Keeping It Real: This Recession Ain't Over by a Long Shot

By Dave Lindorff

The “happy talk” campaign in the US media and coming from the White House is just that: Happy Talk.

To get a real picture of what is happening with this economy, here are a few things to keep in mind.

Yes, the rate of decline in economic activity has slowed. But that
is to be expected. When an economy is going at full tilt, as the US
economy was doing in early 2007, a slowdown of any significance yields
huge numbers, in terms of falling production, falling factory
utilization, falling car sales, or, this time around, falling housing
prices.

But once you get to the same period in 2008, you’re already in a
deep recession, and there really isn’t that much farther to fall. If,
for example, the carmakers have basically shut down by fall of 2008,
and are just working off huge inventories, then you are not going to
see more factory closings and further reductions in production (how do
you reduce production below zero?).

The same can be said about unemployment, although here there is
another twist or two. Yes, the huge layoffs that saw the number of new
unemployed jumping by 6-700,000 per month in the early part of this
year seem to be over, and now new unemployment is rising by “just”
500,000 a month or so, but that’s because all the major employers have
already shut down or shut down entire shifts. There are not that many
people who can be laid off any more, at least in large groups. This
gets painted as “the pace of layoffs is slowing” as if that’s good
news, but it is the opposite.

But there is more trickery and misinformation regarding unemployment
statistics, too. One has to do with the oft-noted claim that the number
of people collecting unemployment benefits is declining—especially the
long-term unemployed. But the reason for this is not that people are
finally finding jobs. It’s that unemployment benefits are being
exhausted. The upper limit for collecting unemployment benefits in the
US is 79 weeks, and that’s only in some states where unemployment is
particularly high. In other states it is 72 weeks or even as low as 59
weeks.

Also, unemployment benefits, which reportedly average $300/week, but
can be a lot less depending upon where a particular person worked and
what state he or she lives in, are lost if a person does some part-time
work, and since nobody can support a family on $300 a week, many people
on unemployment end up getting part-time jobs and lose their
unemployment benefits. That’s not a good sign either.

Finally, unemployment benefits only cover about half of American
workers. The rest, because they have already only been able to find
part-time jobs, or because they’ve been working “off the books,” or
because they are so-called “independent contractors”—people like
gardeners, freelance writers, lawyers, consultants, plumbers,
etc.—aren’t covered by unemployment insurance. When they get laid off,
they are on their own. And increasingly, the layoffs and job losses in
this declining economy are falling on people in that category. The
early lay-offs were done by managements of big companies which looked
ahead, saw the downturn, and implemented “cost-cutting” measures, which
meant slashing production and laying off workers. Independent workers
and small businesses, whose owners are personally hit when they have to
shut down production or operations, have struggled to stay in business
as long as possible, but are now entering the jobless rolls at an
accelerating rate.

But, and here’s a crucial point, many of them simply don’t get
recorded by the government statisticians as being unemployed. Anyone
who works even a few hours a week at some odd job, or for free in a
family business, is not counted. Anyone who sees no job prospects out
there and just gives up isn’t counted. Anyone who finds a half-time
job, but needs a full-time job is counted as employed. It didn’t use to
be this way. In a more honest time, more than three decades ago, such
people were counted as unemployed, but politicians pushed to have them
excluded to keep the official unemployment numbers looking lower. If
all such people were added to the unemployment numbers we would have
unemployment in the US at over 18 percent, and possibly closer to 20
percent. That’s one in five Americans out of work.

And remember, even though we are now in an economy that is
functioning at a depressed level, it is still in decline, and those
unemployment numbers are rising, not stabilizing.

Put that together with the fact that Americans collectively have
lost $14 trillion in wealth. They’ve lost invested savings, which are
still down almost 20 percent from where they were a year ago, and don’t
appear likely to recover any time soon. (Remember, even if the stock
market falls 40 percent and then rises 40%, it will still be down.
Consider: If you had $1000 in vested in a broad index like the S&P,
and it dropped 40% as happened last fall, you lost $400, and have just
$600. If the market then recovered 40%, though, which it hasn’t by a
long shot, you only gain 40% of $600, or $240, so your portfolio is
still only back to $840.) That $14 trillion also includes the lost
value of people’s homes, which until 2008 were being used to prop up
living standards as people borrowed on the rising equity in their
property. With housing values in much of the country now down anywhere
from 20% to 80%, many homes are now worth less than the amount of money
still owed on people’s mortgages. They can’t sell, and often, they
can’t pay the mortgage check.

Where is the consumer spending supposed to come from that used to
represent a whopping 70% of economic activity in a United States that
long ago stopped making things? The answer is: nowhere. The amount of
lost wealth makes a joke of the celebrated Obama stimulus plan, which
was less than $1 trillion, and which is spread out over two years.

There is simply no money to restart the orgy of consumer spending that kept the US economy afloat for so long.

People can’t even borrow if they want to. Banks are not lending,
because they know that the happy talk is nonsense, and they don’t want
to loan money to people and businesses that are liable to go belly up
as the recession continues. That’s why card companies like American
Express and many Visa issuers, instead of just charging a late charge
when card-holders miss a monthly payment deadline as in the past, are
now just jacking up the interest rate they charge, --in American
Express’s case to 28% or over 2% a month! That’s not the action of a
bank that is expecting to get repaid by a customer—it’s the
extortionate action of a usurer that wants to extract as much money as
possible from a borrower that it expects to have go bust. Banks are
canceling personal and business credit lines right and left too, making
a joke of the Obama administration’s claim that it bailed out the banks
so that they would “start lending again.”

Even the story about housing sales improving is misleading. The
reason it is happening is that so many homes have foreclosed that the
sale of foreclosed homes by banks is now a significant part of the
total housing market.

Again and again, much of the “happy talk” we hear, if examined
closely, turns out to be bad news being misinterpreted, often
deliberately.

Finally, it should be added that because of massive unemployment,
which is approaching levels not seen since the Great Depression, and
because of the massive loss of personal wealth, this recession is not
likely to act like any of the other recessions of the post-World War II
era. These have all been “U” or “V”-shaped affairs, where economic
activity would either drop and then after lingering at a low level for
a while, recover at an accelerating rate, slowly recover as in a “U”,
or plunge precipitously to a sharp bottom and then quickly recover, as
in a “V”. This time, we are more likely to see an “L”-shaped recession,
where the economy hits bottom at some point, and then operates for
years at a much lower level. That lower part of that “L” might rise
slowly, but it wouldn’t rise by much. In this case, we would see
continued high levels of unemployment, lower wages, and no bounce-back
in personal wealth.

So if we’re want to make the correct policy decisions, not to
mention the right political decisions and personal financial and basic
life decisions, let’s cut the happy talk, and start keeping it real.

__________________
DAVE LINDORFF is a Philadelphia-area journalist. His latest book is
“The Case for Impeachment” (St. Martin’s Press, 2006). His work is
available at www.thiscantbehappening.net