Radio commentary, February 28, 2009
The economic news continues to be bad, quite bad. On Thursday we learned that the number of new applications for unemployment insurance rose a sharp 36,000, and the number of people continuing to received jobless benefits rose by 114,000, also a sharp rise. While neither figure is at record levels when taken as a percentage of the labor force—by those measures, things still aren’t as bad as they were in the recessions of the mid-1970s and early 1980s—they’ve nonetheless been rising steeply and relentlessly. That rise is now very close to breaking the 1974 record, meaning the job market is still deteriorating, and at what now looks like an accelerating rate.
That bleak picture of the job market was underscored earlier in the week with the release of the Conference Board’s monthly survey of consumer attitudes. Most of these mood surveys aren’t very useful; they reflect the headlines more than they shape them. But unlike the University of Michigan’s consumer sentiment survey, the Conference Board asks people about the state of the job market, and those responses are a good real-time measure of what’s going on. And by that measure, the labor market is a wreck. Just over 4% of respondents say that jobs are plentiful, which is pretty close to an all-time low since the series starts in 1978; 48% say they’re hard to get, which is close to an all-time high.
And housing figures also remain dismal. Sales of existing existing houses in January fell 7% from a year earlier—not a horrible number, nor was the actual level one for the record books. But close to half the sales were of “distressed” properties, meaning in foreclosure or close to it. That’s dragging down prices, which were down almost 14% from a year earlier, and 26% from their 2006 peak. At present rates, it would over 9 months to move all the houses currently for sale—and about a quarter of that inventory is distresed. Sales of new houses in January were down 48% from a year earlier, and adjusted for population, the rate of sale is at record lows. It would take over 13 months to clear out the unsold inventory at present sales rates, also an all-time record. And prices were down over 13% for the year—not an all-time record, but close to it.
The prevelance of records and near-records in the last couple of paragraphs suggests that we’re not really close to bottoming out yet. If we were approaching a bottom, you’d expect the rate of decline to be slowing (grasping at second derivatives, we are!), but it’s not. And the state of the job and housing markets are the most important aspects of that abstraction known as the economy to real people. Not that things are going all that well at the high abstract level of the financial markets, either.
About the only bit of encouraging news I can find is, as I’ve reported here a couple of times before, the Economic Cycles Research Institute’s weekly leading index, which forecasts changes in the economy three to six months out, is declining at a progressively slower rate, which suggests that there may be a bottom in sight. Underscore suggests and may. Finally, a comforting second derivative!
But I gotta say the news on the financial bailout is disappointing. The Obama administration is clearly going very easy on Wall Street. The much-hyped stress tests aren’t much of anything at all; as a Citigroup analysis put it on Thursday, the tests aren’t onerous and the overall plan looks very bank- and investor-friendly. They’re doing everything they can to avoid nationalizing these busted institutions, and even when they pump money in, as they did with Citigroup the other day, they do it with few obvious strings attached. We’ll know that we’re really in a new era when the administration’s approach becomes a lot less indulgent. Justice requires that, but so does economic recovery.
The outlines of the first draft of Obama’s first budget, though, are more encouraging. To start with, it’s an honest document, which brings the cost of war onto the budget, instead of being covered with the phony emergency resolutions that Bush preferred. Raising taxes on the very rich is a good move. It’s good to see some serious action on greenhouse gas emissions, though I’d much prefer a carbon tax to a cap-and-trade system.
(This is a rare instance where I come down on the side of economists on an issue. Economists argue that carbon taxes produce much more stable and predictable paths for energy prices over the long term, while cap-and-trade systems, which allow polluters to buy and sell their rights to foul the atmosphere, tend to produce a great deal of price volatility. Enviros usually prefer the caps, because they’re direct and mandatory. But the price volatility that such systems give rise to can make it very difficult to plan for the future. But this is a topic for many other shows. See also this article: Cooler Elites.)
The health care fund, $630 billion over the next decade, is a nice gesture, but it’s still not what we really need, which is a single-payer system. We’ll hear more on this from David Himmelstein in about 25 minutes, but single-payer is the only way you can get universal coverage and cost control, because you get the parasitical insurance companies out of the picture.
The deficit is going to be big, very big. It was strange to read on the World Socialist Web Site that these deficits are dangerous; their analysis sounded eerily like those of deficit hawks like Pete Peterson and the Concord Coalition. (Actually it’s more hawkish than this.) Either we have big deficits or everything goes down the drain. Of course if you want the economy to go down the drain, then you don’t like big deficits.
But after the emergency passes—assuming it does, that is—it’s time to get serious about soaking the rich to pay down some of the debt incurred in this vast rescue operation. I’ve long maintained that borrowing money from the rich, which is what deficit spending fundamentally does, is a very poor substitute for taxing them. Big deficits are an essential strategy for getting out of a crisis. But they’re not a good way to run an economy over the long term.
Putting all this together: the budget looks like bigger than baby steps in the right direction, the first serious signs at the fiscal level of a reversal of the priorities of the last 30 years. But only a beginning. And it has to get through Congress.
Oh, and we talk a lot about trillions of dollars. This is, when you stop to think about it, an almost unthinkable number. Here’s an approximation of a trillion. If you counted out a hundred dollar bill every second, it would take 317 years to reach a trillion.