The Washington Post reports on an interview by Bob Woodward and Bob Costa with Donald J. Trump in which he predicts a new recession:
“Donald Trump said in an interview that economic conditions are so perilous that the country is headed for a “very massive recession” and that “it’s a terrible time right now” to invest in the stock market, embracing a distinctly gloomy view of the economy that counters mainstream economic forecasts.
The New York billionaire dismissed concern that his comments — which are exceedingly unusual, if not unprecedented, for a major party front-runner — could potentially affect financial markets.”
But, as I reported in a recent post, Larry Summers, a top economic adviser and former Clinton Secretary of The Treasury, has been predicting the very same thing for some time now, and repeated a version of his prediction while refining his caveats earlier this week in the Washington Post, but without actually using the “R” word. In a February piece in WaPo, Summers explained the nature of the investment problem we are facing, through an economic state of affairs called “secular stagnation:”
“Secular stagnation has as a central element a decline in the propensity to invest, leading to chronic shortfalls of aggregate demand and difficulties in attaining real interest rates consistent with full employment.”
This week, Time Magazine also reported on Summers’ prediction based on his writings about secular stagnation:
“The unemployment rate—which ignores those who gave up looking for a job—has hit new lows, but the percentage of Americans (between ages 25 and 54) who are actually working is over three points lower than its pre-crisis peak.
These confounding circumstances have led many economists to rally behind the concept of so-called “secular stagnation.” As a diagnosis, secular stagnation is simple: It’s the idea that the economic problems the U.S. continues to face aren’t a product of the “business cycle,” the ebb and flow of boom times and recession (hence the “secular” part), but may well be permanent drags on the modern economy. “It’s a kind of long term and sustained slow-down in economic growth,” says Larry Summers, who served as Bill Clinton’s treasury secretary and is widely credited with dusting off the concept of secular stagnation and bringing it into the mainstream.”
Given the reality of secular stagnation and its consequences, is Trump completely off-base? No. Is Trump completely correct? Yes, but only in a very general way, Trump is correct about investment and a new financial bubble that has been forming in recent years, and he is correct about unemployment being higher than the official numbers lead us to believe. Both of those variables are a component of what economists call secular stagnation. But Trump is undoubtedly exaggerating the extent of “real unemployment” – his rate is double the U6 unemployment figure that Bernie Sanders uses – and he is also sounding more alarmist in a very self-serving way.
Undoubtedly and not assuredly, you might ask? Yes. Undoubtedly is the term that must be used here. Why? As I reported some months ago in two pieces “Jared Bernstein On Jobs And How Numbers Are Calculated,” and “How The Unemployed Are Counted: Scoundrel Edition,” I wrote:
“U6 and all of the other measures by which we count the unemployed have always been considered (still are) approximate measures and, recently, there was a serious discussion about the deficiencies in the way we count the unemployed. I collated a series of posts from Jared Bernstein, whom I’ve always deferred to far more readily than most economists:
“In this post, we briefly explain some of the evidence that there’s far more labor market slack than is apparent from the unemployment rate alone.
The unemployment rate doesn’t capture workers who, because of a difficult job market, have stopped looking for work. The labor force participation rate – the share of the population that is either working or actively looking for work – dropped off sharply during the recession, from about 66 percent to about 63 percent. While some of those folks left for retirement, others–maybe a third to a half by some measures–can be enticed back into a more welcoming job market.
A number of prime-age workers (those between age 25 and age 54), for example, have dropped out of the picture. The figure below shows the employment-to-population ratio for workers in this age group. Notice the five-percentage-point plunge it took during the recession; while it has nudged back up to just over 77 percent, it is still three percentage points beneath its pre-recession level.”
The bottom line is that, were anyone put on the spot for an exact figure on unemployment and underemployment, they couldn’t give you one because there isn’t one. What’s more, traditionally, when reporting on monthly jobs numbers, the press uses the U3 figure that was instituted during Bill Clinton’s presidency. 5% sounds a heck of a lot more reassuring than 10%, but neither U3 or U6 are true images of what is happening in reality.
The reality is that we don’t know, officially, what the reality is, and since the House of Representatives was taken over by the GOP in 2014, we know even less than we did before.”
Everything quoted above still holds true. Nothing has changed about how we count the unemployed in the last few months and, while more jobs have been added, about 10 million in the last few years, these are not what people think of as “good jobs.”
Now, one must be careful to state things as plainly and unequivocally as possible and avoid sounding like a conspiracy theorist. Has economic reporting been highly politicized? It most certainly has been. Have economic reporting and analysis been intentionally misleading by virtue of their omission of certain details? Yes! One only need search the major economists’ writings to see that, as of two years ago, many stopped writing about unemployment, wages and jobs in the popular press. Those among us, who like me, read wonkish articles, would have had to know which blogs to follow in order to read serious analyses. I’ve curated many of Jared Bernstein’s posts on jobs and wages over the last two years. Moreover, as I wrote in a recent post:
“One must stress that Paul Krugman’s service to the nation, as a preeminent columnist and economist, cannot be overstated. Without his vocal advocacy, we probably would not have corrected the course of one of America’s worst economic failures. Krugman was instrumental in raising public awareness and ensuring the full understanding of what was happening. That said, and over the last two years, Paul Krugman has been on a mission to re-frame the narrative of the Obama administration’s achievements in specific areas and in ways that just aren’t supported by the reality still lived by tens of millions of Americans. Yes, millions of jobs have been created under President Obama and we are better off today than we were in January of 2009. Does that mean the suffering has ended? Are all these new jobs high quality, high wage jobs? “
“Krugman and other pundits’ carefully crafted narratives have fostered an atmosphere in which no criticism can be made of the current economic situation without appearing to reduce President Obama’s legacy, when it would have been just as easy to point to the deficiencies caused by GOP obstruction and nullification without, in any way, detracting from our president’s excellent track record. Why then, has Krugman spent the last two years writing a rather substantial body of work in praise and support of President Obama’s achievements?
