Okay, okay. I'm giving in to my throngs of admirers who are constantly asking for my personal thoughts on all things political, economic, or financial. All zero of you. I've decided to start a feature on our blog called
The Ramble that will pop up whenever I decide I've got something to say. I tried to let this blog be a safe place where you could just hear about our family, but I just can't help myself. So, now you've all been given fair warning, and you're free to avoid
The Ramble guilt-free. I promise it won't hurt my feelings. If you do read, though, I always love to hear comments! Alright, let's get on with it; here's the first edition of
The Ramble:
Today, I just wanted to throw out a scatter-shot of thoughts revolving around the current state of the world. As everyone knows, the U.S. economy is pretty much a mess right now. There are a lot of scary stats out there that demonstrate just how bad things are (e.g. take a look at stocks from this past week), but for me I tend to focus on employment because jobs are at the core of every economy.
Here's one that I saw the other day that shows that the length of unemployment for the average unemployed worker is currently double the next highest peak ON RECORD. Here's another one (
source) that shows that employment is going to take a long, long time to recover, as compared to past recessions:
When I see charts like these, I have to think that this is not a normal recession. "Well, duh," you're thinking, "I don't need a Ph.D. to know that." Okay, so this obviously isn't normal. But a key point is that this isn't just a recession on steroids, either. I tend to agree with
Ken Rogoff (a really smart macroeconomist) who is arguing that we should be calling this the "Great Contraction," not the "Great Recession." You really should read his article that I've linked to, but if you're not going to, the gist is that a recession is just a temporary slow-down in employment and production but a contraction happens when whole countries get over-indebted. When I say "whole countries," I mean just that: the people, the businesses, and the government itself. Unraveling all of that debt is a slow process, so it takes much longer for the economy to bounce back than in a typical recession. The last Great Contraction was--you guessed it--the Great Depression. And while we're far from Great-Depression bad, things aren't looking too good either.
Why does this distinction matter? Because understanding what the problem is can lead to much better solutions. You might think you have really bad heartburn, but if you really have gallstones, all of those antacids aren't going to help much. Similarly, if you treat a contraction with recession medicine, you're not going to get the expected results. For this reason, the Fed and the Government have been consistently surprised at how slowly the recovery is developing. They have been expecting their medicine to take instant effect, when in reality they're not treating the right problem. We need to do something to reduce the total amount of debt in the economy much more than we need stimulus or quantitative easing.
Anyway, my real point in all of this is that we should all expect the economy to recover very slowly. There's no way around it, really. Paying back the huge amount of debt that we accumulated over the past 10 years is going to take a while, and until we're out from underneath that overhang we're not going to see strong growth in the economy. And remember, when I say we, I really do mean all of us. Regular consumers have way too much debt, along with many business and the government. The good news is that both businesses and consumers are taking steps in the right direction: saving is way up, and debt is way down since 2007.
The bad news, of course, is that the government appears set on incurring more debt. Now, before I berate Congress and Obama, let me say this very clearly: we all love sticking the blame on the government, and we usually go too far. To be honest, the government (especially the President) doesn't have as much influence over the economy as most people think. In addition, remember that we are the ones that voted them in!
That being said, I'd really like to strangle most of the members of Congress for screwing up the debt ceiling deal so badly. Not raising the debt ceiling would have been both idiotic and catastrophic, making it a "must-pass" bill. Since it was apparent that the bill had to pass, I think that most of the world thought that Congress would be able to use this opportunity to really set a long-term plan that would reduce the deficit in conjunction with raising the debt limit. Instead, what do they do? Wait until the very last minute, and then pass a bill that is so vague and limited that it's unclear whether it will actually have any effect all on the deficit. And over the past couple of weeks we've seen the results: the first downgrade of US debt ever, and stock markets are down nearly 12%. Okay, so some of the market crash is a result of the disaster called Europe as well. But still, it's frustrating that they wasted such a great opportunity, and cost us billions of dollars in the process.
Okay, so here are the takeaways from today's Ramble:
- It's going to take us a while longer yet to really start to recovery economically, so plan accordingly.
- Reducing the deficit needs to happen, and we need a credible plan soon. We have three options: (1) Raise taxes, (2) Cut spending, (3) Have high inflation. I would prefer a mix of all three in moderate amounts, in all honesty. But what matters the most is that it happens, not how it happens.
- We need to vote out the ideologues in Congress who were unwilling to compromise to get a better deal done. By refusing to compromise they may have gained a bit of political ground, but they hurt the entire country in the process. I'm looking at you, Tea Party. Please leave.
What do you think? Are we in for a double-dip recession? Is the U.S. deficit a problem? Is the Tea Party really to blame? Let me know in the comments.
