Tag: economy

Here is the real impact of the crumbling economy. While most of the press reports have focused on the stock market and financial sector, the reality is that our economic troubles reach well beyond what is happening on Wall Street.

Layoffs had become a fact of life in recent years, but they are accelerating quickly as the meltdown expands. Louis Uchitelle, the econcomic writer for The New York Times, details the list of job-shedding companies, which he says “has read like a Who’s Who of corporate America.”
When October’s job losses are announced on Nov. 7, three days after the presidential election, many economists expect the number to exceed 200,000. The current unemployment rate of 6.1 percent is likely to rise, perhaps significantly.

“My view is that it will be near 8 or 8.5 percent by the end of next year,” said Nigel Gault, chief domestic economist at Global Insight, offering a forecast others share. That would be the highest unemployment rate since the deep recession of the early 1980s.

While the rate is low compared to what we saw during the early 1980s, the reality is that our unemployment figures are flawed, not taking into account the people who have given up on looking for work.

Uchitelle tells a story that needs to be told, one that every economic writer in the country should be telling — that of the people losing their jobs and the impact it has on their lives.

Dwight and Rochelle Stokes, both in their late 20s, have just joined the layoff rolls. So has Mr. Stokes’s father, Warren, 48, who lost a $30-an-hour job this month on the assembly line of the Chrysler truck plant in Fenton, Mo., near St. Louis., where the father had worked for 12 years. “They just cut back,” the son said.

Just a year ago, he and Rochelle, and their two very young children, moved to Phenix City from Fenton so he could take the mechanic job at the Pratt & Whitney plant in nearby Columbus, Ga. Airlines send engines there for periodic overhauls, and when Mr. Stokes arrived 400 workers were tearing down and rebuilding 15 engines a month.

But as the airlines reduced their flights — and announced 36,000 job cuts, nearly all of them taking place in the current fourth quarter — that number fell to three engines this month and “it was going to be worse for November, just one or two,” Mr. Stokes said.

“We came in on Monday morning and our supervisor told us not to touch an engine, and we knew there would be layoffs,” he said. By lunchtime, Mr. Stokes and 100 others had been escorted out of the building, with four weeks’ pay as severance, along with four weeks of health insurance and a $1,000 departure check.

As a starting mechanic, Mr. Stokes’s pay, $11.50 an hour, was just over half of what he had earned as the manager of a chain of pawn shops in Missouri. But he took the job anyway, moving with his family, because Pratt & Whitney offered full college tuition. Mr. Stokes immediately enrolled in Embry-Riddle Aeronautical University to pursue a bachelor’s degree in management and a minor in engineering sciences.

Using all his spare time, he had earned half the necessary credits when the layoff came. The severance included extended tuition, and Mr. Stokes, piling on course work, hopes to earn his degree by early summer. But he will do so by correspondence course; the family is returning to Missouri, moving in rent free with Mr. Stokes’s sister in Fenton.

“I am going to take seven or eight courses and hurry up and get my degree, and my wife will go back to cutting hair,” Mr. Stokes said, “and when I have my degree in June, I’ll apply for a management position. Even though things are bad, I hear there are openings in St. Louis requiring a bachelor’s degree.”

Perhaps, things will work out for Mr. Stokes, but I’m fearful that he is being unduly optimistic. There are a lot of white-collar jobs disappearing, as well.

I thought that Alan Greenspan was infallible. Wasn’t that the conventional wisdom all these years? For most of the political and journalistic power elite, this is the equivalent of finding out there is no Santa Claus.

on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.

Shocked like Capt. Renault, perhaps? I mean, shouldn’t someone with Greenspan’s credentials have known better than to trust the pyramid scheme that the finance industry created.

At least he is now agreeing that “the multitrillion-dollar market for credit default swaps, instruments originally created to insure bond investors against the risk of default, needed to be restrained.”

“This modern risk-management paradigm held sway for decades,” he said. “The
whole intellectual edifice, however, collapsed in the summer of last year.”

Anyone who thinks we can balance the federal budget and dig ourselves out of the financial quagmire is just fooling themselves. We can’t, and Paul Krugman explains why today:

While the manic-depressive stock market is dominating the headlines, the more important story is the grim news coming in about the real economy. It’s now clear that rescuing the banks is just the beginning: the nonfinancial economy is also in desperate need of help.

And to provide that help, we’re going to have to put some prejudices aside. It’s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.

The doctor’s prescription? Action by the federal government and not just the Federal Reserve. There’s not a lot that Fed Chairman Ben Bernanke “can do for the economy.”

He can and should cut interest rates even more — but nobody expects this to do more than provide a slight economic boost.

On the other hand, there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

Amen.