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What If The Economy Never Really Gets Better?

Today’s news of the day may well be the report from the Census Bureau that Americans have actually suffered more since the “Great Recession” ended in the early summer of 2009 than they did during the actual recession itself:

WASHINGTON — In a grim sign of the enduring nature of the economic slump, household income declined more in the two years after the recession ended than it did during the recession itself, new research has found.

Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.

The finding helps explain why Americans’ attitudes toward the economy, the country’s direction and its political leaders have continued to sour even as the economy has been growing. Unhappiness and anger have come to dominate the political scene, including the early stages of the 2012 presidential campaign.

(…)

The full 9.8 percent drop in income from the start of the recession to this June — the most recent month in the study — appears to be the largest in several decades, according to other Census Bureau data. Gordon W. Green Jr., who wrote the report with John F. Coder, called the decline “a significant reduction in the American standard of living.”

That reduction occurred even though the unemployment rate fell slightly, to 9.2 percent in June compared with 9.5 percent two years earlier. Two main forces appear to have held down pay: the number of people outside the labor force — neither working nor looking for work — has risen; and the hourly pay of employed people has failed to keep pace with inflation, as the prices of oil products and many foods have jumped.

During the recession itself, by contrast, wage gains outpaced inflation.

One reason pay has stagnated is that many people who lost their jobs in the recession — and remained out of work for months — have taken pay cuts in order to be hired again. In a separate study, Henry S. Farber, an economics professor at Princeton, found that people who lost jobs in the recession and later found work again made an average of 17.5 percent less than they had in their old jobs.

“As a labor economist, I do not think the recession has ended,” Mr. Farber said. “Job losers are having more trouble than ever before finding full-time jobs.”

Mr. Farber added that this downturn was “fundamentally different” from most previous ones. Historically, other economists say, financial crises and debt-caused bubbles have led to deeper, more protracted downturns.

Mr. Green and Mr. Coder said the persistently high rate of unemployment and the long duration of unemployment helped explain the decline in income during the recovery.

In the recession, the average length of time a person who lost a job was unemployed increased to 24.1 weeks in June 2009, from 16.6 weeks in December 2007, according to the federal Bureau of Labor Statistics. Since the end of the recession, that figure has continued to increase, reaching 40.5 weeks in September, the longest in more than 60 years.

When you see numbers like this, it becomes much easier to understand why economic pessimism continues to be the prevalent attitude in the country, why the public has so little faith in American political institutions regardless of which party is in charge, and why the vast majority of Americans believe that the country is on the wrong track. Even when the economy was supposedly in recovery, people were seeing their incomes shrink and those who were unemployed were finding it hard to find work, and continue to do so to this day. A bunch of academic economists may call this a “recovery” because we haven’t had two consecutive quarters of negative GDP growth, but the difference between 1.3% growth and -.1% growth isn’t all that great in the grand scheme of things, and when you’re income is shrinking there’s really no difference at all.

Today’s news brings to mind a piece in yesterday’s New York Times by David Leonhardt in which he makes the point that our current economic troubles are happening at the worst possible time:

The most worrisome aspect about our current slump is that it combines obvious short-term problems — from the financial crisis — with less obvious long-term problems. Those long-term problems include a decade-long slowdown in new-business formation, the stagnation of educational gains and the rapid growth of industries with mixed blessings, including finance and health care.

Together, these problems raise the possibility that the United States is not merely suffering through a normal, if severe, downturn. Instead, it may have entered a phase in which high unemployment is the norm.

On Friday, the Labor Department reported that job growth was mediocre in September and that unemployment remained at 9.1 percent. In a recent survey by the Federal Reserve Bank of Philadelphia, forecasters said the rate was not likely to fall below 7 percent until at least 2015. After that, they predicted, it would rarely fall below 6 percent, even in good times.

Not so long ago, 6 percent was considered a disappointingly high unemployment rate. From 1995 to 2007, the jobless rate exceeded 6 percent for only a single five-month period in 2003 — and it never topped 7 percent.

