Great Depression

Why Isn’t The Unemployment Crisis a National Emergency?, Economist’s View Blog

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Even though the president has pivoted “from deficit reduction to job creation,” and even though job creation was the theme of the weekly address Obama gave today, I can’t say I’m any more encouraged about the prospects for a significant job creation package than I was when I wrote this.]

Labor markets are in terrible shape. Fourteen million people are unemployed, long-term unemployment remains near record highs, the ratio of job seekers to job openings is 4.3 to 1, and the employment to population ratio has dropped precipitously. Even if the economy grows at a robust average of 3.5% beginning in 2013, labor markets won’t fully recover until 2017. And if average growth is only 3.0% – well within the range of possibility – it will take until 2020. In short, labor markets are in crisis and the longer the crisis persists, the more permanent and growth-inhibiting the damage becomes.

So it was welcome news to see President Obama pivot from deficit reduction to job creation in his widely anticipated speech last week. The president proposed a combination of spending and tax reduction policies, and he surprised many people with the boldness of his proposals and his passion and commitment to the issue. Unfortunately, it’s unlikely to do much to help with the unemployment problem.

There plenty of time to provide help, the dismal prospects for recovery detailed above make that clear. So the time it takes to implement job creation policies – the objection that there are not enough shovel ready projects – is not the issue. And while concerns over the deficit are valid for the long-run, they shouldn’t prevent us from doing more to help the jobless. The long-run debt problem is predominantly a health care cost problem, and whether or not we help the jobless doesn’t much change the magnitude of the long-run problem we face.

The problem is the political atmosphere. Republicans may go along with doing just enough to look cooperative rather than obstructionist, but no more than that and the policies that emerge are unlikely to be enough to make a substantial difference in the unemployment problem. It won’t be anywhere near the $445 billion program the president has called for, which itself is short of what is needed to really make a difference.

I don’t expect we’ll get much more help from the Fed either. There is quite a bit of disagreement among monetary policymakers over whether further easing would do more harm than good, and inflation hawks are standing in the way of those who want to aggressively attack the unemployment problem. As with Congress, the Fed is likely to adopt a compromise position and do the minimum it can while still looking as though it is trying to meet its obligation to promote full employment.

Thus, despite the President’s newfound interest in job creation, and the call from some at the Fed to treat the unemployment problem the same way they would treat elevated inflation – as though “their hair was on fire” – the actual policies that come out of Congress and the Fed are unlikely to be sufficient to make much of a dent in the problem.

It’s time for this to change. The loss of 8.75 million payroll jobs since the recession began should be a national emergency. But it’s not, and the question is why. Why has deficit reduction taken precedence over job creation? Why is our political system broken to the extent that a whole segment of the population is not being adequately represented in Congress?

That brings me to an important difference between the response to this recession and the policies that followed the Great Depression. Many of the policies that were enacted during and after the Great Depression not only addressed economic problems, they also directly or indirectly reduced the ability of special interests to capture the political process. Polices that imposed regulations on the financial sector, broke up monopolies, reduced inequality through highly progressive taxes, accorded new powers to unions, and so on shifted the balance of power toward the typical household.

But since the 1970s many of these changes have been reversed. Inequality has reverted to levels unseen since the Gilded Age, monopoly power has increased, financial regulation has waned, union power has been lost, and much of the disgust with the political process revolves around the feeling that politicians have lost touch with the interests of the working class. And it would be hard to disagree with that sentiment.

We need a serious discussion of this issue, followed by changes that shift political power toward the working class, but who will start the conversation? Congress has no interest in doing so, things are quite lucrative as they are. Unions used to have a voice, but they have been all but eliminated as a political force. The press could serve as the gatekeeper, but too many outlets are controlled by the very interests that the press needs to take on and this gives them the ability to cloud most any issue. Presidential leadership could make a difference, and Obama’s election brought hope for change, but this president does not seem inclined to take a strong stand on behalf of the working class despite the surprising boldness of his job creation speech.

