The White House adjusted its predictive course on American job losses this past weekend (so you know it's a bad story) as the unemployment rate hit a 25-year low of 9.4%, not counting the underemployed and those who have abandoned all hope. The quote from the President's economic adviser Austan Goolsbee wasn't exactly of the "green shoots" variety we've come to expect this spring: "The economy clearly has gotten substantially worse from the initial predictions that were being made, not just by the White House, but by all of the private sector."
Yet, we have a stock market that's come back a bit. The rate of unemployment has slowed. The Fed chairman talks of greater consumer confidence. Even Paul Krugman says that the U.S. may emerge from a technical recession this fall. And frantic television finance screamers like James Cramer are proclaiming that "the moment of crisis has passed."
Economics does not run deeply in these fields of inquiry, but something seems wrong to me about this new optimism, mainly because one big question has gone unanswered (and often unasked): what will replace what went before? That is to say, what will we produce and how will our economy replace the credit-driven consumer spending bubble that won't return in our lifetimes?
Then there this chart, produced by the economists Barry Eichengreen and Kevin H. O’Rourke for the Vox blog:
As you can see, the current world industrial output mirrors the trend lines of the Great Depression. According to Eichengreen and O’Rourke: "world industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better." So governments are spending more to (and charging less interest) to stimulate crashing world production.
To sum up, globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimise this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event.
Still, the shadow of "what next" remains. In Jim Kunstler's latest missive one of my favorite voices for societal change argues that the government's investment had the wrong aim: to prop up an era just ended, an automobile-centric, real estate rich time of cheap energy and easy credit that won't return:
Kunstler foresees civil unrest when Americans discover the old way of life has drifted into the past, especially in more recently developed areas of the south and southwest. Ezra Klein doesn't offer any grim visions, but he did notice - while many national commentators did not - that the Obama Administration has largely abandoned its complex banking rescue plan, which originally stirred controversy by seeming to guarantee sweetheart deals for institutions that got us into this mess in the first place. Writes Klein:
The PPIP's loans program has died, the assets sit unpriced, but there is still no judgment as to whether that means the banks are insolvent or, conversely, in such surprisingly good condition that they can let the loans mature on their balance sheets.
In other words, it doesn't seem like we know a lot more than we knew a few months ago. The economy certainly "feels" better, and that's been enough to drain the urgency from some of these questions. But have the questions really gone away?
Nate Silver argues that this means credit is flowing without the government formula, so it's good news. I'm not so sure. I'd like to believe in the green shoots and afternoon bulls, but at best, the economic future seems less than clear - at least to this non-economist.
