Goldman Sachs has increased its odds of a double-dip recession to 25 percent. Mark Zandi of Moody’s Economy.com sees a 1-in-3 chance, vs. 1-in-5 just a few weeks ago. Short of an outright financial panic, however, a double-dip might look much like the “recovery” to millions of Americans. The Bush and Obama administrations, along with the Federal Reserve, committed trillions to save the financial sector that caused the disaster. The Obama stimulus, while averting an outright depression, was never enough to make up for the lost output from the crash, nor was it targeted enough to job-creating infrastructure investments for the future.
The “recovery” was an increase in GDP that never translated into much new hiring. The vast overhang of debt and bad bets from the bubble are still holding back real recovery. So are fifty fiscal crises in the states and thousands in local governments. Many companies laid off workers because of the recession; some used it as an excuse for radical downsizing. Even though corporate America is sitting on large amounts of cash, it’s not hiring, whether because of uncertainty, low demand from frightened consumers, antipathy to the Obama administration — or a new business model of fewer workers, more offshoring, etc. The old housing Ponzi scheme lies in ruins. We’re a poorer country after this binge, and unemployment is the worst in decades.
So here we are. As anyone who has ridden a roller-coaster knows, it takes a real rise to lead to a dip.
Unlike any time since World War II, the economy faces deep structural problems that prevent it from recovering. Extending the Bush tax cuts won’t help — job creation was anemic during their time, even with the boost of the bubble. Capitalists invested more in Wall Street gambles and offshore ventures than job-creating American enterprise. Whether letting them expire will cause even more capital flight is an open question. The social compact has been shattered even beyond its fractures of the 1980s and 1990s. Meanwhile, the government is burdened with two wars and a raft of corporate welfare, the political system is paralyzed — so forget New Deal 2.0.
Given all this, it’s not surprising that the “recovery” is losing momentum, even without a genuine double-dip. It could start to slide further. Or, it could encounter yet another Black Swan shock… It’s going to be an “interesting” fall.
Today’s Econ Haiku:
Hey look over here!
A new TV distraction
When jobs are the news