Return to "Recession"? Compared to What?

The news today quotes several leading economists predicting a "return to recession."  When I hear pronouncements of that sort I'm reminded of one of the greatest soul/jazz tunes, "Compared to What" by Les McCann and Eddie Harris.  And it turns out that the original video of the 1969 Montreux concert is now available on YouTube!  I'd not seen it before.

The lyrics, piano, sax, rhythm section, total groove, and message from preacher McCann are still fresh after all this time. 

The President, he's got his war
Folks don't know just what it's for
Nobody gives us rhyme or reason
Have one doubt, they call it treason
We're chicken-feathers, all without one nut. God damn it!
Tryin' to make it real compared to what?

We'll have this recession thing fixed in no time!

The day after I stood cheering with a million and a half people standing in the Mall at Obama's inauguration, I walked to Capitol Hill to visit an old friend, a staff person for a Congressional committee.  "What do you think of Obama's prospects?" I asked.

"I think he's got a lot going for him," the fellow replied, "but his economic team -- Geithner, Bernanke, and Summers -- is very bad news.  They're full of the worst kind of advice for getting the country out of the recession." 

And so it was and so it continues.  At the beginning of his presidency I wondered why Obama's inner circle did not include the likes of Robert Reich or Joseph Stiglitz.  The answer is obvious.  Their advice would have questioned plain vanilla neo-liberalism (aka free market conservatism) that the administration has followed so slavishly, right to the point of "double dip," lost decade or worse.

Here are some of Stiglitz's latest thoughts on our predicament.

"Throughout the crisis – and before it – Keynesian economists provided a coherent interpretation of events. Pre-crisis, America, and to a large extent the world economy, was sustained by a bubble. The breaking of the bubble has left a legacy of excess leverage and real estate. Consumption will therefore remain weak and austerity on both sides of the Atlantic now ensures the state will not fill the void. Given this, it is not surprising that companies are unwilling to invest – even those that can get access to capital.  
When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan’s long malaise. Now we know we didn’t learn a thing. Our stimulus was too weak, too short and not well designed. The banks weren’t forced to return to lending. Our leaders tried papering over the economy’s weaknesses – perhaps out of fear that if we were honest about them, already fragile confidence would erode. But that was a gamble we have now lost. Now the scale of the problem is apparent, a new confidence has emerged: confidence that matters will get worse, whatever action we take. A long malaise now seems like the optimistic scenario."

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I'm not an economist or presidential adviser.  But I do talk with lots of college students and parents who still expect their will be good, high paying jobs at the end of the pipeline, especially the STEM pipeline: Science, Technology, Engineering and Math -- the golden pathway to ...?

What should I tell them now?

The End of Growth -- Has Economic Policy Become a Cargo Cult?

To an increasing extent, today's discussions of economics and public policy resemble the cargo cults  on Pacific islands of the 19th and 20th centuries. After their encounters with travelers from Europe and the U.S., some islanders decided that the material wealth displayed by the visitors was destined to come to them, a blessing guaranteed by their ancient ancestors.  Hence, they built rough wooden models  of ships and, later, airplanes, engaging in elaborate rituals as ways to attract the shower of prosperity that they hoped would come their way.

Among today's economic policy experts, our equivalents of voodoo doctors, there are basically two cults with differing sets of ritual incantations and practices.

On one side we have those who believe that the problem is excessive government "spending" and the spiraling levels of debt the nation has piled up over the years.  Members of this cult demand austerity achieved by slashing federal and state budgets and, of course, by lowering taxes, especially on the "job creators," their equivalent of the beloved but now woefully absent ancestors revered by the cargo cults.

On the other side are those who believe that the basic problem is insufficient "demand" caused by both long and short term developments -- outsourcing of jobs, the housing bubble, foreclosure, job loss, etc.  Priests of this cult insist the renewed prosperity will arrive when government takes steps to pump more money in the economy, creating new jobs and boosting demand for goods and services.

What the two cults share is the view that mana from heaven -- economic GROWTH -- is just around the corner.  With just the right collection of chants, ceremonies and talismans and just enough financial inducement thrown to the most worthy (or needy) members of the tribe, the good times will surely return.  All hail to BIG MAGIC!

Faced with these arguments and programs, my normal preference is usually to side with those who seek to boost the economy by enlarging government programs that might help the poor, unemployed, students, small business.  At the same time, I am more and more haunted by the thought that the diagnoses and remedies of both sides are fundamentally flawed.  What if "growth" has finally become a chimera for modern technological society?

The publication of Richard Heinberg's book, The End of Growth, comes at an appropriate moment.  In the U.S.,  European Union and around the world, the anemic "recovery" following the economic crash of 2007-08 has begun to sputter.  A "double dip recession" or worse may be at hand as the nostrums and hand-waving of both major schools of economic seem impotent to turn things around.  Heinberg's book raises many crucial questions and offers a strong set of arguments backed by impressive evidence.  "Economists insist that recovery is at hand, yet unemployment remains high, real estate values continue to sink, and governments stagger under record deficits. The End of Growth proposes a startling diagnosis: humanity has reached a fundamental turning point in its economic history." 
(from the Heinberg's Post Carbon Institute web page)

The book identifies indelible limits to growth in resource depletion (especially petroleum), environmental impacts (especially climate change) and "crushing levels of debt."  Heinberg ponders the consequences of this nightmare and speculates about new economies and ways of living that could emerge from the wreckage. 

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Update:   This page contains a cartoon video with Richard Heinberg's commentary summarizing some of the book's basic themes.  Watch until the very end to see container cargo ships sailing off the edge of a Friedman-esque "flat" world.