Recovery Now

In mid-March on “60 Minutes” Ben Bernanke, Chairman of the Federal Reserve, stated that he detected “green shoots” suggesting a bottom to this recession in late 2009 and a recovery in early 2010. Convince people that the recession is over and you can deny them a chance for the change they can believe in.

This recession is about changing the system and reestablishing worker rights to the American dream. The pretense of a quick end to the recession is meant to deny them that.

Bernanke’s call for an end to the recession was supported by several additional “green shoots,” in particular, the slowing rate of job loss and reported profits in the banking industry. Despite the fact that these were phony statistics, a consensus quickly formed around a recovery in 2010.

What does that old warning say: “past performance is no guarantee of future results.” Well, the consensus, those who buy and pay for the news and the pundits, are projecting future results on the basis of past performance – and present hopes.

The average recession lasted 11 months and this one is already 18 months old. So it must be about to end! These are the same people who convinced your pension fund that it was safe to buy that mortgage because housing values have always gone up therefore they will always go up.

A 2010 recovery is a similar produced hallucination. Numbers by themselves mean nothing. They have to be part of an analytical model that explains why things happen. So why do recessions end? They end when people and businesses have the money to start spending and investing again. That is not happening.

In a structural recession, such as this one, consumption, investment and therefore employment go down because some groups don’t have the money to keep spending.

The recovery from a structural recession is generated not by monetary policy and action by the Fed but by an increase in spending on consumption or investment. Government usually primes the economy with a stimulus package of spending measures. We call this process Keynesianism.

America has a large economy and it is in a real, structural, Keynesian-type recession. A GDP of $14.5 trillion has slipped to $14 trillion. The civilian labor force of 154 million has 13.7 million now unemployed. Industrial production is now 69.3 percent of capacity, the lowest since 1967 when data were first kept. Personal consumption decreased 4.3 percent in the fourth quarter while non-residential investment decreased by 21.7 percent.

It took us 30 years of depressed wages and ever-growing debt to create this mess. We’re not going to get over it in 18 months. It just serves the purpose of the powerful to have us believe we will. The claim that “prosperity is just around the corner” is a deliberate do-nothing argument.

Our most basic economic problem is that the system is stacked against paycheck people. There will be no real recovery until we find a way to reestablish the income and wealth of the middle class. That will not happen so long as all the sources of money for consumers as well as businesses are drying up.

Wages have been stagnant since 1980 and now they are dropping. Real wages went down in April when the “increase” in average hourly earnings was less than the rate of inflation.

Increases in wealth could lead to increased consumer spending. Unfortunately household wealth dropped by $13 trillion since 2007, causing a drop in spending of $650 billion.

Investment spending could also help but is facing the same kind of pressure. Banks are deleveraging big-time and financing channels are still frozen.

Exports could also create American jobs and pull us out of this. The IMF projects the first global decrease in output since the Second World War and Europe and East Asia are in worse shape than the United States. We can expect no rescuing surge from export demand.

And it looks like American consumers are finally ending their debt binge. The recent increase of the savings rate from zero to 4 percent will decrease spending by an additional $284 billion each year.

There is simply no credible source of increased aggregate demand except the federal government and it has already taken its shot. The stimulus package of $780 billion, even with the multiplier of 1.2, is not enough to make up the gap.

The Bernanke-led consensus holds that the very busy Obama economic team got the stimulus right and that the Summers-Geithner team is stumbling toward a solution of the financial crisis. Then we won’t have to strengthen the workers with the Employee Free Choice Act nor will we have to re-regulate the financial sector.

At least that is what the recovery-now power brokers hope.