Robert Reich: Why We're Falling Into a Double-Dip Recession

[LongTomH]

Professor Robert Reich agrees with DU pessimists that the much-vaunted recovery will end.

We're falling into a double-dip recession.

The Labor Department reports this morning that the private sector added a measly 41,000 net new jobs in May. But at least 100,000 new jobs are needed every month just to keep up with population growth.

In other words, the labor market continues to deteriorate.

The average length of unemployment continues to rise -- now up to 34.4 weeks (up from 33 weeks in April). That's another record.

More Americans are too discouraged to look for a job than last year at this time (1.1 million in May, an increase of 291,000 from a year earlier).

<snip>

The only reason the economy isn't in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can't continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories). Oh, and, yes, all those Census workers (who will be out on their ears in a month or so).

But all these boosts will end soon. Then we're in the dip.

Professor Reich recommends a second stimulus package, including extended jobless benefits and more aid to state and local governments beset by a drop in tax revenues. In the long term, he wants a 'New New Deal,' financed by increased taxes on the wealthy.

You can, of course, predict with 100% accuracy, that Congressional Republicans will oppose any new stimulus plan and taxes on the rich. Expect some more historical revisionism; expect to see the Bush years praised for the 'job growth' created by tax cuts. The reality, of course, is that the whole of the 'Awful Oughts' was divided between recession and 'jobless recoveries,' which really means no real recovery.

[Kahuna]

1. Robert Reich himself is the perpetual pessimist. Of course he agrees

with other pessimists. :shrug:

[Cant trust em]

2. You have to be a pessimist to get published in HuffPo.

Partly why I only read them occasionally.

[Leftist Agitator]

42. Um, no.

See for reference: Alexa Von Tobel.

[girl gone mad]

17. Question:

When your doctor tells you that you've got cancer and you need to get it treated if you want to live, are you going to call her a "pessimist" and just think happy thoughts, instead?

[Dappleganger]

32. Interesting...

several months ago I told another DU'er that Elizabeth Warren reminded me greatly of my oncologist. When she walked into the room it was always a bit unnerving because we both knew the gravity of the cancer I was fighting, but because I knew that she would always tell me the truth and never sugar-coat the prognosis, I could trust her to guide me through the best plan for recovery.

I want the truth because being armed with information helps me to battle whatever is standing in the way to recovery.

[Kahuna]

38. I like Elizabeth Warren. I consider her unbiased and more of a

realist.

[Tansy_Gold]

43. .

:hug:

[Kahuna]

37. No offense but, that question has zero to do with Reich's "opinions."

He operates on theory, not FACT.

[girl gone mad]

46. Ahhh.. the old Philip Morris/Creationist defense.

"It's just a theory!"

For what it's worth, oncologists operate on theories, too. A doctor can only give you his or her opinion, yet we rely on their expertise to help us make life and death decisions.

Reich is using solid economic theories that have stood the test of time. He isn't just some random street preacher on a soap box. He has some expertise.

Dismissing him as a "pessimist" simply because you want to believe these problems don't exist amounts to absolute ignorance. It's the same type of ignorance that would lead a patient to ignore a doctor's opinion because he he found it too upsetting.

[Dappleganger]

30. No, he's a realist.

[Skittles]

51. strange how so many DUers confuse realism with pessimism

[xchrom]

3. i do so wish we could get a very serious jobs package

that includes good tax breaks for creating and sustaining jobs here.

[Cant trust em]

4. Defining "good tax breaks" is the key, IMO.

I want ones that induce job creation, industry innovation and hiring, not ones that just put a minor, one time amount of cash into someone's pocket.

[xchrom]

5. absolutely -- we need that. nt

[eridani]

36. The only good tax break is a FICA tax break

The others are utterly useless in stimulating the economy.

[Demeter]

6. It Isn't Pessimisim--It's Reading the Writing on the Wall

instead of getting a daily brain shampoo from Fox News and other propagandists.

As President John Adams ruefully said: "Facts are stubborn things."

[MattSh]

7. Trying to figure out who the real kings of hype are...

Those predicting a recovery in the economy or...

Those predicting a recovery in the Gulf of Mexico.

[marmar]

8. Exactly.....The American need to live in a state of delusion boggles the mind.

nt

[Dr.Phool]

9. Here's a scary jobs chart, which bolsters Reich's and the realists argument.

http://tpmlivewire.talkingpointsmemo.com/2010/06/chart-of-the-day-the-scariest-job-chart-ever-just-got-even-scarier.php?ref=fpblg

[Igel]

10. The problem is that it's hard to base a real argument on that chart.

Really hard.

One problem is that most of the other bottoms were reached long before a stimulus was passed. In some cases, the "stimulus" was passed months or even more than a year after the recession was over and the curve rebounding.

Another is that the stimuli were much smaller, so would have had a smaller distorting effect--then, when the direct effect of the stimulus faded you'd wind up with a smaller "downside". Think about it: If I take $1 trillion and hired people directly in 4/2009, that curve would look different; then if they all were laid off when the funds ran out in 4/2010 there'd be a huge dip in unemployment.

We saw it with cars last fall. We saw it with house sales. You offer people money, you front-load demand as people saving for a car or thinking about getting a car in 2, 3, 4, or 5 months decide to get one sooner, in a spike. Then those who'd have gotten a car in 2, 3, 4, or 5 months are out of the pool of potential purchasers. The only way to tell what would have been the likely curve without that kind of distortion is to wait until the effect is over and reconstruct it.

Your "realists" as well as the pessimists (although I suspect that they're mostly the same people in this case) are taking the jobs curve for this recession at face value, not partially a response to artificially increased demand and employers' hopeful response to that demand. But you can't because from around 9/2009 to the present that curve is fudged, the numbers reflect an economy that's been tweaked and goosed. The numbers are accurate, but we're wrong to assume that they truly reflect the underlying state of the economy. When all the tweaks and goosings wear off, the economy will again seek its own level. The hope is that the tweaks will be permanent, but that usually doesn't happen however much it's predicted.

Of more use is the fact that new jobs outnumbered layoffs, *and* that the number of hours worked has increased.

Here's an oddball bit of realism. A bit over two years ago the first stimulus package for this recession was approved by Congress; on the red curve it corresponds to the point where the recession stopped having almost no effect on unemployment and unemployment began to increase (keep in mind that unemployment usually lags other indicators). Its effects wore off around 9/2008--which is precisely when the unemployment line took another downward turn. I don't know that there's a causal relationship between the reduced economic output and the ending of the stimulus. A realist sees the correlation, however, and understands that the first stimulus was a band-aid, and probably extended at least the length of this recession. By not making clear that some horrible financial practices needed to be amended, it allowed those practices to continue for months longer, and this eventually made the recession worse.

[Dr.Phool]

12. There's a big difference now.

I lived and worked through (and was laid off) in every recession since I got out of the service in 1971. Back then, there were good jobs to return to. Now, most of the decent paying jobs have been shipped overseas, and they ain't coming back.

I've never seen anything like this. And nobody is even attempting to stop the outflow of jobs. Nobody.

I had a carry-out restaurant in Tampa a couple of years ago. We did major lunch delivery and catering business with Capitol One. They shipped almost all of their jobs to India. Every week, customers would say, they wouldn't be ordering their pizzas as often, they just lost their jobs. Seven other restaurants in our immediate neighborhood went out of business in one summer.

It's a good thing I didn't need the business to survive on, because me and my partner didn't draw a paycheck for 7 months. Just paid the bills and employees. We wound up selling out. And it's worse now.

[ozymandius]

19. You describe what is termed "attempting to re-inflate the bubble".

This was all about appearances.

The effort to stimulate demand with the $8k homeowner tax credit sought to replicate the artificial demand that we saw when money was too easy during the Greenspan years. Trouble is: that sustained go-go event cannot be re-created. There are no natural buyers for the properties that were selling fast in 2006. Liar loans, ARMs and flippers during the market's hey-day wrung all the excess of many future potential buyers.

So come the $8k stimulus and tight credit and we see an underwhelming demand for housing that did little but put people in houses who had an even chance of buying a home without the stimulus cash. Alternately, durable goods makers, mortgage brokers and real estate agents saw some stimulus benefit. For awhile, anyway.

