GREAT RECESSION VERSUS THE GREAT DEPRESSION - III

In this comparison of the Great Recession to the Great Depression, a look will be taken at an economic comparison and what, seems to me, to be rather a revisionist examination made in 2014 by Neil Howe  in that, while the GDP increased exceptionally well, unemployment remained high.*  One similarity is that both these "Greats" were financial collapses that were different from your ordinary recession which are usually due to inventory buildups.  Part I concerned the emotional hangover from the Great Depression and Great Recession.  Part II concerned the economics of some of the Rust Belt of states prior to and including the Great Recession.  The Great Depression did not have a cascade of job losses prior to 1929 that happened prior to the Great Recession (see Part II).

In the figure below, it is seen that the GDP has been slowly increasing since 2009, the depth of the Great Recession.  In contrast the dip in the Great Depression that started in 1929  had the GDP of the U.S. rising sharply less than five years after its beginning.

I was born in 1931 so I was only 10 yrs 8 mo. old at the beginning of WW-II and the GDP is shown to be well into positive territory see figure below).  Although my memory is limited, my main memory was that you could get a good-sized chocolate candy bar for a nickel and some bars were three for a dime.

The other thing I remember is men coming door to door and asking if they could mow the lawn or do other odd jobs for food.  My mother used to give them something but would not invite them inside.  I also remember a man coming to the door with a basket full of fine China (made by a German company) having marbleized centers and a gold rim.  My mother had also bought some of this same China a few years earlier (I don't know if it was from the same man).  So my memory is not conducive to their being good times prior to WW-II and  all studies do show unemployment to still be very high by 1939 and 1940 though they differ on the percentage unemployment (9.5% or greater).

In spite of my memories of the late 1930s, GDP bottomed in 1932 - 1933 and began a steep rise.  In contrast, the GDP decline was not as great in the Great Recession but bottomed in 2009 and began a relatively slow but steady rise. 

(Click on figure to enlarge)

Though the percentage drop in the stock markets were comparable between the two Greats, the  recovery of the stock market after the Great Recession has been quite remarkable and much better than for the Great Depression.  The figure below shows the comparison for the Dow Jones Industrial Average (The increase has continued beyond the period in the figure and has been repeatedly been setting new all-time highs lately for all four principal indices (DJIA, S&P 500, NASDAQ Composite, and Russell 2000).**

(click on figure to enlarge)

Quoting Mr. Howe, however, suggests a roaring economy for the Great Depression, "GDP grew at a blistering average rate" (though unemployment remained high):
What’s more, from 1933 on, U.S. GDP grew at a blistering average rate of over 8% per year for the next eight years. And that includes one recession year: 1938. By 1941, 12 years after the Great Depression began, U.S. GDP was 41% higher than its pre-downturn figure. This is almost certainly a much higher level, relative to 1929, than the United States will see by 2019, relative to 2007.*
..........................................................
Mr. Howe does conclude that:
These parallels between eras are so numerous and striking that they are hard to miss once we look broadly at the direction of events. That’s why connecting the economic challenges of the 1930s with those of the 2010s, and seeing them as comparable in some respects, makes a difference. When we are connected to history, we can comprehend better what else is happening in the 2010s, predict better what is likely to happen next, and to figure out, if necessary, how we can avoid an outcome that we regard as especially dangerous.


Note On Recessions A list of the Recessions in the U.S. can be seen in Wikipedia including the dates, duration, interval time between recessions, peak unemployment, and GDP decline.** * The GDP decline of the Great Recession is seen to have been only greater during the Great Depression and the "recession" of 1938 (I would say it was a part of the Great Depression) and the recession of 1945 that occurred while industry converted from wartime production back to peacetime.  Though the GDP decline in 1945 was larger than for the Great Recession, unemployment in 1945 did not reach the depths of the Great Recession.  The only recession worse in unemployment than the Great Recession was that of the long recession of the early 1980s, though the long recession of 1973 - 1975 came close.

* http://www.forbes.com/sites/neilhowe/2014/11/25/are-we-reliving-the-1930s/#57204a703a6c
** https://en.wikipedia.org/wiki/Comparisons_between_the_Great_Recession_and_the_Great_Depression
*** https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
https://www.thebalance.com/us-gdp-by-year-3305543

UNEMPLOYMENT AND WAGES - NOVEMBER 2016

This blog has been following the economy and has repeatedly found a disconnect between what politicians and the news media tell us (the economy is poor) and what the facts are (the economy is good and looks to get better).  There are other, more qualified analysts, who come to the same conclusion.

"The labor market feels very good," Mark Zandi, chief economist at Moody's Analytics, told CNBC. "Mr. Trump is inheriting a very strong economy." * 

The national unemployment rate fell to 4.6 percent in November, the Labor Department said Friday. 

.........................................................