(…)

the reasons for concern today are serious. Even before the financial crisis began, the American economy was not healthy. Job growth was so weak during the economic expansion from 2001 to 2007 that employment failed to keep pace with the growing population, and the share of working adults declined. For the average person with a job, income growth barely exceeded inflation.

The closest thing to a unified explanation for these problems is a mirror image of what made the 1930s so important. Then, the United States was vastly increasing its productive capacity, as Mr. Field argued in his recent book, “A Great Leap Forward.” Partly because the Depression was eliminating inefficiencies but mostly because of the emergence of new technologies, the economy was adding muscle and shedding fat. Those changes, combined with the vast industrialization for World War II, made possible the postwar boom.

In recent years, on the other hand, the economy has not done an especially good job of building its productive capacity. Yes, innovations like the iPad and Twitter have altered daily life. And, yes, companies have figured out how to produce just as many goods and services with fewer workers. But the country has not developed any major new industries that employ large and growing numbers of workers.

There is no contemporary version of the 1870s railroads, the 1920s auto industry or even the 1990s Internet sector. Total economic output over the last decade, as measured by the gross domestic product, has grown more slowly than in any 10-year period during the 1950s, ’60s, ’70s, ’80s or ’90s.

Leonhardt cites a number of factors for the current situation. Stagnant growth in the number of people with bachelor degrees, he argues, is one indicator of the overall decline of the skill level of the workforce. While it’s certainly true that the unemployment rate among people with college degrees is, notwithstanding the media coverage of “Occupy Wall Street,” far lower than it is among other groups, I’m not certain that the answer is getting more people into college is the answer, especially if they end up in majors that are just going to leave them with a boat load of student loan debt and a job waiting tables. Increased immigration from people with skills would also be helpful, but we live in a time when popular sentiment is very much against increasing immigration, and continued economic stagnation is only going to make that a more powerful sentiment. Finally, Leonhardt sees investment dollars being sucked out of the economy by housing, health care, and finance. Like Kevin Drum, but for different reasons, I’m not sure I completely agree with that last point.

Leonhardt’s closing is sobering, but completely on point:

The United States has long overcome its less dynamic industries by replacing them with more dynamic ones. The decline of the horse and buggy, difficult as it may have been for people in the business, created no macroeconomic problems. The trouble today is that those new industries don’t seem to be arriving very quickly.

The rate at which new companies are created has been falling for most of the last decade. So has the pace at which existing companies add positions. “The current problem is not that we have tons of layoffs,” Mr. Katz says. “It’s that we don’t have much hiring.”

If history repeats itself, this situation will eventually turn around. Maybe some American scientist in a laboratory somewhere is about to make a breakthrough. Maybe an entrepreneur is on the verge of creating a great new product. Maybe the recent health care and financial-regulation laws will squeeze the bloat.

For now, the evidence for such optimism remains scant. And the economy remains millions of jobs away from being even moderately healthy.

I’ve written about the possibility of a permanent, or near permanent, stagnation before. Most recently, back in April, I said this:

The old tools for stimulating the economy don’t seem to work anymore. If nothing else, the obvious failure of President Obama’s stimulus package to turn around the economy or halt the collapse of the jobs market would seem to be proof that the old Keynesian tools don’t work anymore. With a Federal Budget that is increasingly diverted to paying interest on the National Debt and funding entitlement programs, neither one of which contribute all that much to economic growth, it’s simply not possible to throw money at the problem anymore (which, I presume, would be Klein’s favored solution). Of course, budget deficits also mean that tax cuts, the traditional Republican answer to slow economic growth, isn’t really an option at the moment either. In fact, taxes will clearly have to be increased for some people, and that’s likely to further depress economic growth.

Meanwhile, the factors that are holding the economy back, such as rising energy and commodity prices, don’t seem to be going away anytime soon.

So, we may be headed for an era where our economic growth is more similar to Europe than we’d like. That means unemployment is likely to be high for some time to come, that American optimism will become a thing of the past, and that our political system is likely to become even more polarized than it already is.

