It didn't, quite, but the jobs numbers suggest, as Joseph Brusuelas put it, a "slow motion train wreck". Unemployment is a lagging indicator. Let's say that Ken Rogoff and Carmen Reinhart are correct in their comparison of this crisis to other developed-world financial disasters:
Let's start with the good news. Financial crises, even very deep ones, do not last forever. Really. In fact, negative growth episodes typically subside in just under two years. If one accepts the NBER's judgment that the recession began in December 2007, then the U.S. economy should stop contracting toward the end of 2009. Of course, if one dates the start of the real recession from September 2008, as many on Wall Street do, the case for an end in 2009 is less compelling.
On other fronts the news is similarly grim, although perhaps not out of bounds of market expectations. In the typical severe financial crisis, the real (inflation-adjusted) price of housing tends to decline 36%, with the duration of peak to trough lasting five to six years. Given that U.S. housing prices peaked at the end of 2005, this means that the bottom won't come before the end of 2010, with real housing prices falling perhaps another 8%-10% from current levels.
Equity prices tend to bottom out somewhat more quickly, taking only three and a half years from peak to trough -- dropping an average of 55% in real terms, a mark the S&P has already touched. However, given that most stock indices peaked only around mid-2007, equity prices could still take a couple more years for a sustained rebound, at least by historical benchmarks.
Turning to unemployment, where the new administration is concentrating its focus, pain seems likely to worsen for a minimum of two more years. Over past crises, the duration of the period of rising unemployment averaged nearly five years, with a mean increase in the unemployment rate of seven percentage points, which would bring the U.S. to double digits.
To me, the unemployment figures are the dark heart of the recession. It is not, of course, fun to lose a huge chunk of your stock portfolio and your home equity, and for a small number of people who need to monetize sizeable housing and securities assets for retirement, it is close to a catastrophe. But unemployment puts the largest number of people into the deepest trouble. Those who are overextended are forced into bankrupty; those who aren't are subject to total financial uncertainty. Moreover, it hits hardest those least able to plan for it--low skilled workers who have little margin in their budgets for savings.
We are not even close to the bottom of the job market, much less the return to the halcyon days of low single-digits. And with the contraction of the credit markets, American consumers have lost the last safety line between them and disaster.
I've been surprised how many firms are still hiring, given the numbers. Maybe it's just IT, but most of the people laid off by my former company have been able to find work before the severance ran out.
It's very good to hear compassion from you, Megan.
Because it's real people, real lives, and real hardship.
My husband and I went into a local business this a.m.; the place where we buy our pet foods, etc. The fear and stress the owner felt were palpable -- enough to drive a shopper away, further harming his business.
From the window I'm sitting at, I can see the local swap-shop; the district exchange, where people take their old stuff to get rid of it and other people come for early free stuff. It's never been so busy. They're begging for food contributions; they've got too many hungry families to feed.
And there are more houses for sale on my street then houses that people plan to stay in.
Times are ugly, getting uglier. And tax cuts, while they may benefit someone like me, aren't going to do a damned thing for most of my neighbors who need help NOW. They didn't get us here; they didn't trade credit-default swaps, they don't own bank stock, and they don't invest in funds that short sell.
One thing that I find most distressing about layoffs is that they tend to affect the most vulnerable. That is to say, quite often, companies hire people that are just adequate for their positions and are being trained to be better with more marketable skills in the future.
In a downturn, quite often they are the folks who are let go. Sad.
I went to the local deli to pick up a six pack last night. After paying for my beer, I overhear the following exchange between the guy behind me in line and the register clerk.
"Hi, are you guys hiring?"
"Sorry, we're actually cutting hours."
"Man, that's what I've been hearing all day."
It reminded me of the type of ham-fisted exposition you'd see in a movie like "Hard Times".
I wonder if there's a personal aspect to the compassion displayed here. Megan did go through a period of unemployment herself, after all.
They didn't get us here; they didn't trade credit-default swaps, they don't own bank stock, and they don't invest in funds that short sell.
But did they buy more house than they could afford? Did they run up their credit cards? There's plenty of blame to go around. I don't see many completely innocent victims in our great, national ponzi scheme.
That is to say, quite often, companies hire people that are just adequate for their positions and are being trained to be better with more marketable skills in the future.
Would it do anyone any good if the most skilled lost their jobs? It has always been thus.
It is heathy for the bodily fluids of the US to be cleansed now and again. War keeps us manly. Depressions ensure social order. Let's not forget those upsides.
Would it do anyone any good if the most skilled lost their jobs? It has always been thus.
Yes, I suppose so. And while layoffs are still wrenching for the competent and easily hired, you get the feeling they will land on their feet. It's the turtles on posts that you feel bad for.
Megan (I'll start with the fiction that bloggers read their comments--that's a bad start!): I am writing to complain about your ritual invocation of Japan's useless-bridges stimulus in your Bloggingheads debarte with Brian Beutler. (I'll admit that I couldn't watch the whole thing, because it's not a fair fight when one of you is very fluent in that medium and the other isn't.)
The reason that spending was useless in Japan is that they already had a fully-built, and very new (postwar) infrastructure! The US has an infrastructure that is very old, because we were an early-industrializing society and the first to put in a modern highway system (OK, there's Germany, but keep on reading), and because ours wasn't obliterated by war. Infrastructure is therefore a very promising productivity-increasing place to spend money. It's tendentious to the point of bad faith to raise the Japanese example as having any relevance.
"But did they buy more house than they could afford? Did they run up their credit cards? There's plenty of blame to go around. I don't see many completely innocent victims in our great, national ponzi scheme."
