Monday, July 13, 2009

When Is a Recovery? And, Is It, Even Then?

All the talk of a ‘jobless recovery’ going on gives me the heebie-jeebies. What bothers me is that people get left out of the equation. The economy becomes nothing more than Gross Domestic Product (GDP) on the idea that if it goes up, things get better for everyone. A rising tide floats all boats sort of argument.

Somehow, I suspect, that’s related to ‘trickle down,’ even though the water’s going in different directions.

Some people do understand that a ‘jobless recovery’ is no recovery at all—not for most of us, certainly. Not for those burdened by student debt, over-leveraged overpriced homes, under-employment, family members in increased need of assistance, unemployment itself, credit-card debt, or the myriad of other financial problems or responsibilities threatening to drown them. Among those who do understand is (not surprisingly) Paul Krugman, who writes in today’s The New York Times:

At this point… the acute crisis has given way to a much more insidious threat. Most economic forecasters now expect gross domestic product to start growing soon, if it hasn’t already. But all the signs point to a “jobless recovery”: on average, forecasters surveyed by The Wall Street Journal believe that the unemployment rate will keep rising into next year, and that it will be as high at the end of 2010 as it is now.

Now, it’s bad enough to be jobless for a few weeks; it’s much worse being unemployed for months or years. Yet that’s exactly what will happen to millions of Americans if the average forecast is right — which means that many of the unemployed will lose their savings, their homes and more.

If this happens, no matter how much GDP goes up, our overall economic situation will worsen, with more and more people relying on catch-as-catch can possibilities just to survive (see Barbara Ehrenreich’s piece in yesterday’s Times for more on this), putting greater and greater strain on precarious family and friendship ties. This, ultimately, must lead to further breakdown of our social fabric, for it will not be able to stand the strain, leading to a new upsurge of crime, dislocation, and retreat into a gated ‘I’ve got mine; to hell with the rest of you’ attitude on the part of those who have managed to keep their heads above water.

What will that lead to?

Disaster. GDP up and markets through the roof notwithstanding.

We need to do two things as a country, as a society, and we need to do them now:

  1. We have to create jobs, and do it now. And not simply infrastructure jobs (though ‘shovel-ready’ projects may be the fastest way to getting things moving immediately), but jobs that can improve the life of the comity now and in the future: jobs addressing the problem of global warming, focusing on renewable energy, making recycling and reusing central parts of our economy. Not simply make-work jobs, but jobs that will improve all of our lives and that will, in the long run, pay for themselves.

  2. We have to find ways of easing the burden of debt that too many are shouldering. Doing so will be a trip through a minefield, but we have to take it. Sure, there will be those who will benefit unfairly and others who will never change their behavior (and who will slide right back into their bankrupt ways), but there are many, many more who will make use of the opportunity and will return to positions of personal and societal responsibility. We might start by completely restructuring student loans, capping interest, forgiving penalties, and forgiving a percentage (half, say) of the loans across the board. Who pays? Ultimately, we all do. But young people burdened by loans they cannot possibly repay will cost us even more—and this is one area where, I think, we can achieve broad agreement. We will have to do something about home loans, too… not by simply propping up the banks which made the bad loans, but by assisting those who cannot, given the current housing market (and even the rosiest forecast for the future), sustain their mortgages. Here again, it will cost us all more if we do nothing than if we help out. Sure, some of the people who will be helped acted foolishly or even venally, but most did not. Sure, it does seem as though we would be rewarding bad judgment and punishing good, but the bad are being punished right not—and the good, as well—by the very state of the current economy.

There’s nothing radical or new about either of these suggestions, but they seem to have been passed by. The politicians, apparently, don’t believe there’s the ‘will’ necessary to get them implemented.

If we don’t try, however, we will never know… and the economy, GDP notwithstanding, will continue to tank for most Americans.

It’s going to be up to us, the people, to take the lead on this. Remember, the politician practices the art of the possible. That is, he or she will not act, even if believing in something passionately, unless it seems either possible or able to bring the politician some advantage. It is up to us, through our voices, to give birth to belief in that possibility.

Sunday, July 05, 2009

View From the Middle

Now, I ain't no economist, and I ain't no economist's son—but I do have eyes, and ears, and I do live in the United States. And the people around me, for the most part, are those who make (probably) something under $100,000 a year. For the most part, we've lived reasonably comfortably for the past twenty years. Our homes have increased in value steadily even though our income has not. Our children graduate from college (a good sign for the future) and, though they are generally saddled with debt from student loans, jobs (until recently) have been there for them. With a little luck and careful purchase, many of them were able to buy their own homes, were able to use the increasing value of their homes to offset the burden of college debt.