If nothing else, the last six months have made that slow growth forecast come true, and the forecasts we’re getting now tell us we’re likely to see slow economic growth and higher-than-we’ve-been-used-to unemployment for many years to come. Perhaps Leonhardt is right and somewhere out there there’s a new technological breakthrough that will change the world, but that’s not something you can forecast, and it’s not something the government can mandate either. In the starkest sense of the word, our future is out of our hands.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. MBunge says:

    One thing to remember amidst all of Paul Krugman’s rages is that our current economy is pretty much organized and run the way Krugman desires. He has no real problem with its structure. He just thinks the political system is bankrupt because it doesn’t produce leaders “smart” enough to do what Krugman wants them to. Even a simple concept like “efficiency and job creation are competing economic values” doesn’t appear to penetrate with him.

    Mike

    Like or Dislike: Thumb up 2 Thumb down 2

  2. Boyd says:

    …our future is out of our hands.

    Is that not the way it’s always been, at least in terms of society in general? The future, it seems to me, has always been driven by a few individuals or relatively small groups of people who make one of those breakthroughs Leonhardt mentions. And we’ve never been able to predict when one is going to happen.

    So we put one foot in front of the other, doing our best to hold it all together until something big comes along to change the status quo. And that’s nothing new, either.

    Like or Dislike: Thumb up 2 Thumb down 0

  3. JKB says:

    It does seem we’ve reached how Adam Smith described China, a stationary economy. We have the employment permitted by our policies and institutions leaving many workers to scramble for what they can get to survive. Perhaps a new visitor to America in 100 years will describe our economy much as one would today just as Smith’s contemporaries found a China much like the one Marco Polo described.

    Of course, the solution is in the problem. If your policies and institutions are causing the problem, then change the policies and institutions, i.e., regulations and regulators. But for some reason, they are sacrosanct.

    Hope springs that we’ve had reprieve before when Reagan and the deregulators eased the strangling hand of government from the throat of American enterprise. There were changes that rushed in to the void. Fortunately, a few tinkerers had been working quietly in a mostly unregulated backwater preparing to take advantage of the break up of the institutions and policies and bring forth the information/communication age.

    The trouble today is that those new industries don’t seem to be arriving very quickly.

    One wonders what regulatory backwater is left for these new industries to be born and thrive without the heavy boot of the regulator stamping them out in a fit of fear and frustration at what doesn’t fit in their spreadsheets.

    Like or Dislike: Thumb up 5 Thumb down 6

  4. Ron Beasley says:

    It’s certainly never going to be the same – peak cheap resources make that impossible. That doesn’t mean it can’t be as good.

    Like or Dislike: Thumb up 2 Thumb down 1

  5. Hey Norm says:

    @ Doug…
    We’ve been adding private sector jobs for a long time. The problem is that we’ve been offseting them with public sector job cuts. Aren’t you a small government guy? Isn’t that a good thing? It’s supposed to lead to economic boom isn’t it? Unless of course the theory is a bunch of bunk.

    “…In fact, taxes will clearly have to be increased for some people, and that’s likely to further depress economic growth…”

    Yes…that’s pretty much what they said to Bush 41 and Clinton…when tax increases were part of an economy that went the longest period without recession since the depression. But stick to the same old talking points.
    There is something to be said for consistency.

    Like or Dislike: Thumb up 8 Thumb down 2

  6. Hey Norm says:

    Nice to see JKB trot out the regulation meme.
    Never mind that regulation accounts for less than one-half of 1% of the layoffs.
    Never ever let facts get in the way of your ideology.
    http://economix.blogs.nytimes.com/2011/10/04/regulation-and-unemployment/

    Like or Dislike: Thumb up 5 Thumb down 1

  7. Pete says:

    @Ron Beasley: Ron, what’s cheap when nobody knows what a dollar is worth?

    Like or Dislike: Thumb up 0 Thumb down 0

  8. Gustopher says:

    We need to develop other industries, and in a post-2008-crisis world where credit is still tight, that likely means having the government shoulder some of the risks.