Just like Iraq, huh? Nobody in particular screwed up, *things just happened*. No. People in particular screwed up. Both parties should have rejected fighting for more home ownership. Clinton should have vetoed Gramm's atrocity of a midnight bill. Cutting capital gains and corporate taxes was a horrible, horrible idea. Most of all, every single investment banker and executive who thought it was a good idea to relax lending standards without income verification and package them as AAA just so earnings for that quarter could be a couple percent better and they'd get a little bigger bonus deserve to live on minimum wage for the rest of their life.
But don't you dare say the small business owners who are on the verge of bankruptcy and the millions of newly unemployed are equally at fault. That's bullshit.
Every one who voted to send the a..holes to Washington is to blame. Unless you voted Libertarian consistently, I'm talking about you.
And even Libertarians can be blamed for not finding, nuturing, and nominating candidates who could put their point across and cause people to listen.
Thank you, Adam, You beat me to it.
I presume Mike means that the standard for credit should be that you only can have the credit could handle if you're unemployed. Brilliant suggestion, Mike. Freakin' brilliant. Now go get yourself some tax cuts, sounds like you need 'em.
June of 92 was the last time unemployment was this high and I remember a certain politician from Arkansas running for President saying "we're in the worst economy since the Great Depression" What a lot of claptrap that turned out to be! The economy was growing last time UE% was this high (not likely to be right now)yep, Bill C inherited an economic expansion.
It is disgusting to hear poseurs congratulate MMcCardle for being "compassionate" People don't need pity. If "zic" wants to help people around him/her who need help NOW he can give them his money since someone "like him" doesn't even want a tax cut (has no use for the money I suppose) He is beyond that and full o' compassion!
I would venture to say we will be out of this recession before 2/3rds of the stimulus bill's "infrastructure" portion is spent
Unfortunately happyconservatives are rarely the ones spilling any of those manly bodily fluids.
Fuck you and your upside.
Happyconservative gives conservatives a bad name, and seems like an especially sly troll.
Let's not forget those upsides.
Any expansion of AFDC/Food Stamps/Medicaid/WIC/etc. simply rewards the poorest and dumbest in our society for reproducing at a higher rate than families earning 100K/yr- and guarantees continuing 30%+ dropout rates in every large city in America.
"Public Education" ensures that I will pay more in "property taxes" in the next 30 years than I paid for my property.
Socialist InSecurity means that unless I live to age 62 (dad died at age 42, and both my grandfathers died in their fifties), my $150,000.00 in SS contributions so far will provide my heirs with a $290 funeral benefit.
Upsides!
One of the 2 hardest hit areas for unemployment in the last report was in Georgia where floor coverings are made. Here is a perfect counterfactual to the current stimulus package. I bet there are a lot of hard working, in part to pay their taxes, stiffs who would by new carpet if they didn't 'give' the money to the government. Instead Obama will spend the money largely on the National Endowment for Free Sex.
Klug:
"And while layoffs are still wrenching for the competent and easily hired, you get the feeling they will land on their feet. It's the turtles on posts that you feel bad for."
I used to think so, but I ran into the sister of a former coworker who had moved into management in another city. He'd had to do a series of layoffs. By the third layoff, he was down to his best people, and the available jobs in the area had been scooped by the less capable pushed out in the earlier layoffs.
In a widespread downturn like this, even moving might not help.
That is an odd statement. One of the few recent examples of massive public spending designed to stimulate an advanced economy ends up proving to be largely unsuccesful. And we are suppose to ignore that?
I am sorry but when it comes to allocating public funds in a more efficient manner. I will take Japan over America. Japan did it in over a 10 year span, which to some was the problem. But we are going to do it within 3 years and ...what? We will have far fewer bridges to nowhere? That is laughable. The driving force here is to get the money out there. The resulting waste and boondoggle is going to be massive.
I love how an article in the NY Times mentioned that American economists are still insisting that the Japanese spending had some merit while the Japanese economists believe it to be a colossal waste. The guys who are thousands of miles away have a better understanding of the situation than the people on the scene. Sure.
BTW, how many people remember that G.W. Bush signed a 280 billion dollar highway bill. In 2005! Is anyone anywhere asking where the heck did that money go? It sure did not stimulate the economy.
http://www.cbsnews.com/stories/2005/08/10/politics/main769547.shtml
I'm amazed that anyone believes that this spending spree on borrowed money is going to solve anything. Never has, never will.
Fools.
Bankruptcy also applies to states. It's called defaulting on your loans. Expect to see a bunch of big ones this year.
I wonder how willing people will be to fund the second round of trillion dollar borrowing next year?
Derek
It's interesting that in these times of crisis Libertarian ideas gain much more ground. In most cases the country listens to such ideas, adopts their policies, and averts crisis. Problem is, in a couple years we are back to square one with Libertarians being laughed at for the adherence to rationality and ability to state the truth.
I like Megan's turn on things. Give the idiots bad advice. Pander to their completely false notions, and show them just how bad their ideas make things. Right on, keep it up Megan.
Nathan - In a sense libertarian ideas probably do gain groun in a crisis. The small percentage who supports them with any consistency or to any great extent becomes a larger small percentage. But that increase is mostly because of what really gains ground. What really gains ground is big government. People look for a leader or leaders, or a government plan, to fix things. So you tend to get a decisive turn away from libertarianism in terms of actual policy. You hear more libertarian ideas being thrown about, but only as a reaction to the great expansion of the state that happens at such times.