Giving Up on the Economic Recovery

The fight for recovery is over. The feds have waved the white flag. Maybe…

The Labor Department came out with the latest employment numbers last week. They were atrocious. Only about a fifth as many new jobs as economists expected. Which shows you three things.

First, economists can’t really predict levels of employment, growth, prices, or anything else. And they are especially bad at it when they have the wrong idea of how things work.

Second, the feds have failed. They have been completely unable to make any progress against the downturn.

Third, this is not a recovery. Widely reported in the media was the opinion that the employment numbers were ‘disappointing for the second year of a recovery.’ Well…yes. Because it’s not a recovery. It’s a Great Correction. And this is just what you’d expect.

For the last 4 years – since the beginning of the financial crisis in ’07 to today – economists, analysts, investors and policymakers have had the wrong idea. They thought they were dealing with an ordinary (though perhaps severe) recession, which they thought would be followed by an ordinary (though perhaps weak) recovery.

Not at all! It was not an ordinary post-war recession. So, the ordinary counter-cyclical policy measure – more credit! – didn’t work. This time, the economy already had too much credit. Which is to say, too much debt. It didn’t do any good to add more debt. Households were already drenched in it.

They couldn’t absorb any more. They couldn’t increase their spending by borrowing more money. So, spending couldn’t go up…

Instead, households are struggling to maintain their standards of living in the face of rising consumer prices and flat…or falling…incomes.

And now, the mainstream financial press is finally catching on. Heck, even the US Secretary of the Treasury, Tim Geithner, may be opening his eyes.

Yes, dear reader, Mr. Geithner appeared on Meet the Press over the weekend and surrendered. He told the world that Americans faced a tough economy and that it would “feel very hard, harder than anything they’ve experienced in their lifetime.”

He’s probably right about that. But we can’t help but wonder: how does he know? Until now, he has not had a clue. What happened? Did he see a burning bush on the road to Damascus? Did he get hit in the head by a rock? Has he come around to The Daily Reckoning point of view? Or is it a set-up?

After telling the world that he and his colleagues saved the world in the crisis of ’07-’09…and then, that their bailouts and subsidies would bring a recovery…Geithner seems to be admitting defeat.

Surely, if there were something he could do, he would do it, right? So, this must mean that Geithner and company have come to the same conclusion we have…that there is really nothing that can be done. They should back off and let nature take her course, right?

Don’t count on it, dear reader. Instead of learning something…that is, instead of admitting defeat, we suspect the feds are up to something. They’re preparing the public for the next election. They will tell voters that they face tough times; they will spend more money trying to turn the situation around. Then, any improvement, no matter how slight, will be regarded as a major triumph.

Here is the report on the latest unemployment numbers in The New York Times:

Fourteen million, in round numbers – that is how many Americans are now officially out of work.

Word came Friday from the Labor Department that, despite all the optimistic talk of an economic recovery, unemployment is going up, not down. The jobless rate rose to 9.2 percent in June.

What gives? And where, if anywhere, is the outrage?

The United States is in the grips of its gravest jobs crisis since Franklin D. Roosevelt was in the White House. Lose your job, and it will take roughly nine months to find a new one. That is off the charts. Many Americans have simply given up.

But unless you’re one of those unhappy 14 million, you might not even notice the problem. The budget deficit, not jobs, has been dominating the conversation in Washington. Unlike the hard-pressed in, say, Greece or Spain, the jobless in America seem, well, subdued. The old fire has gone out.

In some ways, this boils down to math, both economic and political. Yes, 9.2 percent of the American work force is unemployed – but 90.8 percent of it is working. To elected officials, the unemployed are a relatively small constituency. And with apologies to Karl Marx, the workers of the world, particularly the unemployed, are also no longer uniting.

The article goes on to cite – with apparent approval – the efforts of labor unions and President Roosevelt at combating unemployment during the ’30s.

Bill Bonner
for The Daily Reckoning