Weekly Audit: It's a recession, stupid (and what that means)

by Zach Carter, Media Consortium MediaWire blogger

The gurus at the National Bureau of Economic Research have finally acknowledged the obvious: the U.S. economy is in a recession, and has been since December 2007. With Wall Street still on life support and unemployment statistics reaching levels unseen since the heyday of Ronald Reagan, the news was far from shocking, as Truthdig's Ear to the Ground notes, but still enough to help push the Dow Jones Industrial Average down nearly 700 points on Monday.

More frightening than the belated use of the r-word-- Kevin Drum of Mother Jones called the December start-date all the way back in February in a piece for the Washington Monthly-- is the fact that drastic government action to right the nation's faltering economic ship does not appear to be working. The current crisis has delivered a blow not just to investors and homeowners, but to the work of economist Milton Friedman, a thinker regarded with an almost sacred status in conservative circles. Over at Salon.com, Andrew Leonard highlights a New York Times column by economist Paul Krugman on how Friedman's monetarist economic theory has taken a hit over the past year. Friedman's doctrine calls for restricting government relief in times of economic strain to the arena of monetary policy--that is, central banks should increase the supply of money in the economy, but governments should not directly undertake spending initiatives to boost demand.

But while the Federal Reserve has pumped liquidity into the financial sector at every conceivable opportunity over the past year, but the crisis has continued to grind on, spreading from one troubled sector to another.
We are clearly out of options that match up with Friedman's monetarism, indicating that public policy has nowhere left to turn except direct government spending on economic support, as Ezra Klein argues for The American Prospect.

President-elect Barack Obama has vowed to deliver a major fiscal stimulus package as soon as possible after taking up his new job on January 20. Joshua Holland notes for AlterNet that Obama does not have to radically overhaul the economy to implement short-term stimulus that will have long-term economic benefits. Rebuilding our infrastructure with sustainable designs and materials and revitalizing our outdated health care system would both create jobs quickly and prevent other problems looming down the road.

The past week, of course, included the Thanksgiving holiday, and no coverage of the U.S. economy for the period would be complete without a discussion of Black Friday. It appears that the retail sector is about to follow Wall Street and the auto industry into disaster over the next month, as consumer confidence remains at dismally low levels. In a report for The Colorado Independent, Mary Kane explains how the massive loss of housing wealth over the past two years and decades of expensive consumer debt have made people much less eager to pull out the plastic for holiday gifts.

But while one industry after another steadily succumbs to economic reality, some of the people hardest hit by the downturn are not involved in any industry at all. With retirement savings devastated by the financial earthquake, many elderly retired people are now going back to work just to make ends meet, as Leslie Casimir details in a harrowing report for New America Media.

One of the most striking public policy disparities over the past year has been a rabid push from global governments to salvage financial institutions without devoting any serious attention to ordinary people, particularly the poor. The Bush administration has repeatedly argued that allowing major firms to fail would cause significant harm to vulnerable individuals well outside the financial system, but has done almost nothing to directly address the concerns of those people, who do not simply stop being poor once Citigroup gets its groove back. Oneworld.net notes an analysis from the Institute for Policy Studies that reveals the U.S. and Europe have dedicated $4.1 trillion to rescue the financial industry--roughly 40 times what they have spent to fight climate and poverty in the developing world.

The incongruity is reflected not only in the sheer size of the bailout packages compared to the poverty programs, but in the speed of its implementation. Literally hundreds of millions of people have been unable to afford to eat for literally decades, but when Bear Stearns hits a liquidity logjam, a solution is in place by the end of the weekend.

Part of this is probably due to the U.S. psychological obsession with both Wall Street and homeownership. Writing for The Nation, Max Fraser discusses the development of pervasive and fundamentally irrational beliefs among bankers and borrowers alike over the past decade, beliefs that have ultimately eroded access to affordable housing despite an explosion in lending between 2004 and 2007. The current crisis proves that we cannot rely on private-sector initiatives or pseudo-public entities like Fannie Mae and Freddie Mac to responsibly expand access to homeownership.

Until the government steps in with a meaningful commitment to affordable housing, check out the tips Jane Goetze offers at High Country News on how to survive living out of your car.

This post features links to the best independent, progressive reporting about the economy. Visit Economy.NewsLadder.net for a complete list of articles on the economy. And for the best progressive reporting on critical immigration and healthcare issues, check out Immigration.NewsLadder.net and Healthcare.NewsLadder.net.

This is a project of The Media Consortium, a network of 50 leading independent media outlets, and created by NewsLadder.

Tags: Dow Jones Industrial Average, economics, Economy, Economy NewsLadder, financial crisis, global economy, National Bureau of Economic Research, NBER, Newsladder, Recession, The Media Consortium, U.S. Economy, unemployment, Wall Street (all tags)

Comments

2 Comments

Lets deceive ourselves..

and say that the good jobs will come back. Without doing what it takes to create the ability to create jobs of lasting value, (education) which then leads to a market for consumer goods and confidence.

In the 30s, Social Security created confidence to spend, and the infrastructure programs created infrastructure to build industry. But the real prosperity did not come until WWII destroyed the rest of the industrial base in other countries.

Nobody wants WWIII so we are going to have to do it on our own this time. We are also up against Moore's Law which makes it MUCH harder. Machines do so much more work now. Silicon's capacity for a given dollar amount doubles every 18 months.

Also, free networking makes all sorts of economies possible. A worker in India can steer a tractor in Iowa. A doctor in Belgium or Sarajevo can operate on a patient in Bermuda via a high speed network link.

The future is going to be a great one. People who aren't the very best at what they do in the world will have lots more free time.

People were not meant to do drudge work. Leave that to machines. They never ask for raises and don't need vacations or health "insurance".

by architek 2008-12-02 04:47AM | 0 recs
On the Bright Side

People have learned that you can't solve every economic or social problem by cutting taxes. They are now going to learn that printing money and giving it to banks isn't going to solve every economic problem, too. They are going to learn that building and maintaining infrastracture, investing in new technologies, and sensible regulations are needed to keep the economy strong. The people living today will always keep those lessons in mind. The downside is that future generations will probably have to go through the same cycle before they learn this lesson, too. This seems to be part of human nature.

by Zzyzzy 2008-12-02 07:26AM | 0 recs

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