In January I posted a theory that the U.S. economy might not do anything more dramatic than slide sideways, which would look like a downward slide relative to other nations, more or less as the U.K. has done since World War II. There is no law that says we have to grow or crash. It has been six months since that post and the economic numbers remain depressing but not terrifying. GM is still in the news, having absorbed perhaps another $50 billion in taxpayer funds and hopelessly ill-equipped to compete with the Tata Nano or the electric cars coming out of China. The government continues to expand but few have noticed any great improvement in the quality or quantity of services delivered by the government. Any growth in GDP seems likely to be roughly matched by our 1 percent annual growth in population, which will result in a reasonably happy government, but a disappointed people. The government will be a happy due to a rising tax base. The people will be disappointed because increased population will bring congestion, rising real estate costs, and constant per-capita income that most likely will turn into a falling income for most Americans, given that a lot of forces tend to make the rich richer and the poor poorer.
How accurate does this assessment seem? Are you seeing evidence of a recovery in your neighborhood?
Your assessment is as plausible as any, but you ought to address unemployment. It may take a longer than expected to absorb the current unemployed back into the workforce. Could get real ugly if this turns into a lost decade. Otherwise, sunny and 76 degrees in Los Angeles.
Thanks, Art. By “economic numbers” in the third sentence, I was including rates of unemployment and job creation (which I understand has been nil, outside of government and health care).
One of the things that concerns me about the supposed recovery or green shoots or what have you is I wonder how much of it involves underemployment which leads to economic inefficiency. I’m not just talking about the numerous examples that have been portrayed in the media of former executives taking jobs at Starbucks to have access to health insurance or the wall street trader that now is a host at The Palm. Those examples will be corrected by the market.
The cases that concern me far more are those that are less extreme. For example my friend Doug is an absolutely brilliant mechanical engineer whose specialty is high pressure fluid systems. Tough stuff. After his employer laid him off, he’s picked up work as an auto mechanic and called off his job search. We were talking about it the other day and he seriously considering not going back to engineering. Between the lack of real wage growth, internal politics and stress, he’s finding working on cars to be much more palatable. While it’s great that Doug is pleased with what he is doing, it isn’t the highest and best use of his skills and training from an economic point of view (utility) and therein lays the rub. How many Dougs out there are leaving engineering, science and technology and how will this affect our economy? Is our ‘fraidy cat job market going to disenfranchise them completely? In my mind that is a real possibility, especially considering that their utility has been under appreciated/rewarded for years.
KAPA 071453Z 22005KT 10SM CLR 22/08 A3003
There are no “green shoots”. I am retired, travel, “pay attention”. Observation/opinion…
1) Home auctions (where foreclosed homes “sold on the courthouse steps”) are running *100 per day* here in SoCal.
2) “Media driven fear” (Recession! Will your job be next?”) caused the first wave of non-spending. The second wave is *now* and is caused by the #1 enemy DEFLATION i.e. “don’t buy today, it will be cheaper tomorrow”. Potentially devastating.
3) “Bail-outs” woefully mis-directed. The #1 target for resuscitation should have been the Stock Market, because THAT’S WHERE THE PENSIONS ARE.
4) “Green shoots” bs funded by re-directed consumer-spending. With 100,000 homes (SoCal) in foreclosure, and those people “not making payments” then this free’s-up $$ for consumer goods. This will not last.
5) Outside the cities, “if it can be sold, it is for sale” (not real estate, but cars/toys/”stuff”).
6) Focusing on “unemployment” mis-directed. Most “unemployed” were in jobs that were “credit-funded”. When credit dried-up, the related jobs dried up. Logical.
7) Risks: “Rise of the renter-class”. Like me. Never buy when you can rent (for less). Huge growth in this segment. If the “recession” continues for a significant part of a generation, then the real-estate market dies. Note I am *not* a fan of home-ownership incentives (“tax money, re-distributed”).
8) Meteoric rise in local/state expenditures (related income/property taxes) have effectively killed any hope for long-term growth. What politicians are saying :”We must cut costs”? Major tax-drivers…
A) Public pensions (union-driven)
B) Public education (whatever happened to “vouchers”?)
Cash is King. As is “being mobile” i.e. ability to “flee high-tax areas”.
I could go on. Apologies if rambling…
I think Paul’s #7 is going to be big. I know several people in the Northeast that have switched from being owners to renters. Not for affordibility instead for future mobility. All well paid professionals that believe there is a good chance that tax happy NE states will drive their jobs away. Plus if you are renting in a highend district and the schools take a nose dive makes it a simple matter to move. Home ownership is some ways serfdom to local governments. Mobility means governments have to compete and there will be losers.
Classically Main Street is the last to show recovery in a recession. Jobs are usually the last to improve as economies go through cycles of rise and fall. In the magnificent Ohio Valley area I see continued job loss and narrowing of future hopes. Even Mighty Buffet predicts slow and mediocre recovery.
Personally I believe the stock market has shown some recovery with normal bearish retractions on top of the usual stock trader “walk away in May” mentality.
Being a staunch Darwinist I believe there is still some shake out of the weak to come but the species will survive. I vote for sideways movement of the economy rather than a continued downward slide.
Keep the shiny side up!
Here in Manhattan, every service that makes the neighborhood livable (laundromats, bodegas, restaurants) seem to be closing, only to be replaced
with a bank! Quoting from Wynona Laduke’s campaign speeches of 2000 “When will people learn that you can’t eat money?!” Seriously, do we really need all these banks? Meanwhile, Shea Stadium has been torn down in favor of CitiField, which I think they should rename it as Citi is flush with the taxpayers’ money. However, the economy has teamed up with the locavore movement to give us city-raised chickens: http://wcbstv.com/topstories/chicken.urban.farmers.2.1085776.html
The UK economy may have gone “sideways” since WWII on some abstract measures, but I’ve been reading a book Austerity Britain by David Kynaston, which gives an excellent feel for just how bad things were in the years after the war. Living standards in the UK have *massively* improved since then.