Recession is NOT over: "Hard Times on Long Island"

 

As an Economist, I have been *insisting* that the "Recession" has not ended. Government practice is to claim that a Recession is taking place when Gross Domestic Product ("GDP"), the summed value of all goods and services created in a society's economy, falls for two quarters in a row.  Since the GDP appears to be growing at a paltry1% - 3%, they claim the recession is 'over.'

Unfortunately, the purely number-based approach to calculating GDP ignores the distribution of that growth (Is Goldman Sachs selling 5% more investment instruments, while more Americans lose jobs?), as well as the quality of that growth ($1 million dollars worth of new military hardware is considered 'better' than only a half million dollars worth of new health care provided).  The pure numbers ignore what is happening 'here on the ground.'  And while gigantic financial firms got bailed out with tax dollars from the Federal Government for risky and unethical practices, these same firms are foreclosing on American's homes at unprecedented rates (I always thought that if the Feds were going to 'give' money to banks, it should have been *required8 that all funds be used to pay up all overdue mortgages, thus saving a crumbling middle class while still infusing cash into the banking system).

Finally, a documentary by Blowback Productions, puts a "Human Face" on the suggestion that the recession is over by chronicling the lives of four families from my old stomping grounds: Long Island, New York. Due to air on HBO this Monday (July 9), Blowback issued the following promotional piece:

"The Great Recession "officially" ended in the summer of 2009, but for 25 million unemployed and underemployed Americans the fallout continues. For too many, their middle-class life has been foreclosed and their dreams have turned into nightmares. Sadly, their stories have too often been ignored. In a strange way they have been “disappeared,” evicted from our collective conscience – a permanent new underclass of long-term unemployed.

Located on Long Island, the birthplace of the post-war suburban American Dream, this documentary follows the story of the long-term unemployed and the shrinking of the middle class by chronicling the lives of four families. Starting in the Summer of 2010, which was supposed to be the summer of recovery, and continuing through the holiday season six months later, we witness the growing difficulties and despair as these people search in vain for employment while their plight and pain are too often invisible to the political and media elite.

This film hopes to remind us of their humanity and restore respect and dignity to their struggle.

Monday July 9th @ 9 PM Eastern on HBO "

.

Mitt Romney: Bind US Spending to Foreign Corporate Investment

Mitt Romney, who prides himself on being the candidate with ‘business’ experience, has proposed some fiscal measures which evidence a decided lack of serious economic analysis.

In advertisements that have been running non-stop here in New Hampshire, Romney presents his three-point plan to reign in federal spending. In the ads, he proposes,

“…capping federal spending as a percentage of GDP at 20% or less…”

There are any number of issues Mitt is going to have to explain with this “plan.” He can start with any of these:

1) GDP, or Gross Domestic Product, is the value of all the goods and services produced within a society. In the United States, current annual GDP is approximately $14 Trillion dollars annually. With federal spending capped at 20% of this number, that would result in an annual federal budget of 2.8 Trillion dollars. The Fiscal Year 2010 budget is 3.45 Trillion, so Romney’s plan would require cutting spending by 650 Billion dollars.

To provide a sense of this proposal, the entire amount of Social Security payments made to retirees annually is 701 Billion. The total amount of “Discretionary Spending” (spending that excludes social security, medicare, interest, defense, and other ‘mandatory’ payments) is 660 Billion. If Mitt is not proposing cutting off social security or eliminating the military, it would appear that he is proposing an elimination of all discretionary spending whatsoever: Bridge Rehabilitation on Interstates, Superfund Cleanups of Toxic Waste sites, Food & Drug Administration approvals of cutting-edge pharmaceuticals, Coast Guard operations, Community Block Grants for Economic Development, Jobs Trainings Initiatives, and hundreds of other federally-designated programs. EVERYTHING.

2) By basing spending on GDP, his proposal means that the budget will always be out-of-synch with reality. The Budget for the future fiscal year is voted on during the current year, and it will be based on figures from the past year's GDP (which would still be in revision), resulting a two year ‘mis-match’ of GDP and spending authorizations.