Every month on "Jobs Friday," the Bureau of Labor Statistics releases a bunch of data, each point of which provides its own unique perspective on an aspect of the nation's employment situation. Economists look past the official unemployment rate — that 4.6 percent figure, also known as the "U-3" rate — to other metrics that give their own nuanced view of jobs in the country.**

One of those figures is called the U-6 rate, which has a broader definition of unemployment than the U-3 does. In November, that figure fell two-tenths of a point, to 9.3 percent.**

(Click on figure to enlarge.  The figure in interactive in the refernece)

 U-3 is the  total unemployed  as a percentage of the total work force and is the official unemployment rate.   At 4.3 % the official rate has returned to the pre-Great Recession levels.

U-6 adds discouraged workers and marginally attached workers plus those working part-time for economic reasons. Unemployment rate for U-6 was 9.3 in November 2016, well below the high of 17.1% in late 2009-early 2010, but still above the average of 2006-2007 that was more like 8.2%.**

Wages continue their climb.  Average hourly wages were at $2.69/hr (red in fgure) up considerably from $2.17 in the June report  In the June report average weekly wages (blue in figure) were also $2.17 in June, the same as the average weekly wages, and similar at $2.28/hr in November.**

(Click on figure to enlarge. The figure is interactive in the reference)

Note that prior to the Great Recession, hourly wages hit a high of $3.66/hr and $3.86/hr for weekly wages.  At the depth of the Great Rececession, the figure for weekly wages had fallen to an increase of only $0.41/hr!  The pattern for hourly ages was quite different, in fact hitting a peak during the Great Recession before starting to decline near to the current values.

The climb in hourly wages relative to weekly wages suggests that the rise in hourly wages is a result of increase in lower skilled jobs.

* http://www.cnbc.com/2016/11/30/us-private-sector-jobs-nov-2016-adp.html 
** http://www.cnbc.com/2016/12/02/unemployment-rate-fell-but-a-more-realistic-rate-is-higher.html

WAGE GROWTH BEST IN 7 YRS (OCTOBER)

In spite of all the dismal talk about the economy and the anger among many voters, everything I can find is that things are looking up:

Wages rose more in October  [2.8%] than any time since the economic recovery began, a sign that the labor market is tightening and the Fed should be on course to raise interest rates in December.*

GDP. Inventories, Housing, and Unemployment also looking good.**

As I have written elsewhere, How Good Do Things Have To Get Before People Realize It.***

* http://www.cnbc.com/2016/11/04/best-wage-growth-in-7-years-pushes-the-fed-toward-a-december-rate-hike.html
** http://stopcontinentaldrift.blogspot.com/2016/10/gdp-inventories-housing-unemployment.html
*** http://stopcontinentaldrift.blogspot.com/2016/09/how-good-do-things-have-to-get-before.html

OUR CONSUMERISM SOCIETY

The U.S. economy is largely built on consumerism - about 73% (http://www.csmonitor.com/Business/The-Daily-Reckoning/2011/0322/Consumers-won-t-save-the-US-economy), and advertising is used to make the consumers want ever more.

Now consider that most Americans' incomes are stagnant or falling or non-existent (long-term unemployed) and have been for years now. Only the wealthy are seeing their incomes increase. On the other hand, state and local governments are having to balance their budgets and are shedding employees - 39,000 in June alone, with a total of about 400,000 state and local government jobs lost so far,* and I've read about estimates that they will shed another 250,000 jobs before it is all done. Also in June, the Federal government shed 17,000 jobs. All the talk is about cutting the Federal budget. To the extent that the Federal budget is cut, we will see more Civil Servants and government contract employees let loose that will add more to the unemployed. Businesses are making good money with their current employee levels. Under these conditions, why should a company expand? In fact, in view of the future, they might even be considering to retrench.

So we are in our Catch 22. Business won't expand and increase employment unless consumerism picks up or at least it looks as if consumerism will pick up. But the consumers don't have any increased income to allow them to consume more, in fact the trend is that they will have less. So what to do?

No one seems to have any good answer. Government has tried doing "prime the pump" by borrowing money and giving it to the public. A lot of this, however, has been futile. For example, about a third of the Stimulus Package went out in tax cuts that gave an inefficient pulse to the economy, inefficient because a lot of it was used to pay down debt by the rank and file, and the wealthy largely put it into bonds of various sorts or used it toward buying things like chalets in Switzerland that maybe helps the global economy, but doesn't help the U.S. economy.** And once these one shot pulses have been used in some way, there is no further benefit. Unfortunately, it looks as if this approach will be continued though decreased pay roll taxes used for programs that also face financial problems (e.g. Social Security and Medicare). More one shot deals seem to be on the table that may be used further to pay down debt by the rank and file and the purchase of bonds and foreign goods by the wealthy. Whatever is used to buy American goods is just a pulse that is soon over. Why would a company expand its production under these circumstances when they can meet these pulses of consumerism without hiring more employees?