    I’d rather throw money at loan guarantees for things like green energy, genetics, electric cars, and things like that, then shelling out trillions to prop up Wall Street. Even the auto industry bailouts ended up being a good thing, saving a lot of jobs.

    But, the Republicans will focus on the failures, the fraud and the abuse, and use that to tear down any hope of progress. There are failures, fraud and abuse in any large system, private or public — the Republicans just want the economy to fail.

    Like or Dislike: Thumb up 2 Thumb down 1

  9. JKB says:

    @Hey Norm:

    Well, we were discussing a stationary economy, that this is as good as it gets. But trot out your layoff meme. First, I would doubt the accuracy of the DOL data, what employer prods the government man that way. Only one who has not experienced the parade of regulators that occurs when you are in disfavor. In any case, lack of sales is a nice easily documentable reason to let people go which avoids all that unsightly abuse from being taken to court over some… government regulations.

    So then if if isn’t the policies and institutions, just how do we break the cycle or is the US doomed to a declining standard of living? Taxing to give money out people to spur sales in business is just churning as the taxes have to come from the economic activity of those sales and lose a bit in governmental overhead each cycle. Borrowing to do that, just makes it worse since it is a future overhang that looms ahead of the businesses in future tax increases.

    Like or Dislike: Thumb up 1 Thumb down 1

  10. ponce says:

    Um, the economy is already better than it was under Bush.

    Remember?

    Like or Dislike: Thumb up 2 Thumb down 1

  11. Hey Norm says:

    Middle class income for the last 30 years has been flat…it’s not just the Bush Contraction. The fact of the middle class being left behind was hidden by bubbles. I suppose we could hope for the next bubble. Maybe that’s really what Doug’s post is really about.
    In ’88 the avarage income $33,400 (adjusted for inflation). In ’08 the average income was still just $33,000.
    30 years of union busting and eroding labor protections, off-shoring of jobs, and tax cuts for the wealthiest amongst us has been great for the top-tier of incomes. But we are seeing the toll taken on the middle-class…which has only been exagerated by the Bush Contraction.
    Which all leads to DEMAND, or a lack thereof. It’s all about demand.

    Like or Dislike: Thumb up 5 Thumb down 1

  12. Hey Norm says:

    Shorter JKB…if the facts don’t match my ideology…the facts must be wrong.

    Like or Dislike: Thumb up 3 Thumb down 1

  13. john personna says:

    Someone observed on Morning Joe this morning that we are locked in political theater. One party trots out its standard recommendations, the other party trots out its standard responses. Parties neither meet in the middle, nor explore new territory.

    In the interest of new territory, here are some ideas to kick-start growth that you won’t hear from traditional players. It deals with regulation, but not regulation politicians really want to talk about. Removing the regulations has zero cost for government, but it does have some cost for large corporate campaign contributors:

    - invalidate all “business method” and “software” patents
    - protect software with copyright, and enforce narrow claims
    - invalidate any patent funded 60% with public, tax monies
    - set maximum term for copyright of all kinds to 50 years from publication

    and more trivially

    - disallow local internet/broadband monopolies longer than 10 years since first service

    That gives artists, writers film makers, scientists, and programmers plenty of opportunity to make bags and bags of money. It just prevents corporations from squeezing the last dime and (more importantly) blocking the innovation and growth of others.

    We have a lot of “blocked growth” in this country, and it isn’t blocked by Obamacare.

    Like or Dislike: Thumb up 4 Thumb down 1

  14. Pete says:

    @ponce: Huh?

    Like or Dislike: Thumb up 0 Thumb down 0

  15. ponce says:

    @ponce: Huh?

    Peete,

    You’ve probably forgotten what it was like when America’s economy was actually shrinking under George W. Bush.

    It wasn’t pleasant…

    Like or Dislike: Thumb up 0 Thumb down 0

  16. Pete says:

    @ponce: Not sure what you mean. What do you mean shrinking?