3) By capping spending to a percent of GDP, Romney opens up the country to sudden, unexpected budget shocks since GDP is calculated after each quarter, but then revised in subsequent quarters.

For instance, on November 22 of this year, economists in Washington revised the third-quarter (July-August-September) GDP downward to a growth of 2% from their previous report of 2.5%. While a change in .5% may not sound like much, a .5% change in a 14 Trillion dollar GDP is a difference of 70 Billion Dollars in GDP. Under Romney’s plan, such a revision would result in the sudden elimination of 14 Billion in spending from the Federal Budget. For comparison purposes, that is greater than the entire annual budgets of the Departments of the Treasury, Commerce, Interior, and Environmental Protection.

4) Lastly, and perhaps most important, is the fact that Romney’s plan would make American Government expenditures dependent on the activities of foreign companies operating in the United States.

The GDP figure is obtained by adding up the value of all goods and services created in the US. It does not matter whether the goods produced are made by American or foreign companies, as long as they create the products on US soil. Currently, 3.2 Trillion dollars of our 14 Trillion GDP is derived from foreign companies doing business on US soil.

In other words, 22% of our total GDP comes from these firms. It also means, that under Romney’s plan, 22% of the American Government’s spending would depend on continuing product development by companies from foreign nations located in the US. That amounts to 760 Billion dollars of American spending being dependent on the level of foreign investment.

Again, for comparison purposes, that amount is the equivalent of our entire Defense Budget.

A curious proposal, coming from the candidate who has so willingly rattled sabers with Iran.


.

GDP up 3.5%? Obama's Hollow Cheerleading....

Apparently, we're supposed to pop the champagne corks and celebrate: GDP is up 3.5%, the recession is over, and the Recovery has begun. At least that's what the prObama Media outlets and White House are telling us.

My ECO 101 students could do a better job analyzing that statistic than most of the talking heads currently reporting it.

GDP (Gross Domestic Product) is a measure of all the goods and services created within a society's economy. Due to the work of noted Economist Arthur Okun, we know that GDP and Employment move in the same direction: when Employment increases, GDP increases, and vice versa. After four or five quarters of negative GDP, an increase of 3.5% would normally be a welcome sign. Except in this case, the figure is highly deceptive and manipulated, for the following reasons:

1) While GDP increased 3.5%, Consumer Spending - purchases by you and me - decreased by .5% AGAIN. In other words, the increase in purchases of goods and services did NOT come from "the people." Our spending fell. Rather, this spending came from the Federal Government as it purchased flashy orange signs to erect around the country proclaiming that our tax dollars were at work.

2) This additional spending was a one-time shot in the arm by the government. Does the White House and Congress expect to authorize 787 Billion every quarter to keep that up? Much of the increase in spending was in the "Cash for Clunkers" Program....which is now over, and which did not create a single job anywhere.

3) The White House claims that One Million jobs were saved or created through the stimulus. Since the stimulus was 787 Billion, that amounts to $787,000 tax dollars (not including future interest) spent per job. I would rate that as a FAILED effort.

4) The White House also claims that most of these jobs were in Construction and Education. How Convenient...construction jobs are considered highly seasonal, and when these workers lose their jobs in the winter, they are often excluded from the unemployment figures, which are usually presented as "seasonally adjusted unemployment" figures. The White House is now *counting* these jobs when they are created to credit the Stimulus Package, but you can bet these job losses will be *excluded* when the winter unemployment figures are released because they will be 'seasonally adjusted.'

5) Education, while important, doesn't create products or jobs. Saving jobs in education may ingratiate Obama to teacher's unions, but this sector does not create products or create wealth in the economy as other sectors do. It is no surprise that while GDP increased, Unemployment increased to 9.8%, and most economists expect it to hit double-digits this month - a month when pre-Christmas hiring would normally reduce this figure.

With unemployment increasing and consumer confidence and purchases falling, the 3.5% GDP increase is a make-believe number based on the Federal Government maxing out it's credit cards with few places left to turn when they come due.