- Last Updated on Wednesday, 22 September 2010 05:00
- Published on Wednesday, 22 September 2010 05:00
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I keep hoping we will find that magic turning point when our national economy clearly and perceptibly begins to improve. We see hints. Consumer sentiment shows a slight uptick. Though sadly, it was grim to begin with. Durable goods orders go up a little. That’s good news and new claims for unemployment insurance are down a little. But all of this is like background noise. It doesn’t represent a profound or decisive trend. What’s more, this recession, unlike most, just doesn’t want to end. I don’t know when a recession becomes a depression. Maybe things need to get a lot worse before that word can be used, but we’ve had a half dozen recessions since the end of World War II and this one is by far the worst.
This recession, while occurring in the Internet age, has a strong similarity to what happened in the 1930’s. Just as it was in the 1930’s, today, in this recession, almost every American has sustained a loss of their personal wealth. In the 1920’s it was the result of the stock market crash and bank failures. Any numbers from the Great Depression estimating the loss in personal wealth are a little sketchy. However, today, according to several respected sources, it’s been estimated that the recession has resulted in a national loss of wealth for American households of $100 billion. Some, including myself, would argue it’s far more than that. But let’s stick with the prevailing estimate for now. This is caused by at least two factors. One is the value of our homes. Houses from California to right here in our own backyard are now worth noticeably less than they were just two years ago. This is quite a blow to our national psyche.
Since the late 1940’s the home building industry never stopped growing. A house was a guaranteed household earner. With a few exceptions, say, like buying a house next to Love Canal for example, it always got more valuable. My little townhouse, years ago, in Reston, Virginia, added $45 thousand to its value in three years and I didn’t have to do a thing. For some Americans it was like an ATM. They took out second mortgages or took out lines of credit in order to get some real cash for their home’s value. For others, it was their savings account. Now, for many, they’re either “underwater” or, perhaps while not in debt, holding an asset that’s worth considerably less than they hoped.
And, of course, many Americans, some not even players in the stock market in the classic sense – most simply with retirement portfolios based in stocks – took a heavy hit. I know several people, and you probably do to, who were all set to retire at say, 62, 64, or whenever, but now aren’t sure they’ll ever retire.
However, the biggest problem right now is unemployment. It just won’t get better. The jobless rate is one of the reasons the Democrats, in a few weeks, are going to get trounced in the midterm elections. It won’t necessarily be because of their policies. Mostly it will be because of frustration with the economy and in particular unemployment. President Obama sponsored a $700 billion dollar jobs bill. The Administration, probably rightly, claims it kept the problem from getting worse, but it also didn’t get any better.
Right now unemployment is at 9.6%. That’s 14.9 million unemployed, or roughly twice the population of Virginia. However, that’s not all. That 9.6% doesn’t capture the full picture. If the data were adjusted to include people working part time, or worse, those who have given up even trying to look for work, the number gets closer to 15%. That’s staggering.
The only problem is that with apologies to my paraphrasing Herbert Hoover, “recovery isn’t around the corner.” I wish it were, I have tried to write columns that say it was, but the numbers just aren’t changing like I have hoped. Things are better than they were, but at the same time, there have been some fundamental shifts in the economy. Housing for example may never be what it once was. That industry, one of the power houses of our economy, may never be the same again. Also, American consumers, and the buy, buy, buy mentality may have changed as well. Culturally, I think that may be a good thing, but economically, it may take some getting used to. Retail is a sector that may also never be the same.
But here is the kicker. For the first time, and this is a major change in our view of the world, people aren’t turning to Washington as the answer anymore. Frankly I don’t know what to make of this. For many, they’re not even sure that the Federal Government has the tools or the ability to affect the fate of our economy like it once did. The Stimulus, in spite of hopeful comparisons to the New Deal, has faltered, and now, we have a $1.4 trillion deficit. Uncle Sam’s bank account is overdrawn. In other words, we may have to get used to the idea of not expecting government to be able to get us out of this economic mess. We could be on our own.