http://www.ritholtz.com/blog/2010/07/the-u-s-economys-lost-decade/
We remember the events that occurred on 9-11-01 a whole lot better than we remember the events which occurred as we celebrated the arrival of a new millenium. The calendar is just a measurement of time in our culture, marking the time since God sent his son, Jesus, as the savior of the world. Actually, as a measurement of that particular event, the inaccuracies of what was, at the time, unknown, mean that it is about four years off from where it actually should be. Nevertheless, the world celebrated the changing of the first numeral in the sequence of four from a 1 to a 2 in a way that was intended to be unmatched in history, though most people had no idea that they were keeping track of the amount of time that has passed since the birth of Jesus.
It was quite a happy time in America, at least it was by the way Americans measure happiness. The economy was expanding and growing, the stock market was increasing in value, and unemployment had reached a level that most economists consider to be “full employment,” with only the chronically unemployable not working. Job growth neared 40% for the decade, the federal budget was balanced, and the revenue coming in was actually paying off the nation’s indebtedness. The middle class was prosperous, the business community was making money, and personal net worth increased by 58% during the previous decade, most of that since 1992.
Just a decade later, the picture was quite different. The country was in its worst recession since the Great Depression, it had mounted up a trillion dollar debt through deficit spending and was mired down in two wars, one without a discernable purpose. Unemployment was headed toward the 10% mark, and total job growth for the decade came to zero, with average net worth declining by 4%, the only time that’s happened since the Great Depression. Jobs began migrating to the developing, third world countries. Mortgage foreclosures began accelerating in 2006, the stock market lost nearly half of its value and a good part of an entire generation of Americans found themselves without the secure retirement they had planned and saved to have during their working years. A larger share of the country’s wealth found its way into fewer people’s pockets.
During that decade of the 2000′s, taxes were cut, the corporate tax rate was slashed, government subsidies were increased, and the economic policy that was reflected in the predominant presidential administration of the decade is the same sort of stuff that is being advocated now as the solution to the problem. Taxes and the financial obligations of business were cut in order to help them increase profits and, in theory, have the means to hire more workers. Many of them did just that, as their profits increased. They hired a lot of new employees, on the cheap, in India and the Far East, or Mexico and Latin America where wages are low, benefits are unheard of and working conditions are deplorable. The tax cuts created budget shortages for the government that were made worse by declining revenue due to exploding unemployment.
So here we are, heading toward the presidential election in 2012, with all sorts of ideas floating around about how to fix the economy, all of which were done during the previous decade, and which didn’t work then. So what makes you think these things will work now? Less government always sounds great. The problem is that when there is less government, there is an imbalance of power, which is directly related to wealth. When government does nothing, power sucks the resources and the life out of people. It becomes greedy and impatient, and it is those who don’t have large accumulations of wealth who suffer by having what is left of theirs taken away either by being cheated out of the value of their labor in their paycheck, or by having to pay unreasonably high prices for the necessities of life, like food and health care.
Economic reform is most definitely called for in this situation. The kind of reform that is needed is the out of the box, non traditional kind of thinking that Franklin Delano Roosevelt is known for. Now please hear me here. I’m not saying that we need the same reforms that Roosevelt initiated. But we need the same kind of reform, the sort of thing that is formulated when there is something that needs to be addressed, and the way we have addressed things in the past just doesn’t solve the problem.
What we have received, in terms of the solutions to the problems created by the current recession, are some band-aids to patch the biggest wounds, but no real care for the root cause of the problem. There was the “stimulus package,” which one side of extremely partsian politics says “failed,” but which, in reality, probably prevented the unemployment rate from soaring to 15%. There were two bank bailouts, one initiated by Bush in the latter part of his term, one initiated by President Obama at the beginning of his. Both were roundly criticized by pundits from the opposite side of the political spectrum, though both were similar in their aim and purpose. So far, as a result of this, no major banks have failed, dragging the rest of the economy down with them. Though several of the big banks continued with the extravagant spending policies that got them in trouble in the first place, the infusion of cash did indeed stop the economic bleeding and stabilize the banking system, at least temporarily.
Now we have a modest jobs bill put before Congress. It will, if passed, stimulate job growth, at least temporarily. In the view of the current President, hopefully long enough to get the numbers up just high enough to insure his re-election. In the view of the Republicans, not unless they can take some credit for passing it. For our elected officials, everything becomes an angle to get votes. It is ironic, isn’t it? In a democratic republic where government is “of, by and for the people,” the interest in getting elected to office takes precedence over the needs of the people to the point where some politicians insist the government has no business protecting the very people who give it its reason for existing. But I digress.
In these proposals there is no long term solution to the economic problems that have created the recession we are in. The hope is that somehow, the economy will kick into gear and that this package will temporarily put some people back to work in the meantime. It is unemployment that is still the lingering political problem for the politicians. Corporate profits, the value of the stock market, and other major economic indicators are all in good shape, and have recovered quite well. Only the jobs have lagged behind. But that’s where people hang their hat, and apparently, their vote.
What kind of economic reform is needed to turn this economy around and get it back to the point where it was a benefit to all Americans who wanted to work and were willing to put the effort into a job in order to earn a living? What will it take to get back to those heady days of the 1990′s when the economy was roaring, everyone was working, there were plenty of high paying jobs to go around and then some, and the debt was being paid down?
Please wait a couple of days, and I will post Part II.