    Like or Dislike: Thumb up 0 Thumb down 0

  17. Hey Norm says:

    Two graphs floating around the intertubes today that explain it all:
    Shrinking government…note that the private sector, after the Bush Contraction grows at roughly at the same rate as the Bush years…only the government is shrinking…this isn’t about technological innovation…it’s about one more failed theory by the so-called right. Tax cuts don’t create growth, and neither does shrinking the government. If government employment had stayed even…with no growth versus negative growth…we would be much much better off today. Public sector growth is a huge part of the Texas Mirage. Instead we are killing ourselves by intentionally shrinking the public sector nationwide…
    http://research.stlouisfed.org/fredgraph.png?g=2Dx
    And 30 years of stagnant wages…if wages fell almost 10% from the start of the Bush Contraction until June of this year…that’s just insult on top of injury. Unless you are rich…then you are just fine…and deserve more tax cuts. 30 years of attacks on the middle class…busting unions, reducing pensions, cutting health care, replacing full-time work with part-time and temp jobs. Cutting taxes, which has made it nearly impossible to invest in infrastructure and public structures…roads, schools, libraries…that, beyond creating jobs, help members of the middle class reach their potential. The so-called right wants to pull the ladder up behind them.
    http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/
    So…two of the main tenets of the so-called right are primary contributors to our economic state today. Their theories are flawed. They are wrong. They are stupid. Yet here we are.
    You want to fix things? Stop listening to the so-called right. It’s not healthy for the economy and other living things.

    Like or Dislike: Thumb up 1 Thumb down 0

  18. Hey Norm says:

    One more thing…it’s pretty hard to look at the graph of public/private sector employment and take the “Obama’s a socialist” thing very seriously.

    Like or Dislike: Thumb up 1 Thumb down 0

  19. @Ron Beasley:

    The expensive resources meme doesn’t really fit the data though:

    http://finance.yahoo.com/q/ta?s=%5EDJUBS+Basic+Tech.+Analysis&t=my

    With a few exceptions (e.g. the gold bubble), commodites are roughly the same price they were in 2004. At least for the time being, the resource supply is meeting the demand.

    Like or Dislike: Thumb up 0 Thumb down 0

  20. john personna says:

    Perhaps what I should have mentioned is the thing that ties my suggestions together. I think that the Tragedy of the Anti-Commons is more right than wrong. Intellectual property is good and necessary, but fragmented and pervasive ownership actually blocks progress at some point.

    Like or Dislike: Thumb up 0 Thumb down 0

  21. ponce says:

    @ponce: Not sure what you mean. What do you mean shrinking?

    Pete,

    The standard, if lazy, definition of a recession is when America’s GDP gets smaller two quarters in a row.

    That happened under George W. Bush.

    America’s GDP growth may be weak now, but it sure beats having a shrinking GDP.

    Like or Dislike: Thumb up 0 Thumb down 0

  22. Hey Norm says:

    Actually Ponce…that happened twice under Bush. Because tax cuts create growth. Uh…er…wait…

    Like or Dislike: Thumb up 2 Thumb down 0

  23. Tsar Nicholas says:

    Ironically in the new, new normal those most responsible for this fiasco (Democrat voters) will suffer the most. Check out the poverty rates in the big Democrat cities. Misery loves company.

    As for the economy at large the gruesome reality is that without comprehensive regulatory, spending, entitlement and tax reforms (which of course Democrats will fight to the death) this is the lasting reality. In that event there’ll be a small number of those who’ll be successful and who’ll be able to live independently and with financial security. High wage earners who saved like mad, invested wisely, spent within their means and kept their noses to the grindstones. Then there’ll be the mass hordes consisting of wards of the state and wards of their parents. Ultimately the latter group will be the economic equivalent of cannon fodder. It’ll get ugly for them. Then it’ll get worse.

    Like or Dislike: Thumb up 0 Thumb down 2

  24. Hey Norm says:

    @ Tsar…

    “…the gruesome reality is that without comprehensive regulatory, spending, entitlement and tax reforms (which of course Democrats will fight to the death)…”

    Actually Obama has engaged on every single one of those points.
    Republicans, on the other hand, have voted against even those things they support.
    The facts aren’t lining up with your ideology.