The answer is two-fold: in a political environment where the left swung further leftward, it is the only way for a neoliberal candidate like Hillary Clinton to maintain a neoliberal agenda, and it keeps Black voters in Clinton’s corner, because they are assumed to want to preserve Obama’s legacy at any and all costs. It is true that whomever is chosen in the primary will be elected thanks to a significant number of Black voters and the presumption is that Blacks will be united in their desire for President Obama’s legacy to be kept intact, especially if the issues are framed in the context of succession versus erasure. Make no mistake, the pundit class, in its effort to denigrate Sanders is painting him as the same kind of nullifier as the Republicans, as an outsider who is trying to take over the Democratic party; as “other” in the context of mainstream American thought.”
While all economists say the Great Recession has ended, no economist would say the average American worker is back to doing as well as they did before the start of the Great Recession. In fact, over the last two years, most economists have focused their writings about employment on how many jobs have been created, but not what kinds of jobs and what they pay. While Democratic politicians speak in general terms about underemployment, wages, and inequality, none have come out and said that the vast majority of new jobs created since 2010 are lower wage jobs. While Democratic politicians sometimes refer to the gig economy and the haphazard way in which people are now eking out a living, none are explicit about how widespread that practice is, or how bad off people are.
So, the news of a possible recession should indeed be taken seriously; more should be written about that possibility, and not in the inaccessible jargon that Larry Summers’ latest post is written in. We should all heed the signs, not the ones Trump lists, but the ones Larry Summers, The Economist, and even Paul Krugman of two years ago explain. No politician has openly made the connection between the low-wage economy we are in – not even Trump – and the generalized rise in homelessness, not only of single parents, but working families all over the nation. That has been our story as a family and it has been my observation over the last year and four months since I’ve started calling myself homeless. Every hotel we’ve lived in has been filled with families and couples like us: educated, underemployed, underpaid and unable to rent a home of their own. No one is talking about this in full and frankly, because doing so opens a can of worms no one wants to open: Barack Obama’s legacy.
But can we open that can and preserve Barack Obama’s legacy? Should the media’s tack have been to discuss the recovery from the Great Recession in an open and honest way, even as the GOP has done everything it can to try and reduce and obstruct President Obama? Well, I certainly think it would have been far smarter for the pundit class to continue pummeling the GOP for all of the things it did and still does while reporting on the true extent of an economy the GOP has kept, artificially, from fully recovering. It certainly would have spared further polarization of our politics over the last six years and prevented anger levels, in all corners of our society, from rising to their current level, and that includes millenials of all races, African Americans included. There is not one economist who will say that the US economy is unsound. It isn’t. There is also not one economist who will say the economy is back to any semblance of its former health, either, but none will say it if they can avoid it because of the ridiculous fear that the only inference from stating the truth is that President Obama somehow failed. He hasn’t failed, and statements to the effect that he has acquitted himself of an exceedingly difficult job in an outstanding manner, given how serious the financial meltdown and GOP obstruction were, that statement will always remain true.
Virtually all serious economists still regularly write that America’s economic problems are all rooted in politics. What does that mean? It means that the talk, over the last two years since the publication of Thomas Piketty’s book about inequality and how we got there, those are the things that need to be addressed not only by the next president, but the next Congress. That is where voters need to inspect all current candidates’ platforms with a mass-spectrometer.
Which of the candidates’ prescriptions will fix the underlying causes for inequality? Trump’s “making America great again?” Clinton’s “accepting half-loaves” and lowered expectations or Sanders’ political revolution?
Trump’s platform is nothing more than confetti and glitter. In stark contrast, what Sanders and Clinton offer is decidedly substantial, but in radically different ways that, in the end, acknowledge and accommodate radically different groups of people.
If, as voters, we accept that:
- our nation is in the final stages of succumbing to plutocracy,
- our Congress is bought thanks to Citizens United,
- under a GOP majority in Congress, government is at a virtual halt,
- under GOP control of Congress, there has been no investment in jobs and our economy
- under GOP control, the social safety net continues to shrink,
- we are still at risk for another Wall Street collapse,
- our economy is geared to profit only the .01%,
- the state of our economy is still stark for millions of Americans who became members of the precariat with the Great Recession,
- as things stand, the future is bleak for our children, and
- nothing will change unless we get a brand new Congress – not merely regain one of two houses
Then, whose platform best attempts to accomplish those goals in a fundamental way? Whose philosophy of change and campaign admonitions to voters best ensure an engaged and informed electorate, not only for this cycle, but election cycles to come?
When the situation isn’t dire, incrementalism, rather than a shock to the system is what is usually indicated. When things are out of control and about to bottom out, the only sane prescription is for a sea-change and not baby steps. We are too far gone for that.
Message to readers:
Thanks to your generosity, my family has averted homelessness for another week and Blog#42 is able to pay its monthly advertising bills. We are very grateful.
We are still, however, in a very difficult position as we are still very far from meeting our goal for the GoFundMe campaign to help my family secure permanent housing.
Your continued support is very much needed and deeply appreciated.
Bob Woodward and Bob Costa discuss their interview with Trump: