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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

October 2, 2009 at 10:40 AM

Welcome to the ‘new normal’ and President Obama owns it, fairly or not

Top of the News: We are seeing the “new normal” and it doesn’t look pretty. The latest national unemployment rate has risen to 9.8 percent and will probably go higher. Worse, few economists see it going down quickly.

As I reported earlier this week, two veteran economists at Rutgers have looked at the ailing labor market and concluded it will not recoup the jobs lost in this recession until late 2017. “The once great ‘American job creation machine’ fully expired in 2008. It was replaced by the ‘Great American Job Destruction Machine,’ ” wrote James Hughes and Joseph Seneca. Last year was the worst for absolute private-sector job losses since records began to be kept in 1939.

The new normal will include a ‘reduced scale’ financial sector; the end of easy credit; a consumer retrenchment that will “ripple through the economy”; “decelerating” house ownership, and a painful remaking of the commercial real-estate market. I would add: an unpredictable inflation picture, rising energy prices and China’s stunning recovery — or crash.

There will be unpredictable political consequences and instability all around. Never mind that much of the causes of the Great Recession were cooked up in the late Clinton and George W. Bush administrations. And never mind that the economic stimulus undoubtedly is preventing joblessness from being more serious. Many voters will remember the bailout of the banks (begun under Bush). They will ask the Ronald Reagan question: Are you better off today… President Obama will be tested as never before.

The Back Story: Americans who are shocked that Chicago was eliminated in the first round of Olympic judging are naive. Of course the games were going to Rio in 2016. Were we paying attention to the rise of the G-20 last month?

The Olympic committee has a long history of awarding games to nations as “coming out” parties, as happened with Tokyo in 1964 and Beijing in 2008. Economic power is shifting quickly to the east and to parts of South America, a process that has only been accelerated by the Great Recession. This is all part of what I call the Great Disruption.

America may face real decline or relative decline. The crash exposed a deindustrialized economy ever more dependent on bubbles and a financial sector making money off of derivatives that down a long chain of transactions might once have been connected to real economic activity. This should be one more in a long string of wakeup calls.

Today’s Econ Haiku:

Would it be cheesy

To say that Copenhagen

Snuffed Chicago’s dream?

Comments | More in Bailout, Consumer spending, Inflation

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