    Like or Dislike: Thumb up 2 Thumb down 0

  25. ponce says:

    Ironically in the new, new normal those most responsible for this fiasco (Democrat voters) will suffer the most.

    Sorry to call you on your lies so fast, Tsar, but here are the poorest states in America by per capita income:

    41 Louisiana
    42 South Carolina
    43 Montana
    44 Tennessee
    45 Oklahoma
    46 Alabama
    47 Kentucky
    48 Arkansas
    49 West Virginia
    50 Mississippi

    Without massive welfare payments from Democratic States, Republican America would soon look like the Gaza Strip.

    Like or Dislike: Thumb up 4 Thumb down 0

  26. Pete says:

    @Hey Norm: How helpful is it to keep referring to Bush? Is it supposed to deflect from what is happening now?

    Like or Dislike: Thumb up 0 Thumb down 0

  27. Pete says:

    @ponce: Ponce, Tsar talked about cities; not the rural south. Poverty in rural areas will weather the storm better than poverty in cities.

    Like or Dislike: Thumb up 0 Thumb down 0

  28. ponce says:

    Poverty in rural areas will weather the storm better than poverty in cities.

    Meth, suicide and joining the military is better?

    Like or Dislike: Thumb up 3 Thumb down 0

  29. john personna says:

    @Tsar Nicholas:

    Ironically in the new, new normal those most responsible for this fiasco (Democrat voters) will suffer the most. Check out the poverty rates in the big Democrat cities. Misery loves company.

    How do you make them responsible? We had the housing bubble (bank deregulation and lax lending oversight, conservative “win”) and we had the Wall Street failures (finance deregulation, derivative free-for-all, conservative “win”). Those are the two things that blew up, and took down the world economy.

    We did not actually ever reach a US government debt crisis. US government debt was never rejected (as it is with the PIIGS). US debt was prized as a refuge of safety.

    Now, I fully understand that because that reality is harsh, that irrational exuberance in free markets is hard to take, and so other stories are made up … but they are made up. The data does not show anything else. Read here for a serious study.

    Like or Dislike: Thumb up 1 Thumb down 0

  30. Pete says:

    @ponce: Racist comments, Ponce. I’m sure you can do better than that.

    Like or Dislike: Thumb up 1 Thumb down 0

  31. Pete says:

    @john personna: JP, I read the study you linked to and its conclusion is no more convincing than Tsar’s. Read the last paragraph of that report and tell me the conclusions are irrefutable.

    Like or Dislike: Thumb up 0 Thumb down 0

  32. Hey Norm says:

    Pete…not sure what you mean?
    I do not think I’ve made any references that are not pertinent.

    Like or Dislike: Thumb up 0 Thumb down 0

  33. Pete says:

    @Hey Norm: Okay, it’s just that bringing any reference of Bush into discussions today seems stale and irrelevant.

    Like or Dislike: Thumb up 0 Thumb down 0

  34. An Interested Party says:

    How helpful is it to keep referring to Bush? Is it supposed to deflect from what is happening now?

    Oh, so nothing that is happening now has anything to do with Bush?

    Racist comments, Ponce. I’m sure you can do better than that.

    That’s rather rich coming from someone who has tried to push a link between homosexuality and the Nazis…

    Like or Dislike: Thumb up 1 Thumb down 0

  35. Pete says:

    @An Interested Party: Things that are happening today may have been influenced by events in 1920. So what? Just because you have no solutions to your anger, you feel better about your helplessness by placing blame. Right? God, you must be an unhappy person.

    Me thinks you have the wrong person. Can you provide the link?

    Like or Dislike: Thumb up 0 Thumb down 0

  36. john personna says:

    @Pete:

    Tsar linked a study? Or you find a random blog comment as convincing as an academic report for the Federal Reserve?

    Like or Dislike: Thumb up 0 Thumb down 0

  37. Pete says:

    @john personna: Sorry, I shouldn’t have alluded to Tsar and any study. BTW, the study you linked has this qualifier: NOTE: Sta

    working papers in the Finance and Economics Discussion Series (FEDS) are preliminarymaterials circulated to stimulate discussion and critical comment. The analysis and conclusions set forthare those of the authors and do not indicate concurrence by other members of the research sta

    or theBoard of Governors. References in publications to the Finance and Economics Discussion Series (other thanacknowledgement) should be cleared with the author(s) to protect the tentative character of these papers.

    I agree that studies by people in these positions should carry more credibility; however, the Fed has miscalculated enough times, especially with the timing of their policy decisions, that I would not conclude they provide the “gospel.”

    Like or Dislike: Thumb up 0 Thumb down 0

  38. Pete says:

    I’d like to offer this for those of you who seem stuck on Keynesianism and how we get ourselves out of this mess:
    http://periodicals.faqs.org/201010/2145026161.html

    Like or Dislike: Thumb up 0 Thumb down 0

  39. Hey Norm says:

    Pete…
    That article is silly.

    “…Institutions and households lacked the means to invest and restart the economy, until the government provided it in the form of war spending after 1939…”

    The recovery from the Depression was well under way when those concerned about the debt instituted austerity (sound familiar) and the recovery slowed. You can see the dip in the graph at the link below. It was then that War spending revived the recovery. And of course that spending was massive and the graph shows just that.
    http://en.wikipedia.org/wiki/File:GDP_depression.svg
    And then they throw out this strawman…

    “…Politicians, however, liked the Keynesians’ claim that governments could solve all the problems of the economy by taxing, spending, and manipulating interest rates…”

    I’m sure this article fits nicely into your ideology…but it tremendously flawed.

    Like or Dislike: Thumb up 1 Thumb down 0

  40. Pete says:

    Norm, that graph does not prove anything as GDP can be made up of public sector investment as well. The history of the Great Depression is described according to ideology anyway, so you believe your version and I believe mine.

    Now if you don’t believe that politicians will promote anything favorable to feathering their nests, I’m not sure what world your reside in. I’m not surprised you describe the article being flawed as it does not fit your ideological template either. Hopefully, there are others who will read it with a more open mind than you exhibited.

    Don’t know your background in economics or business, but you do sound like a reasonable fellow, so I am surprised by your dogmatic response.

    Like or Dislike: Thumb up 0 Thumb down 0

  41. Ben Wolf says:

    @Doug

    If nothing else, the obvious failure of President Obama’s stimulus package to turn around the economy or halt the collapse of the jobs market would seem to be proof that the old Keynesian tools don’t work anymore.

    How many more times do you have to be told this is empirically false? Your error has been explained to you again, and again, and again yet you keep making it. You do not have even the most basic understanding of our economy. You do not have a basic understanding of our financial system, or monetary policy or Keynes’ work. We have done absolutely nothing Keynes recommended, so it’s incredibly dishonest to claim that Keynesian “tools” are ineffective.

    Like or Dislike: Thumb up 1 Thumb down 0

  42. Pete says:
  43. David M says:

    @Ben Wolf: Doug isn’t all that far off, as the GOP has been fairly successful at making the stimulus package a political failure. Of course seeing it described as an economic failure is in immediate red flag not to take the article very seriously, especially now that we know just how bad the GDP numbers were in Q4 of 2008.

    The decrease in public employment couldn’t be coming at a worse time though, and as useless as the Dems are on this front, they aren’t as actively destructive like the GOP.

    Like or Dislike: Thumb up 1 Thumb down 0

  44. Gerry W. says:

    @Pete:

    As a guy said today on MSNBC, that tax cuts is also Keynesian. In any case, nothing is working. The democrats are spending and doing little good, the republicans want tax cuts in which we had years of tax cuts, the fed is printing money and doing little good, and the states have gone to casinos for jobs.

    How did we get here? Well, they are many. A housing bubble that is responsible for millions of jobs, a financial crisis, and we lost 1/3 of our manufacturing to globalization. Also Bush used the tax cuts as an ideology, and by overusing the tax cuts, which is spent and borrowed money, we have lost the stimulus.