I understand that proponents of the stimulus did what FDR attempted during the depths of the Great Depression. They just threw stuff against a wall, anything really, to see what would stick. But the world has changed since that time. Back then - there was no such thing as NAFTA, G8 and OPEC. If an uptick in housing sales meant that more people would buy refrigerators and hot water heaters then we would see deeper stimulus waves rippling through our nation's economy in areas other than sales and deliveries of these items. It would be a logical conclusion to say that a housing purchase stimulus would reverberate in durable goods through its sales delivery and manufacturingsectors.

Domestic economic policy in 1933 had a more immediate effect than it does today because the means of production in the United States were located here. We had an economic model that was fashioned around what we could consume domestically and our exports. (Read about Smoot-Hawley for more information about the results of embargoes on American goods.) But as manufacturing goes - the United States does not do that anymore to the extent that stimulus for demand immediately equates to an increase in American jobs. We will never realize a sustainable jobs stimulus until the nature of work is addressed.

Cars, as you mention, I see similarly. Credit is credit. The credit market is ready to respond to buyers as long as there is a natural market for these goods. I believe that the excessive real estate market before the crash ruined the car market - and thus a major domestic manufacturing sector. People overextended with mortgage debt cannot feasibly purchase vehicles with credit. The banks will not allow that risk.

I wish that I could offer an instant panacea. That's not possible. Time, forethought and political will are all necessary to reconstruct much of what has been lost over the past thirty years.

[Caretha]

24. Thanks Ozy

I never miss one of your posts or SMW daily updates. You are a DU Treasure.

[ozymandius]

26. I'm blushing.

Thank you. Really. :blush:

[blue97keet]

52. Stimulus now is like running water in the bathtub with the drain open

because of offshore outsourcing.

[neverforget]

11. I suppose TPM will be thrown under the bus like the Huffington Post

for carrying this chart

[depakid]

33. The bus is getting a lot emptier these days

Lots of folks getting off in favor of more honest and realistic viewpoints.

[Kahuna]

39. My theory is that the hiring will pick up after the mid terms. After all..

business being in the pocket of the gop, would like to give them an issue to pick up more seats.

[Roland99]

13. "at least 100,000 new jobs are needed every month"? uh...more than that!

More like 160,000.

[ozymandius]

18. Correct.

On the low end - 150k jobs need to be created per month to keep pace with population growth. 200k jobs are needed on the high end to keep pace with population growth and absorb previous job losses.

[Dappleganger]

29. WHAT KIND OF JOBS???

Can I yell this loudly enough???

Those who were making higher wages with better benefits, IF they find employment again are quite often underemployed and facing either no benefits or skyrocketing prices to those benefits. Many people are only able to find contract work (temps) which puts them into the sorry position to be the first to be quickly shed off from payroll when things begin to get bumpier again.

I don't call that a recovery of any kind!

[ozymandius]

31. Shit jobs do not constitute a recovery.

You have every right to yell and my encouragement. Temps, menial labor for the educated and the persistently unemployed do not rebuild economies. Middle class jobs that easily approach and exceed $40k annually are needed to improve our situation. We all do better when we all do better. And right now - a vast many are not doing well at all.

[proudohioan]

47. Thank you; YELL LOUDER!!!!! We ALL should be yelling this!

That's what I've been trying to spread the word on myself!

Some poor guy on another thread stated that he, after being unemployed for a long time, finally got hired for a job. He had to fill out some kind of paperwork in order for his employer to get a tax credit for hiring him (sorry, I forgot what he said the name of the form was.) And guess what???? This is a part-time job, no benefits, and the poor guy is earning LESS THAN $300 PER WEEK!!!! AND HIS EMPLOYER IS NOT ONLY GETTING REWARDED WITH THE TAX CREDIT, BUT A HUGE PAT ON THE BACK BY THE GOVERNMENT FOR HIS 'EFFORT'!!!!! Rah Rah Rah!!!! Yeah Team!!!!

Jeezus!!!!!

All together now:

WHAT KIND OF JOBS?????

[fasttense]

45. Along those lines, if you calculate the number of people

going into the workforce simply based on population growth, you get larger unemployment numbers than what the government reports.

