David Leonhardt’s column in today’s business section of The New York Times should be required reading for all of those pundits who have started talking and writing about the “green shoots” or recovery that they see evident in the economic figures.
The reality is that, while some indicators have shown small glimpses of progress, the economy remains in a downward spiral — characterized by longterm unemployment and under-employment.
Leonhardt writes of the “downturn … moving into a new stage.”
It has already been through three: the prologue, when credit markets began to quiver in 2007; the big shock, when the collapse of Lehman Brothers, in September 2008, led into almost six months of terrible economic news; and the stabilization, when the news became more mixed. Now comes Stage 4: the slog.
He defines the slog as a time when the recession can be said to officially have ended, based on increased economic output, even if the larger economy remains “weighed down by troubled credit markets and huge household debts,” meaning it could “be awhile before growth is fast enough to persuade companies to hire large numbers of workers.”
This would make for an odd contrast, in which the economy was getting better but feeling worse. These broad measures of unemployment and underemployment could approach a hard-to-fathom 25 percent in California, up from 12 percent a year ago. In several other states, including Florida, North Carolina and Washington, the rate could yet reach 20 percent — and, unfortunately, the stimulus bill does not do a good enough job of targeting the hardest-hit states.
After a decade in which household income barely outpaced inflation, a slow recovery could leave many people hard-pressed and frustrated. In just the last week, the Labor Department reported that the number of people filing new claims for jobless benefits dropped — but so did consumer confidence and Mr. Obama’s approval rating. Welcome to the slog.
Economists already are talking about a jobless recovery — which raises the question of how it can be called a recovery if large numbers of people remain unemployed. Part of the reason is that the stimulus should have been larger and more focused on creating jobs — i.e., modeled on many of the New Deal programs that put Americans to work. Basically, the government should be paying people to do jobs that need to be done.
Remember, the New Deal put people to work building roads, dams and parks and electifying regions of the south and west (the Princeton Arts Council building originally was built with New Deal money).
Instead, the Congress pared back the stimulus, reducing needed aid to cash-strapped states, and shifted much of it into tax cuts that are unlikely to do much to jump-start the economy.
At the same time, the federal government has been doling out money to private firms with few strings attached — GM is closing plants rather than retooling for green industry — further accelerating the decline of the manufacturing sector.
A second stimulus plan will be needed, one that targets the hardest hit areas (as Leonardt points out) and not on tax cuts. My fear, however, is that the minimal impact the current stimulus is having combined with the unwise and untransparent bailouts of the banking and investment industry will make voters suspicious of doing anything at all.
Hank Kalet 