A number of things have been done. Obama has shut down the return of man to the Moon program (though some contracts have to be fulfilled by law.), he has frozen Federal salaries, and he has followed through on George W. Bush's shut down of the Space Shuttle Program (estimated to cost 4,000 jobs). The number of Federal employee now is about average for the Federal government,* but everyone talks about this just being the beginning.

So it would seem that the present state of affairs will continue farther than the eye can see. It will take something extraordinary to jolt us out of the present situation but there is nothing on the horizon that would do so.

* http://www.businessinsider.com/size-of-the-federal-workforce-under-obama-2011-7

**http://stopcontinentaldrift.blogspot.com/2010/07/trouble-with-income-tax-cuts.html

EGYPT: THE STRUGGLES TO COME

So the dictator of Egypt has been overthrown. Dictators have to be sure that the military is on his side, which didn't happen. As difficult as that was, the most difficult part is yet to come. Did the military want to take over and used the demonstrations as an excuse? For the time being, the military is in charge, but will the military turn the country to democracy after a suitable period ? After all, Mubarak originally said he would only stay for two terms, but he got to like it and overstayed his welcome. But the difficult road to democracy is just one of the questions.

A really big question is the matter of food. It appears that Egypt overall imports more than half of the food consumed. The only crop in which Egypt is self sufficient is rice, but wheat is the main staple for Egyptians and they import most of it. At one time they were self sufficient in agriculture, but rapid overpopulation has destroyed that. (http://countrystudies.us/egypt/84.htm). It will not be easy to become self sufficient again because rain-watered land is non-existent in Egypt with the "wettest" areas averaging only 2-in./yr of precipitation. Thus agriculture must be concentrated near the Nile or, in some case, near artisan aquifers. It is considered possible to increase the amount of reclaimed agricultural land and perhaps decrease the need for so much imported foods. About a third of the Egyptian workforce is devoted to agriculture.

Egypt recently has become an oil importing country; however, they have plenty of natural gas, some of which they are exporting and are trying to build up their natural gas industry. If there was peace in the Middle East, Egypt could do much more exporting by pipeline, but that is not the case and is unlikely to be the case in the foreseeable future.

A major part of the Egyptian economy revolves around cotton, including making cloth and finished goods, like clothing. This field has been hurt by the global recession.

Tourism is another major industry in Egypt and has been a major employer too. I suspect, however, that tourism will be hurt, perhaps severely, until a stable and friendly government is in place which may take a lot of time.

All in all, the future looks grim to me; however, if you read the writeup in Wikipedia, you could get the idea that things were pretty well under control with plans for improvements: http://en.wikipedia.org/wiki/Economy_of_Egypt though the official unemployment is said to be around 11%. We were told during the demonstrations, however, that the unemployment of younger workers is about 25% which was one cause of the revolution so we shall see.

DE-DEVELOPING AMERICA

Well, to de-develop America* sounds like a very Christian goal but unrealistic. Capitalism requires ever more consumption. You can either do this through population growth, though the increased population has to have the money to consume (a problem right now), or through getting the existing population to want always more (the purpose of advertising) or both. Of course there are places in the world that could well use more consumption, but we haven't figured out a way to get them the money to buy things. Capitalism also requires an ever increasing population of low wage workers (thus outsourcing). One would think that automation would decrease the need for low wage workers, and may to some degree, but recent history has shown that the low wage workers abroad can operate such equipment so the need for low wage workers still exists.


Communism as practiced always seems to end up with a dictator and a not benevolent dictator at that. Communism as practiced also does not invoke common ownership of goods and property. The trend has been for Communistic nations to adopt Capitalism (China, Russia) which seems to be raising the standard of living for many, but with very serious pollution problems.


Socialism seems to work in some countries like Sweden (which curiously has a high suicide rate, perhaps as a result of lack of sunshine in the winter) and other Scandinavian states. Socialism is not working so well in the U.S. because we insist on getting government services without paying for them. It is all very nice to cut out the services, but, as soon as some disaster occurs, even people who say they want small government, suddenly want a LOT of government aid and fast (see BP Deepwater Horizon oil spill)!** Canada seems to be able to invoke Socialism and still balance their budget, but they don't have open-ended government services as we in the U.S. do.


So, frankly, I don't know of a solution to this problem. I wish I did.


*White House Science Czar Says He Would Use ‘Free Market’ to ‘De-Develop the United States’ In a video interview this week, White House Office of Science and Technology Director John P. Holdren told CNSNews.com that he would use the “free market economy” to implement the “massive campaign” he advocated along with Paul Ehrlich to “de-develop the United States.”
http://www.cnsnews.com/news/article/51702 September 16, 2010


** http://stopcontinentaldrift.blogspot.com/2010/06/if-it-wasnt-so-tragic-it-would-be-funny.html