2010-01-25: [Econolypse] Do We Still Believe These Guys?
The U.S. economy experienced its most violent contraction in a generation during the fourth quarter, with real gross domestic product plunging at a 6.3% annualized seasonally adjusted rate, the Commerce Department reported Thursday in its third estimate of quarterly growth.
GDP hadn't fallen so much since the first quarter of 1982. It was the third largest decline in GDP in 50 years.
Economists believe the current quarter, which ends March 31, was nearly as bad. Current projections look for GDP to fall at a 5.1% annual pace. Since 1947, GDP has never fallen by more than 4% for two quarters in a row.
Amazingly, sites like MarketWatch look at these things and think that somehow, the economy is going to turn right around and start growing again. Tell me again why people trust their analysis. I think I missed something.
So here's the story. 70% of the economy is consumer spending. More than 10% of the workforce is out of work (some estimates say more than 20%). So that is an automatic loss of between 7 and 14% of our economy's earning power. Now, of course, there is unemployment insurance and the underground economy, which help to prevent that part of our workforce from starving to death.
Still you've got to wonder about those on-the-air financial pundits who tell us that things are about to change for the better. How could that be? The banks and other finance-related industries didn't fix their problems--they used tax money to cover up their weakened condition, together with accounting rule changes that allow them to pretend that the market value of the real estate (collateral for the loans they've made) hasn't fallen--and will not "recover" for long. Companies like GM haven't dealt with their problems, either--neither fuel-consumption, nor repairs & maintenance costs, nor emissions, nor the high prices of their products relative to most people's incomes, nor even the high compensation of their executive ranks relative to the people who actually make their products--and will not "recover" for long. (I wouldn't be surprised if Chrysler went into Chapter 7 bankruptcy later this year.)
And on top of all that, we have these massive job losses. In many cases, only low-skill, low-wage service (including retail and restaurant) jobs are available, so those who can get replacement jobs are taking 60% to 80% losses in their incomes. Let me tell you, it is quite different making $8,000 per year than it is making $64,000 per year. If I was an investor, I'd be putting my money into ramen noodle factories. I'm not an investor, in part because I view the markets as being manipulated. If I want to give money away, I'll buy a state lottery ticket. At least I'll know that 50% of the money goes to the schools.
No, the econolypse--the unveiling of the incompetence and manipulation that is at the core of our financial system--continues. We will see its effects return to the stock market in another year or two. In the meantime, we had better be preparing for a future in which only a few people have corporate jobs. We need to be unshackling homeowners from bothersome restrictions that would prevent them from launching business enterprises in their homes. We need to be eliminating the tax incentives given to draw corporations into our towns and cities (which amount to money taken from individuals and small businesses [those least able to afford to pay higher taxes] and given to large, out-of-area corporations [LOOACs] that could easily live without the subsidies).
Be aware that this past quarter saw a really sharp contraction, and that this current quarter is likely to see a similarly sharp contraction. Over a year or so, at these rates, the economy would lose about 1/20 of its size. And continued over a couple of years, some of us would be in danger of living in third world conditions.
Wake up! Get yourself going with your own small, locally-owned business (SLOB) and with your own home-based garden. Get active in your local government, pushing hard for a community garden and food bank. Don't forget to work for some kind of locally-based energy independence. Get active in your local church or synagogue, pushing for a "we're all in this together" effort to keep the whole congregation alive. We've seen a little bit of a rough time, but nothing like what our nation saw in the 1930s (nor, by my own memory, what we saw in the late 1970s through middle 1980s).
Turn off the television. Shut the newspaper. Avoid that news site. Not that I'm encouraging you to be ignorant. Instead, I'm urging you to be careful what information you allow to reach you. We already know that most of our news sources are tainted with someone's spin. It will get even worse as things become more and more clearly broken. The only way you'll be able to think clearly is if you make it a point to skip those news sources that you know to be filled with spin.
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