Mark Naison: Will The Recession End in June 2009 ? Who Are Economists Kidding!!
[Mark Naison is Professor of African American Studies and History, Fordham University.]
" If the recession ends in June 2009, as many economists are forecasting, it would have lasted 18 months, making it the longest recession in the post-World War II period".--AP, December 23, 2008
One of the most frustrating things about reading economic news these days is the disconnect between published reports on the health of the banking system, the housing market, manufacturing and retail sales and the timetable economists are offering as to when the recession will end. I have yet to see a single piece of encouraging news coming from any of those sectors, yet it is hard to find a single economist willing to say that recovery won't begin until 2010, and possibly not then!
I'm not an economist, but I can put two and two together and they don't make five! With job losses just starting to spread to retail trades and government employment, and with problems with commercial real estate and credit card debt inhibiting banks willingness to lend no matter what bailout funds the federal government provides, where is the revival of consumer demand needed to pull us out of the recession going to come from?
Let's look at employment. Consumer demand has already taken a huge hit because of the freezing up of credit and losses in stock portfolios and retirement funds , But nothing hurts consumer demand like unemployment and the big jobs losses have just begun!. Let's take government employment. Generally, there is a lag of at least a year between when an economic downturn hits the private sector and when it impacts the public sector. Almost every state, and many city governments are suffering budget crises that will require them to lay off workers. Most of those layoffs won't begin until next spring- some won't take place till next fall. How, pray tell, is the economy going to pull out of a recession at the same time that hundreds of thousands of government workers are joining the ranks of the unemployed.
Now look at retail sales, especially those specializing in "big ticket" items like automobiles, electronic appliances, entertainment systems and the like. Unless consumer credit is miraculously unfrozen, how many consumers, traumatized by job losses, salary freezes and declining home prices, are going to go out and buy automobiles and flat screen tv's. Declining sales are going to force many auto dealerships and retailers into bankruptcy, creating a major new addition to the jobless ranks, along with people who work in hotels and restaurants.
These are all job losses that, for the most part, haven't taken place yet! How consumer demand is going to rise in the midst of such radical shrinkage in the labor market is a mystery I have yet to decipher.
But wait a minute, thanks to the infusion of $300 billion dollars in bailout funds from the federal government, plus the Federal Reserve lowering interest rates to near zero, won't the banks start lending to consumers again so that Americans can resume their old habit of "shopping till they drop."
That would be nice present for the new year, but for that to be possible, one would have to believe that most of the bad loans and toxic financial products on bank balance sheets have already been written off and that they ready to start fresh. In fact nothing could be farther from the truth! Not only are there still hundreds of billions, if not trillions of dollars in credit default swaps still unaccounted for, but banks face a new wave of defaults on credit cards and commercial real estate that may equal the looses they took on home mortgages!. An article in yesterday's financial section estimated that bank write offs for bad debt in 2009 are likely to double those in 2008! Given what's coming, to imagine that banks are going to loosen restrictions on credit, especially for consumers, in the next 6 months, is to defy credulity!
So folks, to quote from one of my favorite rappers, Eminem -- "let's do the math" If unemployment continues to rise, stock portfolios continue to shrink, and commercial and consumer credit remain frozen at current levels, where is a new burst of consumer demand going to come from?
The stimulus package the Obama administration proposes, if it passes without substantial modification, will create 2.5 million new jobs, but it will take at least two years to fully implement and replace only half of the jobs lost in the current recession. It is a valuable and necessary step to take--but at best it will stop the bleeding, not lead to a new period of economic growth.
We have to face facts. Nothing policy makers can do will bring back the era of easy consumer credit that has fueled economic growth during the last twenty years.
We are going to face a long period of economic stagnation that will require new ways of thinking about what a healthy economy is and generate new forms of enterprise, undergirded by a new value system, that avoid the kind of waste and profligacy of an society that made the SUV and the McMansion the symbols of collective economic well being.