Another option is that the working class itself will say enough is enough and demand change. There was a time when I would have scoffed at the idea of a mass revolt against entrenched political interests and the incivility that comes with it. We aren’t there yet – there’s still time for change – but the signs of unrest are growing and if we continue along a two-tiered path that ignores the needs of such a large proportion of society, it can no longer be ruled out.

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The New, Old Paradigm’s….., by Brett Reichel, Brettreichel.com

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Is we no longer use the word “Paradigm”……

Do you, like me, have a hard time keeping up with all the latest buzzwords, catch-phrases, and schools of thought? Here’s a tip – forget them all.

It’s interesting to look over recent history and realize that no matter how much we think things have changed, things have stayed the same. As wise old King Solomon said “there is nothing new under the sun”.

What have we learned from the last two economic “busts”? Mainly that old wisdom still applies. In the “Tech Boom” or the “Dot Com Bubble” we were told that there were new metrics to measure companies by and that earnings didn’t matter. Guess what? Whoever told us that was wrong. Earnings and good corporate governance are still a necessity to make a good company and a good investment.

In the recent “Real Estate Bubble”, we were told that house prices always went up, and that it didn’t matter if a home buyer was credit worthy or had income. Guess what? You’re right, whoever told us that was wrong. Having decent character (credit), and enough income to meet your obligations creates a successful homeowner.

There are some wrong thoughts out there bouncing around the world right now as well. If you follow blogs, opinion posts, comments on articles, etc., you will see constant negativity out there right now. Really, if there was a time to be negative, it’s understandable why people would think now is that time. The economy remains in a shambles. Unemployment is high. Many feel that both the Democrat’s and Republicans have abandoned the “little guy” and small business, and are trying to give everything to the big banks, and wall street. Pretty much everyone thinks things are bleak, and there is no reason for positivity.

In my business, regulation grows and grows like an ugly alien weed from a bad sci-fi flick and threatens to choke everything out in its path. My comrades in the Real Estate market bemoan the millions of foreclosures coming on the market. Self-proclaimed experts predict further collapse and decay.

But a few weeks ago, I was watching a series on the history of America on the History Channel and what struck me was that we’ve been here before. In the history of this country, it has faced many economic challenges and has always overcame those challenges. The economic forces of capitalism and its “creative destructionism” have always created opportunity for those willing to seize it.

“Creative destructionism” is a concept that was first recognized by Marx, and he viewed it as a negative. But, like much of the rest of his thoughts, his viewpoint was wrong. Economist Joseph Schumpeter recognized this force as one of innovation and progress.

Really, what we want to take from this is that we don’t live in a time of collapse and decay, we continually live in a time of this “creative destructionism” where, yes, things will change and change rapidly, but there will still be opportunity for us to thrive.

That’s the “old paradigm” – that’s where the old wisdom comes in to play. In a capitalist society (and for those of you who are more negative, even a “semi-capitalist” society), there is always opportunity.

I’m re-reading an old book from the self-help section called “Think and Grow Rich” by Napoleon Hill. I got it for 99 cents on my Kindle through Amazon (Wow …. there’s new and opportunity). He said something on early in the book that really caught my attention and struck me as being very up to date and modern, and remember this book was written back in the 30′s in the “Great Depression” :

“Never in the history of America has there been so great an opportunity for practical dreamers as now exists. The six-year economic collapse has reduced all men, substantially, to the same level. A new race is about to be run. The stakes represent huge fortunes which will be accumulated within the next ten years. The rules of the race have changed, because we now live in a CHANGED WORLD that definitely favors the masses, those who had but little or no opportunity to win under the conditions existing during the depression, when fear paralyzed growth and development.”

I guess what I’m trying to say is that, yes, a lot of things have changed and will change. Yes, our time right now has it’s serious challenges. But, really, now is the time to apply old wisdom. It’s a time, no matter what our failures have been, to pick ourselves up by our bootstraps, to work hard, to be positive, to seize these new opportunities and to run this “new race” we’ve had to run before.

It’s up to us, it’s up to me, it’s up to you. Opportunity is out there. We just have to grab it.