"One of the more peculiar phenomena in the current Great Recession has been the persistent drop in the Civilian Labor Force Participation Rate, after averaging around 66.5% for the past 20 years, in the past 18 months it has plunged, and despite a marginal improvement over the past several months, is still at 65.2%. This is counterintuitive when one analyzes the data side by side with the overall civilian population in the United States."

http://www.zerohedge.com/article/reindexing-unemployment-population-growth-yields-some-ugly-results

[Roland99]

14. Time to see what Roubini is writing about lately.

He called a double-dip a very likely outcome loooong ago.

[Dappleganger]

15. K&R

If I recall correctly there were some economists predicting this very thing could happen a year ago if the job market didn't pick up enough (and the second real estate bubble including commercial could affect it too).

The bumpy ride is far from over.

[Dr.Phool]

16. As Roland said, Roubini was projecting it about a year ago.

Krugman said the stimulus wasn't nearly big enough, but it was probably all Obama could get from the 'pukes. The bad thing is about half of it had to go for goodies for the rich.

[Roland99]

20. Here's one from May 2009

http://www.businessinsider.com/roubini-warns-of-a-double-dip-recession-2009-5

[Tansy_Gold]

21. What recovery? You can't have a double dip unless you have a

recovery of some kind, but we didn't really have that.

Oh, the DJIA went up, and some cars and houses got sold, but some of us knew these were all cosmetics. There was no real recovery going on at all. Companies continued to ship manufacturing to slave cheap labor market, banks were bailed out while workers drowned, and change only meant a change in color.

THERE WAS NO RECOVERY.

I'm remembering how, roughly a year ago, all the blather was about all the millions of jobs the "stimulus bill" had created and/or saved. And I said then that it was a stop-gap measure. All those police officers and firefighters and teachers whose salaries came out of the public purse were gonna be shit outta luck when the NEXT budget came around because nothing was being done to replace the stimulus funds. They were a one shot deal, and what was anyone gonna do the next year?

Well, now we're finding out. Schools are closing. Libraries are closing. State parks are closing. Poor kids are losing their health care. 800 teachers are being laid off in Paterson, NJ. California is virtually bankrupt.

There's only been a recovery for the rich. We taxpayers gave the already rich another trillion dollars and we didn't even ask that they put it to good use. We don't know what they spent it on. And whenever we ask, they get all hurt and pouty about it. It's a new "Don't Ask, Don't Tell."

And while this has been going on, we've had the catastrophes of the Upper Big Branch Mine, and the Macondo well, and the 1000th American death in Afghanistan (no one's counting the Afghans). The Israelis are killing humanitarian aid workers, candidates for judgeships in California are campaigning for a christian judiciary, South Carolina legislators feel free to call the president a raghead, Prescott AZ city councilmembers want all public art to depict only white folks.

WHAT HAVE YOU DONE TO MY COUNTRY? WHAT HAVE YOU DONE TO MY PLANET?

This is not a recovery; this isn't even a potty break on the downward spiral.





Tansy Gold

[Roland99]

22. True. this isn't a recovery. more of a plateau after the plane dove and the pilot leveled it.

but one engine has failed and the other has a warning light blinking madly.

[Hawkowl]

25. Naaah. Not an engine failure.

I can easily land a plane without engines. This is more like a piece of the rudder broke off and we stabilized at 10,000 feet where the air is thicker and more able to hold our weight. Bad news the air is thicker and threatening to break off the rest of the rudder. Or in economic terms, we lost a good percentage of the middle class during the last 10 years and the remaining middle class is having to absorb an ever larger economic and tax burden with ever diminishing wages.

You can't fix the plane until you land. And you can't fix the economy until the Rich and the Corporations are returned to mid twentieth century taxation and regulation levels.

We can land now in one piece, or we can crash inverted and let the engineers build a new plane.

[Roland99]

41. Or we can start over with the basics....horse and buggy

;)

[Hawkowl]

44. Cool!

I've got 2 horses, so I'm ready to go!

[Dappleganger]

28. The way I see it...

it was just a slowing down of the bleeding for awhile, but there's quite a bit more to come. The stimulus did help in slowing the rate of loss down to a degree, but now what we're going to experience is more downfall due to the domino effect. That, and there are jobs which were lost which will never, ever ever return again. We are going to have to create entire new sectors for the unemployed to find work.

