Welcome to DU! The truly grassroots left-of-center political community where regular people, not algorithms, drive the discussions and set the standards. Join the community: Create a free account Support DU (and get rid of ads!): Become a Star Member Latest Breaking News General Discussion The DU Lounge All Forums Issue Forums Culture Forums Alliance Forums Region Forums Support Forums Help & Search

xchrom

(108,903 posts)
Fri Jun 8, 2012, 10:05 AM Jun 2012

It's Worse Than You Think: Halftime Between Two Lost Decades

http://www.theatlantic.com/business/archive/2012/06/its-worse-than-you-think-halftime-between-two-lost-decades/258260/

The global economy is in a synchronized swoon. Brazil's economy practically stalled out in the first quarter, all of China's manufacturing figures indicate much lower growth than last year, Britain remains in recession, Spain's banking system needs a rescue and may collapse, and the U.S. -- which had been the last remaining bright spot in the global economy -- suddenly has started sputtering. The number of jobs created in May was not just half as many as expected; the figures for the previous two months were sharply revised lower as well. And for good measure, GDP growth for the first quarter was revised downward too.

Many observers were surprised or disappointed, because they still do not understand the nature of this recession, which is neither exclusively cyclical, nor exclusively structural, but rather a rare collision of crises -- a financial recession, in the middle of a global slow-down, at the edge of a demographic time bomb.

THE FIRST HALF


First, this is not a normal demand-damp cyclical recession. In such a recession, demand has been driven upward by rising population and rising wages, faster than production can keep pace, and the result is inflation. To rein in that inflation, monetary authorities raise interest rates and/or governments reduce spending to reduce demand. The result is a dampening of demand that usually drops unemployment and spending and ends inflation. However, as soon as inflation is under control, interest rates can be lowered and government spending can resume; hiring then usually picks up as does overall demand and the economy again grows. The whole process is a bit like hitting the pause button, then the forward button, for the economy as a whole. In such a cycle, the basic relationship between economic growth and job and wage growth remains unchanged, hence the recession is only cyclical, not structural.

However, the current slump is a different kind of cyclical recession; it is a financial overleveraging recession brought on by an excess of debt rather than just demand. In such recessions, deregulation and unusually easy credit lead to enormous borrowing to invest in 'sure things' -- in this case, private residential housing (in other cases it has been sovereign debt, or property, or new technologies). People view this asset as so safe that they develop all kinds of ways to boost their leverage (e.g. debt to asset ratios) or get out risky loans to purchase those assets. This huge influx of buying power raises the price of the 'safe' asset to unsustainable, unrealistic levels; then when people start to realize that the risky loans will fail and the underlying asset is losing value, you get a collapse of the market and a financial bust. Both borrowers and firms that managed the debt are critically hit.
4 replies = new reply since forum marked as read
Highlight: NoneDon't highlight anything 5 newestHighlight 5 most recent replies
It's Worse Than You Think: Halftime Between Two Lost Decades (Original Post) xchrom Jun 2012 OP
Typically economist-think, he ignores resource constraints to growth bhikkhu Jun 2012 #1
Its your third paragraph.... turtlerescue1 Jun 2012 #2
"the best we can do is to care about the least among us" bhikkhu Jun 2012 #4
Economic models are imperfect and fail miserably to account for all the factors that cannot Egalitarian Thug Jun 2012 #3

bhikkhu

(10,720 posts)
1. Typically economist-think, he ignores resource constraints to growth
Fri Jun 8, 2012, 10:59 AM
Jun 2012

...which are indicated by the persistent high cost of energy, which drives the high cost of those commodities that aren't already high because of scarcity and increased production costs. Oil is the obvious one, the larger part of which is now produced with a baseline break-even point around $90 a barrel - a huge paradigm shift over 10 years ago. Copper and most metals are another, and then there's phosphorous and NG, both critical for agriculture.

Two main points - the higher cost of energy and commodities reduces their utility as drivers of economic growth, and slows growth. The other point is that growth itself is primarily "real", being founded on real resources and materials; this being a finite planet, there is a limit to growth.

The modeling methods economists use tend to dismiss or ignore this, assuming that growth is somehow the birthright of any human economy if only it follows the correct ideology. Perhaps not so anymore!

turtlerescue1

(1,013 posts)
2. Its your third paragraph....
Fri Jun 8, 2012, 01:01 PM
Jun 2012

Wish I had your insight. Pretty much mine compares to Vonnegut in "Harrison Bergeron"'s normal intelligence. Can see the pieces but not put them together in a coherent manner.


Was it in Ayn Rand's "For the New Intellectual" she uses the term "human ballast"? Assuredly that is the perception of the "1%" to the 99%. WE have the numbers, but that doesn't produce sanity or change. The ONE thing my Democratic party has always driven me nuts with has to do with the layers and multi-focus, we get so busy consumed with our personal focus, we are the perfect target for being "divided" not by our differences but by our difference's impact to a platform, plan, intent.

Perhaps the best we can do: I really am one who rescues turtles. Can't recall it ever being some goal that was set. But they are the "least among us". Still every time I stop my vehicle to carry a turtle across the road in the direction his head is facing, there is this moment of wondering if somehow in the gust from a passing vehicle he got turned around.
Not long ago in the same week, it was the same very Large Red Eared Turtle, returning from the direction I had carried him across the road from. Loaded the Big guy in my car, and drove to a neighbor's , they have a small creek flowing in front of their house. Learned yesterday they have seen the big guy several times, and he seems to be doing well. The creek empties into a cove of the lake. Perhaps, she concludes, the BEST we can do is to care about the least among us.

bhikkhu

(10,720 posts)
4. "the best we can do is to care about the least among us"
Fri Jun 8, 2012, 08:11 PM
Jun 2012

...is definitely something to keep in the forefront. I think one big problem we have has little to do with what percent we are or what party or even in the presence or lack of compassion, but the lack of a simple physical sense of how much is enough. Enough food, enough money, enough clothes, enough that we can relax about needing more, enough that we can afford to be generous. Every generation we get bigger and richer and have more stuff, and the rest of the natural world gets squeezed a little harder into a shrinking corner. If our share of the planet's resources stop growing, so be it.

I tell my kids that we live in the wealthiest nation on earth (more or less) in the most prosperous time in all of recorded human history - so if I won't buy them that Kinect or the Disneyland vacation (or whatever the necessary thing of the moment is), we're still pretty much ok in the grand scheme of things. We live right around poverty level but we are ok, and I'm employed; its not that someone is keeping stuff from us, its that we don't need much else.

 

Egalitarian Thug

(12,448 posts)
3. Economic models are imperfect and fail miserably to account for all the factors that cannot
Fri Jun 8, 2012, 02:36 PM
Jun 2012

be easily represented numerically, but that doesn't negate the facts presented in this article. If anything, they make a stronger case.

BTW, I disagree with several of the conclusions they draw.

Latest Discussions»General Discussion»It's Worse Than You Think...