Commentary by Don Rose
The reason this recession seems so much deeper and depressing than other downturns of the recent past may be due to two forces that happen to be happening at the same time.
First, there was the popping of a great speculative bubble (real estate), the damage of which was magnified by the unregulated unwise use of leveraged and overly complex financial instruments tied in part to home values (which act like giant lead weights thrown on the legs of an economy that's trying to run its way out of the post-bubble crater with help from Uncle Stimulus). The second force feeding the downturn is a bit of demographic timing often discussed by Harry Dent (see his book on "The Roaring 2000s" in which he predicts with eerie accuracy that we'd face The Mother of All Depressions right around, well, now). The demographic curves he serves up, which depict how much we spend (a function of how old the population is), show that the huge wave of Baby Boomers are getting to that point (you know, aging, Viagraing and retiring) where overall consumer spending in the economy goes down. WAY down.
Either of these forces alone could cause an economic downturn. Put them together and no wonder this current recession is a real doozy -- and quite possibly that Mother which Dent predicted. But even if all this affulence-addling awfulness was preDented, that doesn't mean it has to occur, or stick around for years. Massive government spending, plus a primo priming of the money supply pump, was the primary strategy used to get out of the (first) Great Depression, and Obama/Bernanke & Company seem to be trying something similar now. In addition, the Obama team seems, in large part, to be throwing money at the problem in an intelligent way, rather than randomly -- that is, if we need to spend massively to get the economy moving, if "spend spend spend" is the best solution in sight, why not spend in targeted ways, on solutions we really need right now and in the near future (like cleaner energy, more efficient cars, education, productivity, and perhaps even healthcare). If "a crisis is a terrible thing to waste" (to paraphrase Obama's main man Rahm Emanuel) is the mantra of the moment, if Obama is spending our dollars not just massively but wisely as well, with future needs in mind, then I think we will get out of the current mess, slowly but surely -- and get to even higher ground than when we started.
In summary, if the economic problem we now face was caused by a double whammy of history, then it may take at the very least a decisive doubling up on the demand side in order to defeat this financial foe. I just hope that Obamanomics, if one can define it, is or will be the act of taking a spend-big-but-spend-with-future-vision "win-win" approach. Stimulate the economy, and do it in stimulating ways. Let's pray it works, that it makes a massive dent in the problem Dent predicted, and gets us back on track to recovery and prosperity. In the best case scenario, we won't be where we were before the recession, but rather in a better place.
And what's the worst case? What if the bear eats the bull, the Stimulus was bull and unemployment hits 25%? That's easy. I retire early and move in with my Mother in Miami, where I'll have no income tax, no income, and no one coming over. Sure, it'll be boring as hell, and hotter than hell, but at least it's not technically Hell. Hell, I might even get used it. Living with Mom again was never my dream, but till the dream job comes, it'll do. Even an Odd Couple beats a couple of odd jobs.
July 2, 2009
EQUATIONOMICS: WILTING WORLDWIDE WORTH + BYE-BYE BABY BOOMER BORROWING/BUYING = DEEP DEPRESSING DEPRESSION (& HOW OBAMANOMICS MAY BRING HOPE, I HOPE)
Commentary by Don Rose