Two writers -- one pro-business, one pro-government -- redefine recession
Take a look at sales and income and say our economy is doing OK
We trim, blend, and append two 2008 articles: “US could have recession without drop in GDP” by Rex Nutting, MarketWatch, April 30, and “The Myths and Harsh Effects of Bush's Economic Class War”, by Larry Beinhart, AlterNet, posted April 28. Beinhart is the author of "Fog Facts: Searching for Truth in the Land of Spin."
Nutting: Last quarter the GDP did grow, barely. Yet what the GDP measures -- the output of the economy -- can grow while well-being recedes.
For the first quarter, almost all the growth came from inventory growth and exports, with very little increase in either the amount of money individuals or companies earned, or in the things American households and businesses bought. We made a little bit more stuff, but it went into warehouses and onto ships, not into our homes and workplaces.
* Industrial output has stalled over the past six months, even with the weaker dollar boosting exports.
* Inflation-adjusted sales have fallen at a 5.2% annual pace in the past three months and are essentially unchanged from six months ago.
* Payrolls are down by a quarter million jobs in the past four months.
* Final domestic sales fell at a 0.4% annual rate in the quarter, the first decline since 1991 -- a year off the 18-year land-price cycle -- and a far better assessment of the economy's health than Q1’s 0.6% increase.
* After-tax incomes adjusted for inflation have been stagnant since September, even as the population has grown. The pie is being sliced thinner.
By all of these measures except GDP, a recession is probably in progress.
JJS: And for ordinary Americans, it has been for all the double-o’s.
Beinhart: The last recession, of 2001, lasted eight months. The economy went into "recovery" by 2003, yet here's the reality. The recession of 2001 never ended. At least not for ordinary Americans.
From 2001 to 2007, median family income declined from between $500 and $1,000. Median individual income went down by at least $1,000. The number of people in poverty increased from 31.6 million to 36.5 million. The value of America's businesses as measured by the stock market did not go up. But the cost of living did.
How can rosy reports and the reality be so different? The herd mentality in politics, in the media, and among economists. The key fact is this: the "growth" in the US economy consists entirely of debt.
The national debt in Jan. 2008: $9.2 trillion. The national debt in 2001: $5.7 trillion. An increase of $3.5 trillion.
Total consumer credit debt in 2008: $12.8 trillion. Total consumer credit debt in 2001: $7.65 trillion. An increase of $5.25 trillion.
Combining what we owe as a nation and as individuals, over the last seven years we took on $8.75 trillion in debt. Meanwhile, the economy grew by only $4 trillion.
The real estate bubble is described as the root of our current economic problems. That's not true. It's merely a symptom. The problem is that the government and the citizenry have taken on massive amounts of new debt. Without investing it anything productive.
Our occupations of Afghanistan and Iraq are not profitable except for specific war profiteers; they are drains, endlessly creating more debts. Debts which are kept off the books the way Enron used to do it, or more pertinently, the way George Bush used to do it when he was at Harken Energy.
This is reflected in the fall of the dollar against such currencies as the Euro. The dollar is worth one third less than it was in 2001, pretty much the size of the bubble, one third of the economy. It is also the primary cause of half of the increase in the price of oil. Since oil is priced in dollars, oil producers raised their prices by fifty percent to keep even.
Fixing it requires raising taxes to pay off the government debts. Cutting military spending and ending the War in Iraq will help immensely. More than that, it requires a new intellectual and moral standard that won’t spin myths but face facts.
JJS: Ironically, Beinhart also proposes debts he does like, not for guns but butter. Yet debt is debt. What would work to help people would be to, yes, raise taxes but not on the values we create -- on income, sales, and buildings -- only on the values we take -- pollution, depletion, and exclusion from locations. Then, rather than let Bushies spend the public revenue on wars or Beinhart on bureaucracy, pay citizens a dividend so they can afford the services they truly desire.
There is no shortcut, so the sooner we get it right, the better. Housing numbers keep tumbling:
* In February, prices shrank 2.6% compared with January for 20 key cities; prices in the 10-city index fell 2.8%. That's the fastest monthly price decline in the history of the Case-Shiller index. The pace of decline has accelerated for nine consecutive months. In the past year for the 20 key cities, the decline quickened in February, with prices down a record 12.7%. And they have to fall further.
* The share of U.S. homes owned but sitting empty edged up in the first quarter to a record high 2.9%. To get them sold, owners must lower what they’re asking. (Reuters)
* One in every 194 households received a foreclosure filing last quarter. The number of homes heading toward foreclosure more than doubled in the first quarter from a year earlier, up from 306,722 to 649,917. The latest tally also represents an increase of 23% from the fourth quarter of last year. The most recent quarter marked the seventh consecutive quarter of rising foreclosure activity. Nearly 157,000 properties were repossessed by lenders nationwide during the quarter. (AP, April 29) These houses will lower prices, too.
This return to affordability, geonomists predicted years ago. And it’s a good thing it’s happening, too (see our earlier article on how to prevent foreclosure). Once land (what housing sits on) gets affordable again, then the economy can revive again.
Jeffery J. Smith runs the Forum on Geonomics.
The “Crash of 2007-8” is underway
Are We Trapped in a Failed Worldview?
Two Reviews of Green Economics
Email this article Sign up for free Progress Report updates via email
What are your views? Share your opinions with The Progress Report:
Page One Page Two Archive Discussion Room Letters What's Geoism?