American consumerism, in its current form, may be a casualty of this crisis. If we want something better- and equally dynamic- to replace it, we need to start thinking about alternatives now.
" If the recession ends in June 2009, as many economists are forecasting, it would have lasted 18 months, making it the longest recession in the post-World War II period".--AP, December 23, 2008
One of the most frustrating things about reading economic news these days is the disconnect between published reports on the health of the banking system, the housing market, manufacturing and retail sales and the timetable economists are offering as to when the recession will end. I have yet to see a single piece of encouraging news coming from any of those sectors, yet it is hard to find a single economist willing to say that recovery won't begin until 2010, and possibly not then!
I'm not an economist, but I can put two and two together and they don't make five! With job losses just starting to spread to retail trades and government employment, and with problems with commercial real estate and credit card debt inhibiting banks willingness to lend no matter what bailout funds the federal government provides, where is the revival of consumer demand needed to pull us out of the recession going to come from?
Let's look at employment. Consumer demand has already taken a huge hit because of the freezing up of credit and losses in stock portfolios and retirement funds , But nothing hurts consumer demand like unemployment and the big jobs losses have just begun!. Let's take government employment. Generally, there is a lag of at least a year between when an economic downturn hits the private sector and when it impacts the public sector. Almost every state, and many city governments are suffering budget crises that will require them to lay off workers. Most of those layoffs won't begin until next spring- some won't take place till next fall. How, pray tell, is the economy going to pull out of a recession at the same time that hundreds of thousands of government workers are joining the ranks of the unemployed.
Now look at retail sales, especially those specializing in "big ticket" items like automobiles, electronic appliances, entertainment systems and the like. Unless consumer credit is miraculously unfrozen, how many consumers, traumatized by job losses, salary freezes and declining home prices, are going to go out and buy automobiles and flat screen tv's. Declining sales are going to force many auto dealerships and retailers into bankruptcy, creating a major new addition to the jobless ranks, along with people who work in hotels and restaurants.
These are all job losses that, for the most part, haven't taken place yet! How consumer demand is going to rise in the midst of such radical shrinkage in the labor market is a mystery I have yet to decipher.
But wait a minute, thanks to the infusion of $300 billion dollars in bailout funds from the federal government, plus the Federal Reserve lowering interest rates to near zero, won't the banks start lending to consumers again so that Americans can resume their old habit of "shopping till they drop."
That would be nice present for the new year, but for that to be possible, one would have to believe that most of the bad loans and toxic financial products on bank balance sheets have already been written off and that they ready to start fresh. In fact nothing could be farther from the truth! Not only are there still hundreds of billions, if not trillions of dollars in credit default swaps still unaccounted for, but banks face a new wave of defaults on credit cards and commercial real estate that may equal the looses they took on home mortgages!. An article in yesterday's financial section estimated that bank write offs for bad debt in 2009 are likely to double those in 2008! Given what's coming, to imagine that banks are going to loosen restrictions on credit, especially for consumers, in the next 6 months, is to defy credulity!
So folks, to quote from one of my favorite rappers, Eminem -- "let's do the math" If unemployment continues to rise, stock portfolios continue to shrink, and commercial and consumer credit remain frozen at current levels, where is a new burst of consumer demand going to come from?
The stimulus package the Obama administration proposes, if it passes without substantial modification, will create 2.5 million new jobs, but it will take at least two years to fully implement and replace only half of the jobs lost in the current recession. It is a valuable and necessary step to take--but at best it will stop the bleeding, not lead to a new period of economic growth.
We have to face facts. Nothing policy makers can do will bring back the era of easy consumer credit that has fueled economic growth during the last twenty years.
We are going to face a long period of economic stagnation that will require new ways of thinking about what a healthy economy is and generate new forms of enterprise, undergirded by a new value system, that avoid the kind of waste and profligacy of an society that made the SUV and the McMansion the symbols of collective economic well being.
American consumerism, in its current form, may be a casualty of this crisis. If we want something better- and equally dynamic- to replace it, we need to start thinking about alternatives now.