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Inside The Numbers: The Humpty Dumpty Economy?

We may not be officially in the throes of a recession, but there is sufficient data to understand why voters are focusing their attention on the economy. While economics is thought to be a function of mathematical equations, the evidence suggests that math is driven by consumer sentiment. As such, the math can rarely predict a recession. Instead, as is often the case, understandin g a recession frequently happens well after the fact.

I’ve been amused to watch economists offer their odds on the U.S. slipping into a recession. For example, over the last several months…as the numbers have worsened, former Federal Reserve Chairman, Alan Greenspan, has revised his prediction a from one in three chance to a fifty-fifty likelihood we will see a recession. Greenspan isn’t alone in having altered his thinking…and I expect to see more of the same until such time as the math can capture the impact of rapidly expanding consumer pessimism.

Truth be told, December may well prove to have been the first month of a recession. In the constant barrage of numbers and statistics leading up to a recession, we occasionally receive data that captures the prevailing factors that are driving consumer doubts. Today, McClatchy News delivered a relevant snapshot.

McClatchy Graphic

WASHINGTON — New data from the Labor Department confirm what most middle-class Americans already know: Inflation is squeezing them.

As consumer inflation rose by 4.1 percent last year, the highest rate since 1990, the prices of basic essentials such as food, gasoline and health insurance climbed far more steeply, explaining why so many Americans are telling pollsters that the economy is their chief concern.

The Bureau of Labor Statistics reported Wednesday that the price of food and beverages rose 4.8 percent. At the same time, real weekly earnings failed to keep pace, rising 0.9 percent for the year. In the simplest of terms, a dollar earned bought less.

This partly explains why the economy so frustrates Americans.

“The kinds of things you purchase every day are going up (in price),” said Gus Faucher, the director of macroeconomi cs at forecaster Moody’s Economy.com in West Chester, Pa. “People who are at the lower end of the income scale are going to feel that more.”

That brings me to another point. If tax cuts are the be all and end all that the GOP suggests them to be, then why is it that they fail to insulate the middle class from a downturn in the economy? The obvious answer is that aside from being a symbolic gesture to most Americans, the tax cuts are simply a drop in the bucket. At the same time, the lion’s share of these tax cuts serve to further line the pockets of those who least need insulating from a faltering economy.

Perhaps the prevailing economic fallacy is the contention that further tax cuts will stimulate the economy. This might be true if the cuts were directed to those most in need of money to spend…the same middle class that pushed the economy into recession based upon their astute ability to recognize that their money buys less.

Instead, the GOP argues that their top-heavy tax cuts will eventually be transformed into investments and jobs. Unfortunatel y, that strategy fully ignores the fact that people in the middle class need more money; not more jobs. If those who already have jobs…have jobs that won’t allow them to keep apace with inflation…th en what benefit will they see from the creation of new jobs…especia lly when most investors and large corporations are looking to create more lower paying jobs in order to produce more wealth. Even worse, globalizatio n often means that these tax cuts are put into foreign investments that do not create jobs for Americans.

Until such time as economic policy is geared to produce meaningful benefit for the middle class, the economy will remain unstable and vulnerable, the handouts to the wealthy will further concentrate wealth in the hands of fewer individuals, and negative consumer sentiment will more frequently send the country into recession.

Lastly, the unprecedente d subprime lending crisis…coupl ed with the inevitable decline in home values…has the potential to indefinitely stymie consumer optimism. Once the undermining of this last bastion of middle class wealth is realized, I would argue that all economic equations would have been rendered useless. If this happens, the backbone of the U.S. economy may be…like the fabled Humpty Dumpty…beyon d reconstructi on.

Cross-posted at Thought Theater


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12 Responses to “Inside The Numbers: The Humpty Dumpty Economy?”

  1. Two things amaze me about liberalism:

    One… When positive things happen and the GOP is in charge, you don’t a freaking word.

    Two… Where was your critical analysis when the economy was doing well? People love experts. Here Danny, you look like an expert. And your readers obviously love you. You were probably too busy criticizing the war when the economy was doing well. Economy is cyclical… stop pointing fingers… recessions happen no matter who is in charge… Deal

    Gas at the pump was still higher in 1979-1981 then it is now. Energy costs were higher and gold, as I heard today had the equivalent value of $2,200 in today’s dollars.

    You, Danny (and I am totally criticizing the writer) want the worst case scenario for America, on the GOP’s watch so you have something to write about. Think about it!!

  2. Steve,

    If I recall correctly, the last time we had a conversation about the economy, you were busy telling me I was an alarmist and there was no way we were heading for a recession. Now you suddenly want to lecture me on the cyclical nature of the economy?

    Should I take that to mean you’re ready to admit I wasn’t an alarmist and to acknowledge there is a problem with the economy?

    I also recall saying I would be glad to meet you back here to compare notes once the downturn unfolded. It sounds to me like someone (who could that be) is having a hard time fessing up.

    Regardless, what really amazes me about you is your propensity to shift your argument every time the last one turns out to be nonsense.

    Keep up the good work. It makes for great fun for the rest of us.

    Why don’t you think about that!?

    Regards,

    Daniel

    P.S. So if I follow your latest logic, I must be for the GOP come November because if the Democrats win, I’ll have nothing to say? And would that also mean that you’re for the Democrats since it will silence me? Now don’t hurt yourself figuring this out. I’ll give you a hint…think about the geometric shape formed when a dog chases his tail.

