose restrictions on their freedom of choice.

We cannot have this perception that jobs are a right and exclusive to our country. We need to have the mindset that opportunities abound and we cannot simply rely on others to provide for us.

Market forces bring change and upheaval, but it also brings new opportunities (ex: the Internet boom of the 90's). Entrepreneurs view these changes as positive and benefit no matter how many times they may fail.

To paraphrase Edison when asked why he didnt give up on the light bulb after so many failed attempts "I didnt fail, I just found 9,999 ways that didnt work"

 
At 4/21/2010 11:28 AM, Anonymous Anonymous said...

Seth-

The snappy answer is that you think you are worth more than you are. Stop blaming your problems on how long you are out of work and start blaming either your expectations or your work ethic to find a job. You seem to be willing to make any argument to avoid taking responsibility for your situation.

 
At 4/21/2010 12:04 PM, Blogger sethstorm said...


Market forces bring change and upheaval, but it also brings new opportunities (ex: the Internet boom of the 90's). Entrepreneurs view these changes as positive and benefit no matter how many times they may fail.

Again, not everyone has said mindset or the resources to fulfill it.


We cannot have this perception that jobs are a right and exclusive to our country

Hardly the mindset that helps our country, but the one that harms it.


We need to have the mindset that opportunities abound and we cannot simply rely on others to provide for us.

The problem is that you expect complete and utter bootstrappery or that the person cannot be allowed to prosper. As I say again: People for whom do not work well w/ bootstrappery/entrepreneurialism but otherwise do well should be allowed the ability to not have to worry about their next paycheck. They should be able to focus on adding value where they are at, knowing that the rest has been taken care of.

 
At 4/21/2010 1:55 PM, Anonymous morganovich said...

seth-

your argument about "The problem is that you expect complete and utter bootstrappery or that the person cannot be allowed to prosper. As I say again: People for whom do not work well w/ bootstrappery/entrepreneurialism but otherwise do well should be allowed the ability to not have to worry about their next paycheck. They should be able to focus on adding value where they are at, knowing that the rest has been taken care of."

sounds to me like you want life to be "everyone gets a prize day".

you want lifetime employment for whatever you feel like putting out with compensation for the "value you add".

that seems to me to be an extremely entitled mindset. implicit in it is that someone should see you as valuable and compensate you for it and make you life stable.

that's not how it works.

you don't run a company like that. prizes are for winning and performing, not for participating.

"should be allowed the opportunity to" is entitled thinking. it's your job to demonstrate value to an employee, not theirs to make sure your life is nice.

these are businesses, not charities.

 
At 4/21/2010 3:02 PM, Blogger PeakTrader said...

Seth states: "Not everyone has the ability to suspend morality when doing so (starting a business). Some are just good at what they do - and would rather not have to worry about anything more than a paycheck."

Seth, why not offshore more U.S. jobs to raise U.S. morality? So, Americans can work for something beyond a paycheck.

 
At 4/23/2010 4:34 AM, Blogger sethstorm said...

This comment has been removed by the author.

 
At 4/23/2010 4:36 AM, Blogger sethstorm said...


Seth, why not offshore more U.S. jobs to raise U.S. morality? So, Americans can work for something beyond a paycheck.

You're presenting a loaded question. A Europe-inspired one at that.


Morganovich said...
Re-read this section of my reply -

They should be able to focus on adding value where they are at, knowing that the rest has been taken care of.

They are adding value to the company - not an entitlement. That value they add allows the entity in question to make a profit. They are not deadweights asking for a pure entitlement, but people who wish to add value on a non-disposable basis. In doing that, they recognize they are not working for a charity, but a profit-seeking business.

Of course, you just wanted to use the "this phrase is in here, it's automatically entitlement" card.

 
At 4/23/2010 4:33 PM, Anonymous Anonymous said...

Most people who have posted here need to stop whining and grow up.

 

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