A Systemic Crisis of Recovery
â€œThe Wasted $12 Trillionâ€?
The defining feature of the U.S. Economy over the past three years since Obama took office has been its failure to achieve a sustained recovery. After three economic stimulus programs costing $3 trillion the past three years, 2009-2011, and after more than $9 trillion in bank rescues by the Federal Reserve, the faltering U.S. economic recovery of the past three years is sliding once again toward double dip recession.
The U.S. economy entered recession in December 2007. The decline accelerated in September-October 2008 with the onset of the banking crash. The collapse set in motion by the events of September-October 2008 continued through the first six months of 2009, at a pace virtually identical to 1929-1930. The economy only bottomed out by June 2009. But bottoming out does not constitute recovery. Nor does the weak and faltering economy that followed the June 2009 bottom.
Recovery means restoring the economy to levels and performance prior to the onset of recession, or at least to some â€˜averageâ€™ historical level and performance preceding the collapse. The period from June 2009 to the present therefore cannot qualify as a recovery in either of these cases; nor can it in any otherwise normal sense of the term.
Except for financial asset pricesâ€”i.e. stocks, bonds, derivative trades, etc.â€”during the first year, from June 2009 to June 2010, nearly all real (non-financial) economic indicators recovered at best only part of the prior losses of 2008-2009. And critical sectors of the economy, like jobs and housing, recovered virtually nothing. Moreover, many economic indicators that did partially regain some lost ground in the first year after June 2009 thereafter experienced a further â€˜relapseâ€™ in the summer of 2010. Meanwhile, jobs and housing experienced a bona fide â€˜double dipâ€™. A second partial recovery followed in late 2010, even weaker than the first in 2009-2010. Now once again, in late 2011, the economy has begun to fade once more, as a second â€˜relapseâ€™ of the economy has once again emerged. This raises the first of three major themes of this book:
What explains this weak, repeatedly faltering economy and failure to achieve a self-sustaining recovery after trillions of fiscal and monetary stimulus?
By October 2011 an increasing number of economists, and even business sources, have been to predict the â€˜relapseâ€™ might soon turn into a â€˜double dip recessionâ€™. A select few of those with the best forecasting track record to date have even begun to forewarn of a possible imminent global depression.
To the extent there has been any recovery these past three years under the Obama administration, that recovery has been limited to and has benefited a relatively small segment of the US economy and population. After June 2009 stock markets rose more than 100%. Bond markets did even better. Corporate profits exceeded levels even preceding December 2007. US large corporations accumulated more than $2 trillion in cash on hand, while U.S. multinational corporations were able to build a cash hoard of another $1.2-$1.4 trillion in their offshore subsidiaries. Both continue to hoard their more than $3 trillion in cash, not investing it in the U.S. to create jobs and contribute to sustained recovery. Not to be outdone, big banks accumulatedâ€”and then also sat onâ€”about $1.5 trillion in excess cash reserves, mostly refusing to lend to smaller businesses to create jobs and assist recovery.
Measuring â€˜recoveryâ€™ in terms of its human dimensionâ€”not just in terms of impersonal economic indicatorsâ€”yields a similar grossly unbalanced picture: CEO and senior management compensation and bankers bonuses recovered in 2010 to pre-2008 levels. The top 25 hedge fund managersâ€™ did even better. Their income more than doubled in 2009 to surpass previous 2007 peaks. The wealthiest 10% households returned to consuming luxury goods at pre-recession levels.
In contrast, more than three years after Obama took office there are still roughly 26 million unemployed. The numbers of part time and temp jobs have increased by more than 10 million, as full time permanent jobs are churned out and replaced by part time and temp jobs with lower pay and hardly any benefits. Thus, not only the number of jobs but the quality and level of pay and benefits associated with jobs has also not â€˜recoveredâ€™. Real weekly incomes for more than 100 million non-supervisory workers are less today than two years ago due to wage cuts, fewer hours of work, and escalating inflation of basic itemsâ€”like healthcare services, education, gasoline, and many basic food costs that have risen at double-digit rates throughout 2011.
In addition to jobs and wage income, home foreclosures have more than doubled in number since early 2009, to 11.4 million by late summer 2011. 17 million homes are â€˜underwaterâ€™, with home values worth less than their mortgages. States and cities continue to layoff workers by the hundreds of thousands in 2010 and 2011, slash vital services and programs, and raise fees at an accelerating pace. Poverty rates in the US are now at their highest levels in half a century, impacting more than 15% of the population (45 million). That includes more than 15 million childrenâ€”the latter distributed more or less evenly across white, latino, and black kids. More than 50 million officiallyâ€”and more in factâ€”are without any kid of health care coverage. Food stamp usage has more than doubled the past two years, as has student loan debt in two years. Trillions of dollars of seniorsâ€™ retirement â€˜nest eggsâ€™ have disappeared forever, as Congress in late 2011 nonetheless prepares to reduce their medical and retirement benefits further. The litany of conditions that have worsened is endless. That is not recovery by any stretch of the imagination.
And itâ€™s not just workers, homeowners, students, and the 100 million plus working and middle class households who have not â€˜recoveredâ€™. Hundreds of thousands of small businesses have gone under since the bottom of the recession in June 2009, more failing than are being created, as banks continue to starve them (and households) of basic loans and credit as the banks continue hoarding more than a trillion in cash reserves on hand. Even banks themselves have been divided into â€˜havesâ€™ and â€˜have-notsâ€™. The â€˜too big to failâ€™ largest 20 or so banks have in part recovered, propped up by $9 trillion in U.S. Federal Reserve liquidity injections, zero interest loans and direct subsidies, and hundreds of billions in direct grants from the U.S. Treasury and taxpayer. