Is Permanent Recession the New Normal?
It really is a Great Recession now.
You have to be around 90 to even remember an economy like this. The United States has not experienced two straight years of 9% unemployment since before the Second World War.
As Amity Shales wrote in The Forgotten Man, it was the duration of the economic collapse which began in 1929, not its severity, which created the Great Depression. According to the Bureau of Labor Statistics, the United States has now had unemployment of 9%, give or take a couple tenths of a point, since May, 2009.
The most recent figure, for May, 2011, is 9.1%.
In a speech on Tuesday, Fed chairman Ben Bernanke essentially threw up his hands. He's right. The Keynesian economic toolbox is empty. So is monetary policy -- unless you want to radically inflate the economy and depreciate the dollar.
China and other nations are already challenging the dollar's status as the world's sole reserve currency. Revving up the printing presses at the Bureau of Currency will only make that result inevitable.
More government stimulus -- which is what Democratic economists like Paul Krugman are advocating -- is also politically impossible. It's also not clear it would work. Yet Professor Krugman is correct when he says that the Great Recession is caused by a lack of demand. He's also absolutely correct to point out -- as he did on Charlie Rose last Friday night -- that the current situation is unacceptable.
Continuation of these levels of unemployment will cause us to lose an entire generation. The Great Recession is creating a fundamental change in the nature of unemployment, careers, family life, and economic prospects in this country. In the last two years, Bob Herbert of the New York Times and Don Peck of the Atlantic Monthly have both written powerfully on this topic.
Mr. Peck's piece, which appeared in March, 2010, has turned out to be especially prophetic. Fifteen months ago, he wrote: "[t]he economy now sits in a hole more than 10 million jobs deep -- that's the number required to get back to 5% unemployment, the rate we had before the recession started, and the one that's been more or less typical for a generation."
That hole is still there. And we need to create about 1.5 million new jobs every year -- about 125,000 new jobs every month -- just to keep the unemployment rate from climbing farther.
Those of us who have children and grandchildren now entering the employment market are rightly concerned.
Can anything be done?
President Obama's only defense -- it's Bush's fault! -- is ludicrous. And its rejection by most voters is reflected in the latest polls. With this week's sudden resignation of the President's top economic advisor Austun Goolsbee, most senior members of the Obama economic team -- except Secretary of the Treasury Tim Geithner and chairman Bernanke -- have left government. So have Mr. Obama's Secretary of Commerce and his first White House chief of staff, Rahm Emanuel.
They know a bad thing when they see it. But to repeat: can anything be done?
No. The problem with the economy is one of politics, not economics. The economic solution is known, but it cannot be implemented until there's a Republican president and a Republican Congress. The reason is the ideology of the Man in the White House.
The stimulus which will turn this economy around has to come from the private sector, not the government. President Obama and the Democrats who control the Senate will never agree to take the actions necessary to jump-start private business investment. And that's even though the private-sector money for such a turn-around is readily available.
According to Standard & Poor's, at December 31, 2010, the 500 big American companies in its S & P 500 Index were sitting on $2.4 trillion in cash and short-term investments.
Five months on, there's probably a lot more of it.
This $2.4 trillion cash hoard has steadily accumulated since Barack Obama became president. At the end of 2008, it already stood at a record $811 billion. A year later, it was $ 1.18 trillion. In 2010, it more than doubled.
The existence of this huge accumulation of corporate capital in cash and marketable securities over the last three years means that the United States is experiencing a classic "capital strike." A capital strike occurs under a system of democratic capitalism where unacceptable political risk discourages private investment from taking place. The result is economic stagnation and a steady build-up of uninvested capital.
That's exactly what we have at the present time. Consider:
That $2.4 trillion represents 16% of total U.S. GDP last year of $14.7 trillion. It's also three times the size of the failed stimulus of 2009. Its injection into the American economy -- without any need for either a tax increase, an increase in the federal deficit, the hiring of a single federal bureaucrat, or an Act of Congress -- would be like firing the afterburner on an F-18.
Okay, you say: what might a package of actions by the federal government to unleash that $2.4 trillion (more likely, today, over $3 trillion) gusher of private investment capital look like? It's not rocket science. Consider the following:
- End uncertainty by repealing ObamaCare and Dodd-Frank. Instead, use market forces to re-shape the capital, insurance and home mortgage markets. With regard to Finance, (a) re-enact the old Glass-Steagall Act, effective January 20, 2014, and (b) spin off Fannie Mae and Freddie Mac to the taxpayers. Amtrak should be spun off also.
- Reverse the growth of government since January, 2009, by (a) laying off all federal employees added to the payroll (except for those doing menial work) after January 20, 2009 and (b) cancelling all final and proposed regulations first issued for comment after January 20, 2009. Roll back all federal salaries, except for the military, to what prevailed prior to January 20, 2009.
- Demonstrate financial responsibility by enacting, as an acceptable first cut at moving towards fiscal solvency, the Paul Ryan Plan. Cancel all unspent parts of the 2009 stimulus package not involving infrastructure. Pass a continuing resolution for the 2011 budget consistent with the Ryan Plan.
- Enact a serious infrastructure re-building program which will create good jobs at good pay: re-building highways, bridges, railroads, levees, spillways, locks, spillways, and dams, dredging harbors to accommodate the new, bigger container ships. Dredge silted up canals and the silted-up Intracoastal Waterway. Repair the damage caused by the Great Mississippi Flood of 2011. Rebuild New Orleans.
- On tax policy, repeal most business tax deductions. Keep the middle-class ones. Give the Dems their tax increase for "the rich" but eliminate the double tax on corporate dividends. Lower federal corporate tax rates to be competitive with other G-20 nations.
- In light of the worldwide commodities boom and the soaring price of energy, end most agriculture subsidies. End the ban on off-shore drilling, especially in the Gulf of Mexico. Push nuclear power. Support shale oil, natural gas and clean coal.
- Announce a defense build-up, to commence with the 2012 budget, to install Star Wars, create a 15-division Army, a four-division Marine Corps and a 500-ship Navy. Re-build the Air Force as well, while closing non-essential bases around the world. Seek a "home port" deal for a U.S. aircraft carrier with a non-Muslim Indian Ocean nation, similar to what the U.S. now has in Yokosuka, Japan. Reverse President Obama's decision not to build a ballistic missile defense for Europe in Eastern Europe.
- End TSA screening and offer qualified TSA personnel jobs with the Border Patrol and ICE. Offer all illegals not facing U.S. criminal charges or under active investigation a cash bonus and free transportation to go home, with their possessions. Build the Fence.
- Further increase business confidence by firing the White House czars.
- Borrowing a page from the late, great James J. Kilpatrick, adjourn Congress until after Labor Day and post a public notice:
CONGRESS IS ADJOURNED. THE LIBERTIES OF THE PEOPLE ARE SECURE.
Furlough all non-essential federal civilian employees for the month of August, without pay but with benefits. In effect: have a one-month government shut-down.
Would this program work, by driving GDP growth and creating millions of private-sector jobs in a turbo-charged economy? Sure. Is there any change President Obama and the Democrats who control the Senate support even one of these items? No.
Here's the point: the problem is not a lack of economic knowledge of what to do. The problem is ideology -- and the need for regime change in Washington. That won't happen until January, 2013, at the earliest.
The Capital Strike will end when the Obama Administration ends. Until then, our unemployed children and grandchildren will have to wait...and wait...and wait.