Radio commentary, December 11, 2008
Audio: December 11, 2008
Economic news continues to look very ugly (even uglier, since I think my car was stolen). This morning, just before I got ensnared in the case of the missing 1989 Buick, the Labor Department reported that 583,000 people filed first-time claims for unemployment insurance last week, up 58,000 from the previous week. Both the level of initial claims and their movement over the last year are at recession levels. They’re not yet at the levels of the mid-1970s and early 1980s recessions, but they’re heading in that direction. A leading index of employment published by the Conference Board and released early this week deteriorated further, suggesting at least six months more bad news for the job market. We probably have to see some serious improvement in these two measures before we can even begin thinking about the economy finding a bottom, much less start to recover.
The housing sector also tends to lead broader economic trends, though it’s usually further ahead when things are turning down than when they’re turning up. In any case, there’s not much sign of stabilization there, either. Energetic optimists are drawing some hope from little upticks here and there, but these look like very thin reeds.
And a new forecast posted to economist James Hamilton’s Econobrowser website offers a very gloomy view of the next couple of years. It comes from Michael Dueker, formerly of the St. Louis Fed, now of Russell Investments, who uses a high-tech statistical technique called vector autoregression to predict economic developments. What gives Dueker some standing is that he correctly forecast both the 2001 and 2007 recessions ahead of time, when many other analysts were singing happy songs. Of course, as they say in the mutual fund ads, past performance is no guarantee of future results, but here we go anyway. Dueker sees the recession not bottoming into July or August of next year, with the job market continuing to shrink for close to a year longer than that. He projects that we have another 4 or 5 million jobs to lose, on top of the nearly 2 million we’ve lost since the peak a year ago. If Dueker is right, this is likely to be the longest and most damaging recession since the 1930s. Since the leading indicators are suggesting no turnaround is in sight, meaning in the next three to six months, Dueker may well be right about duration. And if the economy has technically bottomed but jobs are continuing to disappear, that’s a recovery in name only. Bottom line: the economy stinks, and is likely to get stinkier for some time.
Now there’s a chance that if the new Congress and administration enact a big, quick-acting stimulus program—they’re talking about getting $150 billion in infrastructure spending going at the state level (using federal money) in the early months of the year—well, that might mitigate the glum forecast. We’ll see.
Speaking of the new administration, their novelty and freshness continues to disappoint. I just came across this quote from uber-wiseman Larry Summers, in Creative Capitalism, a new collection of interviews with movers and shakers conducted by Michael Kinsley. Here’s Larry, who’s allegedly been reborn after spending so many years as an insufferably arrogant and orthodox prince of the dismal science: “As for [Milton] Friedman — I’m not so sure he looks bad. What is most screwed up today? GSEs [government-sponsored enterprises, like Fannie Mae], Citibank, regional banks. What is most regulated? Same list. What is least screwed up? Hedge funds and the like. What is least regulated? If regulation means the jihad against short selling that the Securities and Exchange Commission is engaged in, then god help us all.” There’s so much that’s wrong with this. The GSEs and Citibank were supposed to be regulated, but they weren’t. Citibank was encouraged in its recklessness by Summers’ colleague and mentor Robert Rubin. The hedge funds are deeply screwed up—they’re going bust in large numbers, and losing piles of money. So if Summers is arguing against regulation, to quote him against himself, then god help us all. But maybe he gave the interview a year ago, before his ideological rebirth. We’ll see.
Finally, a few words about the sit-in at Republic Doors and Windows in Chicago. As you’ve no doubt heard, the company decided to close the plant without any warning and was refusing to pay the workers money that they owed them. The company blamed its bank, The Bank of America, for having cut them off. The workers occupied the factory. And they’ve won. No they’re not getting their jobs back, and they’re not going to take over the factory, but they are getting the money that was owed them.
There are many interesting things about this incident. Let me list a few. One, the workers didn’t passively accept being screwed, as so many American workers have over the last few decades. A reason for this might be that they were represented by an independent, principled, and democratic (small D) union, the United Electrical Workers, UE. UE was once a pretty radical union but it was hammered during the McCarthy era. Though a relative weakling, this incident does suggest that a good union can make a big difference. Two, one of the reasons the case attracted so much attention is that Bank of America has gotten $25 billion in public bailout funds, which they’re supposed to use to keep the economy going. Instead, they were hoarding the money and calling in loans. This produced very bad PR for the bank, and is no doubt one of the reasons they relented. And three, maybe this is just the beginning of a fightback movement in this politically demobilized country. Yeah, the United Autoworkers, an ossified union if there ever was one, isn’t giving much sign of resisting their likely evisceration, thanks to the auto industry bailout. But maybe there’s hope for other American workers as the recession gathers steam. As the old slogan says, Don’t Tread on Me.