[Marxism] About That Recovery

[Marv Gandall]

Artesian writes:

> Careful readers will note that BEA is now comparing quarter-over-quarter
> and omitting entirely year-on-year comparisons.  So the good news 2Q GDP
> is down by an annualized rate of only 1 percent from the 1Q.  Of course,
> 1Q GDP declined at an annualized rate of 6.4 percent, so I believe the
> light at the end of the tunnel is a little bit further away then one might
> think.
=============================
Especially for US wage and salary earners, many of whom will never
experience any recovery:

The Great Recession: A Downturn Sized Up
Unemployment Lines Have Been Long Before, but No Prior Slump Since World War
II Has Hurt So Much on So Many Fronts
By JUSTIN LAHART
Wall Street Journal
July 28 2009

What makes the current recession so bad? Other downturns have been more
painful by some measures, but none since World War II has delivered so many
severe blows to the economy at the same time.

Already it is the longest. The nonprofit National Bureau of Economic
Research, which determines when the U.S. economy slips into recession, says
the downturn began in December 2007, 19 months ago. That makes it longer
than the wrenching, 16-month recessions of 1973-75 and 1981-82.

The unemployment rate is approaching the peak seen in the 1981-82 recession
and the scope of job losses is the worst since the 1948-49 recession. The
decline in gross domestic product is the deepest since the 1957-58 downturn,
and Americans haven't seen so much of their wealth evaporate since the Great
Depression.

The NBER defines a recession as "a significant decline in economic activity
spread across the economy, lasting more than a few months." Among the gauges
the organization watches are GDP and employment, as well as income, sales
and industrial output. Even if the current recession is, as many economists
believe, at or near its end, it looks worse than its postwar predecessors.

With a dwindling number of people who remember the Great Depression, the
1981-82 recession is many Americans' h igh-water mark for economic pain. To
tame the era's rampant inflation, the Federal Reserve pushed short-term
interest rates above 20%, slamming the brakes on the economy. Millions lost
their jobs, lifting the jobless rate to 10.8%.

Last month, the unemployment rate hit 9.5%. But most economists forecast it
will keep climbing even after the recession ends because businesses will
remain cautious about hiring. Making matters worse, the economy needs to add
some 100,000 jobs a month to keep pace with population growth.

While the unemployment rate isn't yet as high as in the early 1980s, the job
losses associated with this recession already have been deeper because the
downturn started with a lower unemployment rate than in the 1981-82 slump.
Last month, there were 6.7 million fewer Americans working than in December
2007, when employment peaked -- a 4.7% decline, compared with 3.1% in
1981-82.

"In terms of employment, we're now way past 1982 and we're just about to
cross the worst postwar recession, which was 1948," says Stanford University
economist Bob Hall, who heads the NBER's recession-dating group.

In 1948, the demand that built up during World War II rationing programs had
been sated. Companies, left holding more inventory than they could sell,
throttled back production and laid off workers. The recession that began
that year pushed payrolls down by 5.2%. Jobs recovered quickly, however,
after the excess inventory was cleared away.

In contrast, the past two recessions, in 1990-91 and in 2001, saw payrolls
decline long after the economy began recovering. That lagging drop is a
shift in the way jobs respond to downturns that economists worry will
continue.

Recent downturns have also been less abrupt, in part because the
manufacturing sector, which responds to trouble by slashing production, is
no longer as large a part of the economy. The declines in GDP -- the value
of all goods and services produced -- associated with the 1990-91 and 2001
recessions were slight.

That makes this recession's decline in GDP striking. Through the first
quarter, GDP was down 3.1% from the peak it reached last year. The only
post-World War II recession more severe was in 1958, when the U.S. was a
manufacturing powerhouse. After consumer spending cooled in response to Fed
rate increases, manufacturers ratcheted back, sending GDP down 3.7%. But the
Fed cut rates, and the economy recovered quickly, making the downturn one of
the briefest ever.

"A normal postwar recession ends when the Fed thinks it's done enough to
fight inflation," says Brad DeLong, an economic historian at the University
of California, Berkeley.

But this downturn was set off by a housing and credit collapse, making Fed
rate cuts less effective in spurring growth. Economists believe Friday's GDP
report will show the economy contracted again in the second quarter and
that, in combination with downward government data revisions, could make
this recession's GDP drop even larger than 1958's.

The good news: This recession's drop in household income hasn't been nearly
as severe as one of its predecessors. That is partly because many states
have extended unemployment benefits. It also is because workers haven't seen
their earning power eaten up by rising prices.

That wasn't the case in the recession that stretched from 1973 to 1975, when
food and energy costs jumped. Adjusting for inflation, U.S. household income
fell 5.3% during that period. In the current recession, it has fallen by 3%.

But this recession has eaten away at Americans' wealth like never before.
Falling home prices have decreased the equity the U.S. households have in
their homes -- that is, the value of their homes minus what they owe on
them -- by $5.1 trillion, a 41% drop. They also have lost trillions of
dollars in the stock market. No other episode of wealth destruction since
the 1930s comes close.

As households work to rebuild the stores of wealth they lost, they spend
less. Although spending has recovered a bit, it is still an
inflation-adjusted 1.9% below its peak 2008 levels.

Only two other downturns have had comparable spending drops. In the 1953-54
recession, when Congress added to the Fed's inflation-fighting efforts by
extending an unpopular tax on corporate profits, spending fell by as much as
3.3%. That drop was matched in 1980, after President Jimmy Carter, in an
attempt to rein in inflation, persuaded the Fed to introduce stringent
controls on the use of credit.

Reversing those policies, and getting spending moving again, was relatively
easy. But reversing the drop in wealth isn't. That means that tepid consumer
spending could be a drag on the economy for years to come.