    No, what Bush did was similar to the roaring 20′s. Most of the problems were ignored and we stayed on tax cuts. Bush “stayed the course.” Now we know what Roosevelt was up against. If you don’t have a private economy, then who is going to create the jobs?

    And what we are up against is globalization and 2 billion cheap laborers, lean principles and the loss of jobs, automation and the loss of jobs, and mergers and consolidation and the loss of jobs. We have not invested in our country, in our people, and in the future. And by not doing so, there is nothing left. At least for many communities.

    Listened to Lou Dobbs on FOX and he said, we need more small business. Yeah, how do you do that when the factories are closed in a community. And what small business is he talking about-more hamburgers and pizzas at low wage? They never talk about globalization and the loss of middle class jobs. They bash the middle class and unions and then come on TV and think they have the answers.

    Romney is another that is clueless. He talked about the Reagan recovery and praising Reagan. It was Paul Volcker who brought down the interest rates, and like all recessions, people went back to work. But this time, people cannot go back to work as housing is gone and 57,000 factories closed.

    Guiliani is also clueless, praising the Kennedy and Reagan Tax cuts. First, there was room to lower taxes and they did not have globalization to deal with.

    No wonder people are protesting, with these clueless comments and nothing getting done, people are getting tired of it.

    Now, can the republican party say anything new? They are the party of economics-so they claim.

    (sent from a library computer, my hard drive is out, may not respond right away)

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  45. Pete says:
  46. An Interested Party says:

    Things that are happening today may have been influenced by events in 1920. So what? Just because you have no solutions to your anger, you feel better about your helplessness by placing blame. Right? God, you must be an unhappy person.

    Wrong on so many counts…the policies that were enacted during the Bush years play a role in our current mess, so of course it is legitimate to bring him up in any discussion of what is going on now…thanks for the psychoanalyzing, though, Krauthammer Jr….

    Me thinks you have the wrong person. Can you provide the link?

    If this isn’t you, I do offer apologies…it’s just that we don’t see too many “Pete”s around here…

    You do not have even the most basic understanding of our economy. You do not have a basic understanding of our financial system, or monetary policy or Keynes’ work.

    Well, Doug is a libertarian…

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  47. Ben Wolf says:

    Arguing we have no control over economic well-being is either obtuse or dishonest, I’m not sure which. Our current situation has been in the making since Carter began the process of deregulation and financialization of our economy over thirty years ago; it is not the result of “fate”, a bizarre assertion if I’ve ever heard one.

    The financial industry does not and cannot generate real economic growth. When operating correctly it can only act as a facilitator of productive investment, but its been a long time since it fulfilled that role. All it has done over the last three decades is create debt so massive the entire world GDP can’t come close to covering it, which is exactly why the entire casino edifice blew up in our faces three years ago. The course we are still on is not inevitable nor is it sustainable, but Doug would have the common man believe he is powerless, that there is nothing for him to do but accept his fate in an economy organized around extracting as much cash as possible from him and his chlildren. Funny how self-professed “libertarians” practice the language of the authoritarian when people begin questioning why things are this way.

    I used to think there could be a common ground with people who professed to value liberty above all but they reveal themselves as agents of an enforced economic order, one where the powerful are free to victimize the weak.

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  48. Pete says:

    @An Interested Party: Thanks for providing the link. Nope, that’s not me.

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  49. Hey Norm says:

    Shorter Pete…
    If the facts don’t match your ideology the facts must be wrong.

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  50. Xenos says:

    @Hey Norm: I reminded of the joke about the Marxist French philosopher, who declared “It may work in practice, but does it work in theory?”

    It is funny to see who the rigid-minded, dogmatic theoreticians are now.

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  51. Pete says:

    @Hey Norm: Norm, take a look at this and see if that might not give you pause on your acceptance of the graph showing “improvement.” It’s the same point I tried to make when I said GDP can be influenced by govt. spending. You seemed to blow that off by avoiding the point. As I asked, what is your background in Economics and business? Are you an attorney?

    http://dailycapitalist.com/2011/10/10/the-great-recession-never-ended/

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