And then there's the shadow real estate inventory and coming commercial real estate problem. There are plenty more bubbles to pop. Those who are lucky enough to have jobs now (or just found jobs again) should be battening down the hatches financially. Those who are contract and temp workers, beware--many employers have upwards of 20% of people like you and you'll be the first to go during the next dip.

[proudohioan]

48. You got that right!

"All those police officers and firefighters and teachers whose salaries came out of the public purse were gonna be shit outta luck when the NEXT budget came around because nothing was being done to replace the stimulus funds. They were a one shot deal, and what was anyone gonna do the next year?"

And that's exactly what happened in Summit County, Ohio. The year was up, and the lay-offs occurred. It simply prolonged the inevitable....


T.

[Tansy_Gold]

50. Same in Paterson NJ. Where my daughter works

And Morris County NJ. Where my son-in-law teaches.

And in Arizona, where I live.



TG

[Tansy_Gold]

23. And I don't think we've really seen all the fallout from the

commercial real estate bubble. I know there have been some collapses, but it seems to be kinda drifting. I suspect the powers that are holding the stock market together are also holding CRE together, and I don't think they can do both for very much longer. One or the other but not both.

Eventually there will be a single collapse, a single default, that will start the dominoes falling. And once they start, they will be unstoppable. Spectacular, catastrophic, and fascinating.




TG

[Dappleganger]

27. Yes, exactly.

It's going to be a horrible event here in FL (it's already begun with developers).

[Dr.Phool]

34. I like the comment in your profile. Ain't it the truth.

"Florida is a perfect example of how a government run by Republicans goes to shit".

[Dappleganger]

35. All politics is local...

isn't that the truth?

[PATRICK]

40. Pretty well committed

to disaster for the working man. War, fine. Bowing down to corporations, fine. Reaganism and valueless dollar bills for wallpaper, fine. Jobs? Zilch. Standing up for education and teachers, nightmare. Restoring law much less regulation, something less than visible. The "consensus" within the corporate Congress is to protect the top and let the down alonewhile in fact driving it deeper into the fantasy that doing anything for the top at this point certifies the human race, not just the Gulf pelicans, for a logically merited and shameful extinction.

The only real job recovery was the fully accidental coincidence of the national Census, one piece of the Constitution that had some momentary utility for the rudderless corporate kleptocracy. The quantum perception mechanics of the "economy" as determined by insane banks is built over the grave of the real universe until in fact its own grave swallows it. Step in, says the lemming leaders to the enraged pack pushing and shoving over the cliffs. Keep going. It will be all better.

It is not so much the particulars and the statistics as the ongoing insanity of unrepresentative, corporate fantasy corruption, set in the concrete blocks between their deaf ears. No relief to mortgage holders. No problem solved. No crook stopped. No reason acknowledged. A few important progressive steps for follow through upon as if there was time for the points for improvement game.

There hasn't been time for some time except continue the vertigo of destruction faster by doing more of the same,nothing or too little. The market-owned public forum is dominated by the self-evident insane petty evil of greed in a fairly doomed civilization. Doomed more by hardcore geophysical realities than the arguable drama of democracy versus crooks. Once that "little" war has been resolved, optimistically in favor of the vast majority (the actual total sum) of the sane we may yet face extinction problems with a little reason and honor. Yet in fact it has been decided as in the Roosevelt pre-war days that is again time for the people to cyclically suffer for the sins of the few lest the hyper incompetent wealthy perish- first instead of last inside their cozy panic rooms- from the earth.

Jobs are a dismally far far priority, the people and the voters be damned.

[hollowdweller]

49. Either they need to increase the top tax rate hugely or strengthen the union movement

IMO two ways. They can tax the rich and then give to the poor via gov't jobs and programs or really strengthen the labor movement and allow people to get some of that money for themselves.

Until you give people more money to spend on stuff the whole economy will be the top guys gambling on the stock market.

Oh maybe 3 ways. Dramatically increase the min wage.

Raises the possiblity of inflation but I'm not so scared of that at this point.

[Kringle]

53. the stupid Euro .nt