Why We're Falling Into A Double Dip Recession

Why We’re Falling Into a Double-Dip Recession
FRIDAY, JUNE 4, 2010
We’re falling into a double-dip recession.

The Labor Department reports this morning that the private sector added a measly 41,000 net new jobs in May. (The vast bulk of new jobs in May were temporary government Census workers.) But at least 100,000 new jobs are needed every month just to keep up with population growth.

In other words, the labor market continues to deteriorate.

The average length of unemployment continues to rise – now up to 34.4 weeks (up from 33 weeks in April). That’s another record.

More Americans are too discouraged to look for a job than last year at this time (1.1 million in May, an increase of 291,000 from a year earlier.)

Of the small number of jobs created by the private sector in May, many came from temporary help services.

Which is one reason why the median wage continues to drop.

Why are we having such a hard time getting free of the Great Recession? Because consumers, who constitute 70 percent of the economy, don’t have the dough. They can’t any longer treat their homes as ATMs, as they did before the Great Recession.

Businesses won’t rehire if there’s not enough demand for their goods and services.

The only reason the economy isn’t in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can’t continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories). Oh, and, yes, all those Census workers (who will be out on their ears in a month or so).

But all these boosts will end soon. Then we’re in the dip.

Retail sales are already down.

So what’s the answer? In the short term, more stimulus – especially extended unemployment benefits and aid to state and local governments that are whacking schools and social services because they can’t run deficits.

But the deficit crazies in the Senate, who can’t seem to differentiate between short-term stimulus (necessary) and long-term debt (bad) last week shot it down.

In the longer term, we need a new New Deal that will bolster America’s floundering middle class.

Most prior recessions were caused by the Fed over-shooting in trying to control inflation by raising interest rates too high. So the garden-variety recession could be reversed by the Fed reversing itself and lowering rates. But the Great Recession was caused by the bursting of a huge housing bubble. And that can’t be reversed without a major restructuring of the economy because housing prices won’t be back to where they were — and won’t be rising above that peak — for years.

We have to get to the core problem: a middle class that doesn’t have the dough to buy the goods and services the economy is capable of produciing. Where to start? Expand the Earned Income Tax Credit and extend it up through the middle class. Finance that extension through higher marginal income taxes on the wealthy, who have never had it so good.

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Why We're Falling Into a Double-Dip Recession
We’re falling into a double-dip recession.

The Labor Department reports this morning that the private sector added a measly 41,000 net new jobs in May. (The vast bulk of new jobs in May were temporary government Census workers.) But at least 100,000 new jobs are needed every month just to keep up with population growth.

In other words, the labor market continues to deteriorate.

The average length of unemployment continues to rise – now up to 34.4 weeks (up from 33 weeks in April). That’s another record.

More Americans are too discouraged to look for a job than last year at this time (1.1 million in May, an increase of 291,000 from a year earlier.) READ FULL
Why Obama Should Put BP Under Temporary Receivership
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If the government can take over giant global insurer AIG and the auto giant General Motors and replace their CEOs, in order to keep them financially solvent, it should be able to put BP’s north American operations into temporary receivership in order to stop one of the worst environmental disasters in U.S. history.

The Obama administration keeps saying BP is in charge because BP has the equipment and expertise necessary to do what’s necessary. But under temporary receivership, BP would continue to have the equipment and expertise. The only difference: the firm would unambiguously be working in the public’s interest. As it is now, BP continues to be responsible primarily to its shareholders, not to the American public. As a result, the public continues to worry that a private for-profit corporation is responsible for stopping a public tragedy. READ FULL
BP Stands for Bad Petroleum
Saturday the White House warned BP that it expects the oil giant to pay all damages associated with the disastrous oil leak into the Gulf of Mexico, even if the costs exceed the $75 million liability cap under federal law. BP responded Sunday saying its public statements are “absolutely consistent” with the Administration’s request. READ FULL
Apple Isn't the Problem. Wall Street's Big Banks are the Problem.
Why is the Federal Trade Commission threatening Apple with a possible lawsuit for abusing its economic power, but not even raising an eyebrow about the huge and growing economic (and political) muscle of JP Morgan Chase or any of the other four remaining giant banks on Wall Street? READ FULL
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