  3. Recession Hell! I wish that was all we faced. Daniel, while I admire your cogent analysis and enjoy your food fights with Steve, what we are facing is much more than a garden variety recession.

    I am sitting here listening to Washington Journal discuss the recession and the economic stimulus packages being offered. Fear is evident in many callers voices but almost without fail they blame politics for the situation. They blame the unions, the greedy Republicans, the lazy Democrats etc. Very similar to ya’ll discussions and it makes me sick to my stomach. The stimulus packages being offered by both sides call for heavy job creating investments in transportati on infrastructu re. Clearly the American public has not gotten the memo.

    I have frequently mentioned in my comments peak oil and other energy topics as the primary issues to watch. For those of you who are republicans, i recommend you Google Rep. Rosco Barnett, republican representati ve from Maryland and read his energy speeches before the congress. They contain the memo and with a little study you will begin to see the problems.

    For the Democrats, i recommend you Google the word Dieoff. The site was developed a decade or so ago and contains much of the research of Jay Hansen, a brilliant man, who took the time to study the issue by compiling research from a wide variety of sources into a very educational format. It also contains the memo.

    Briefly, in a few dozen words, the memo contains the following information.   Humans are animals and they are subject to the same constraints as all other forms of life. There are now between 6.5 and 7 billion of us on the planet. The growth of human population is directly correlated to the discovery and use of energy. The planet is finite and much of that energy source has been used up. America has used up most of it and remains the largest user in the world. Things are about to change. We have a choice. We have a choice. We can glide to lower energy use life styles or like the wine yeast we can continue the greed and crash. Every one of the readers of BIO should take a few minutes to study the graphs of wine yeast growth and destruction. Are we any smarter than wine yeast?

    I fully realize this missive will be viewed as another rant from that wacko old man. But, what the fuck. Anyone who would call himself Rube Cretin will never be taken serious anyway.This one is being sent as a stream of consciousnes s rant. no edit.

  4. “The growth of human population is directly correlated to the discovery and use of energy.”

    And all this time I thought it was directly correlated to the discovery and use of sex. Proves you are never to old to learn.

  5. Seriously though….Rube I get the feeling that you do not allow for the ability mankind has shown to adapt to a changing environment and is doomed to just ride this trolley car straight into hell. This flys in the face of history as man has adapted to the use of different energy sources in the past and is currently in the process of doing so now. Sure, oil, natural gas, and coal are finite and we will run out at some point but what about wind, solar, water, hydrogen, and even nuclear? We are adapting and will continue to do so and the most probable scenario is that the quality of life will continue to improve not degrade.

    As far as the looming economic disaster goes…to predict that we are in for much worse than a recession is also a very gloomy outlook given the data and the history of our economy. We have weathered storms before including the great depression and we will most likely weather this one as well. Daniel in another post talks about how Greenspan has downgraded his outlook from a 1/3 chance of recession to a 1/2 chance. You could also look at as 1/2 chance we will not go into a recession. Depends on your outlook. Many economist have been calling for gloom and doom at every turn and are mostly wrong. Look at noted liberal economist Krugman. He has called for a recession every year since Bush took over and has been wrong every time. The economy is a lot like the weather. We know what it is about inside and out and yet we still have difficulty with accurate predictions beyond the short term. The economy is subject to a vast number of unpredictabl e occurences such as war and weather and is oft times driven by events we would never even dream of happening. Bad things such as the 9/11 attacks (or worse) or good things such as a new source of energy being found are impossible to account for in future economic predictions but one thing has proven time and again is that we adapt and move forward.
    In the end your gloom and doom scenarios may just prove out. However I believe the mankind will meet the challanges of the future with the same resolve and inventivenes s that he has met those in the past.

  6. What ever happen to the notion of paying for things? Do we really believe that as a nation and as individuals we can borrow money forever? Do we no longer believe that we are responsible for our actions?

    The longer we put off fixing the national debt the harder we will suffer. Part of the “social security” crisis is that the social security money has been used to finance the rest of the government for 30 to forty years.

    As George Bush I said supply side economics is vodoo economics. This is not an opinion but the facts since the Reagan government.

  7. mana. Are you familiar with this quote? “”If a path to the better there be, it begins with a full look at the worst.”
    – Thomas Hardy

  8. steve, manapp - Economy doing WELL (GWB 8/8/07)
    Housing market inflated by GWB policies.
    Home owner takes out 2nd mortgage for added value.
    Other Home owners Sell at 5 times the amount they paid for it. Add’l buying power and loan power by the banks.
    That IS the JOKE. Housing CAN NOT TRIPLE within a year or two. Created spending wealth on one side (which spent it) and created a Heavy DEBT BURDEN on the other side. DEFAULTS by USA Financial Firms write off UP TO $10 Billion. GWB ECONOMY a JOKE.

  9. Danny and 4truth,

    Blaming George Bush is all you guys seem to do. And Danny, is there a recession or not?

    Off to read Elmo books with my son… it’s more liberating than reading some of this stuff.

  10. steve, GWB PRESIDENT of USA - Who would you blame for DEBT & DEATH?

  11. Jesus… 4truth… I blame Jesus…

  12. Steve, Jesus did NOT LIE to you. GWB LIED to you.

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