Radio commentary, November 27, 2008

Audio: November 27, 2008

The housing market lingers in its doldrums. On Monday, the National Association of Realtors reported that sales of existing houses fell by 3% in October. Actually that’s not as bad as it sounds, because the annualized rate in October of just under 5 million houses a year is about where it’s been for the last year. So sales look to be bumping along the bottom. Prices, though, are falling, and at a somewhat accelerating rate, suggesting a lot of distress sales. My guess is that we’ve got another six or nine months of this sort of thing before the housing bust finally runs its course—though it could be a lot longer before we see a true recovery.

I’d say much the same about the economy, adding maybe six months to the estimate—meaning that the real economy may not begin to recover until 2010. But that’s just a guess. The leading indexes are still falling. The one from the Economic Cycles Research Institute is falling hard, suggesting a severe recession; its counterpart from the Conference Board, while also falling, isn’t looking so scary. But in any case, there is no sign anywhere that the economy—and not just the U.S., but globally—is in anything but the early stages of a major downturn.

Next Friday, we’ll get the employment report for November. I’m expecting a worse report than we saw for October, meaning perhaps 300,000 or more lost jobs and a further rise in the unemployment rate. And it may be that job losses earlier this year were harsher than first reported. The details are too geeky for radio, but there are routine revisions made to the national income accounts every three months, based on the near-complete measure of the job market provided by the unemployment system, that offer an early corrective to the preliminary survey data reported every month. (The monthly surveys are based on a very large, but still incomplete, subset of employers; the unemployment insurance system covers 99% of employers.) On Tuesday morning, we got these revisions for the second quarter, and they’re suggesting much steeper job losses than were initially reported last spring. In other words, we’re even worse off than we thought.

In some more encouraging news, it does look like the incoming Obama administration plans a seriously large stimulus program—around $700 billion, possibly spread over two years. It’s likely to be a mix of tax cuts for low and middle-income households and infrastructure spending, including some clean energy and other environmental initiatives. We’ll see what the details look like, but the price tag and the mix are both what we need. Obama’s announced intention to spend enough to create 2.5 million jobs sounds encouraging, but, spread over a couple of years, that’s not really all that big a number by historical standards. Still, it’s a lot better than losing that many.

And over the last several days, Obama has announced the major figures in his economic team. Like the rest of his appointments, there’s not much change visible there. Most are familiar from the Clinton years—though maybe, like good mainstream environmentalists, they believe in recycling. The survival of Robert Rubin as eminence grise is especially mystifying. He’s a guy who blocked regulation of deriviatives and promoted the deregulation of the financial system—and was rewarded for his efforts with a senior position at Citigroup, where he urged the bank to take on more risk. That’s three strikes already, and it’s not a full accounting. The new economic czar, Larry Summers, a deeply obnoxious character, succeeded Rubin as Clinton’s Treasury Secretary, and while he’s not as directly culpable for financial deregulation as Rubin, he was hardly a whistleblower either. And Tim Geithner, who will move from the presidency of the New York Fed to the Treasury, is touted as having lots of crisis experience. Well, yeah, but it’s not clear just how well he’s managed that. We used to think that Geithner went along with the current Treasury Secretary, Henry “Hank” Paulson, in his disastrous decision to let Lehman Bros. go under last September—a decision that helped turn a serious problem into a full-blown panic. Now people are saying that Geithner’s just a quiet sort of guy who didn’t approve of Paulson’s decision but went along with it. Who knows? But it sure looks like not only are there no penalties for failure in this society—there can even be generous rewards. But only at a high level. At more modest levels, the penalties can be foreclosure and homelessness.

And how about that Citigroup bailout? A big cash infusion from the gov on very generous terms, and existing management gets to stick around. I sure hope the new gang runs a better bailout than this, but they’ve probably been participating in these decisions, so maybe that hope is misplaced.

Finally, something I inteneded to mention last week, but forgot. Daewoo, the Korean corporate giant, cut a deal with Madagascar, an island country in the Indian ocean off the southeast coast of Africa, to farm corn and palm oil in an area half the size of Belgium. Daewoo’s rent is zero. Nothing. They’re getting it for free. Daewoo says it’s a good deal for Madagascar, since it will provide jobs. This looks like a return to a 19th century model of colonialism, in which private companies get big chunks of real estate in subaltern countries. None of the complex mediations of neocolonialism—comprador classes, international bodies like the IMF, etc. Just outright land theft. Quite amazing, really.

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