When my parents moved here to Brooklyn in 1970, they bought a house, an elegant townhouse, for $35,500. My brothers and I, in settling their estate, have sold the house for over 25 times that (20% less than it would have gone for two years ago, but a fine return by any standard). Seeing that type of return, others of the middle class have tried to gain the same way, by becoming gentrifiers (as my parents were called), buying some of New York's superb housing stock in not-so-stellar neighborhoods, renovating, and waiting for the housing boom to continue. They bought magnificent brownstones in Bed-Sty and Crown Heights that were in horrible condition and worked hard on their houses, generally renting the upper floor apartment to manage mortgages that could not be handled on salary alone.

Like the college graduates joining the workforce already hundreds of thousands of dollars in debt, these homeowners had faith in themselves and America. Few had ever seen a sustained economic downturn (the worst most of us have lived through is the hyper-inflation of the 1970s and the economic chaos of that time—chaos that seemed to have ended for good by the mid-1980s) and fewer believed it could happen.

The advice was simple: spend now, for everything is going up, up, up. Get that education, no matter the cost—it will be worth it, in the end. And get the best: that will be worth even more. Don't be penny wise and pound foolish. Want to buy a house? Buy the most house you possibly can, even if the mortgage seems beyond your capacity. In a few years, after all, you'll be earning more—and the house will be worth a lot more.

Yeah, yeah... we all know what happened to that.

But (whew!) the economists are telling us that the worst is over. The economy has bottomed out and things will get back to “normal” (that “normal” was a chimera—but nevermind) quite soon. Unemployment may continue to climb, but we have weathered the storm.

Say what? Have any of these economists talked to anyone living in the middle economic zone of America? Do they have any clear idea of how close to the edge millions of Americans are right now? If they do, don't they see that there is no way to back away from the edge and that the rocks beneath their feet are crumbling?

None of what I am saying is new to anyone in America's middle class. When I take my dog to the park for a run, I mingle with small landlords, sanitation workers, postmen, cooks, teachers... the run-of-the-mill of New York or anyplace else. What are they saying? It's going to get worse. Why are they saying that? Because they know too many people who are trapped with no way out, people who can't pay their debts. We all do.

Those people who bought the brownstones have them on the market right now for enough to cover their debts, but no more. Building materials lie piled in the living rooms and back yards. Though the apartments, which they finished first, may be rented, rents are no longer going up like they were. In fact, they've been coming down. They won't get as much for the places next year—and don't have the money to cover the difference that will make towards the mortgage. Not to mention that prices continue to slide. Not as fast as they were, but they are still going down—and people are getting desperate.

I know someone who just consolidated his college loans. He has graduate degrees and a secure job, but the loans (he has discovered) eat up over half of his take-home pay—and the extra income he was expecting to make through moonlighting just isn't there. As rent takes up another half, he's losing money each pay period—even before eating a bite. He's going to have to move to a much, much cheaper place. Oh, and guess what? His landlord isn't going to get as much money from the next tenant (though he may not know that yet).

Our economy cannot get better as long as too many people owe more money than they can ever reasonably pay back. And there are millions who do. Most of these aren't bad people, or foolish. They merely believed that what they had seen happening would continue to happen.

What to do? I don't know, not really. But rash forecasts of recovery won't help. They will only further depress those who see themselves falling over the edge yet who, so far, are holding on for dear life. Talk won't help them.

We need to do something before they fall. Sure, they are partly to blame, but that's irrelevant right now.

Cutting spending and cutting taxes won't help. The impact on individual lives is puny, and it is individuals we are talking about here.

Massive programs showing faith in our cities, our industries, and our educational structures would help, but we don't seem to have the willpower. Developing a rational health-care system certainly would help (for that's another area pushing people closer and closer to the edge), but too many people are unwilling to look at a broad enough picture for that to happen.

A complete restructuring of our banking system, along with a massive re-evaluation of debt as it exists now in America, however, may be the only way out. The loans need to be taken out of the profit cycle, at least for now, interests rates capped, past payments applied to principle alone and past accrued interest above a certain low percentage forgiven (reducing the debt substantially).

As I said before, I don't know if even this can be the answer.

All I know is that rosy forecasts can't solve the problem of debt that threatens to push way too many of us over the edge—dragging the rest of us (ultimately) with them.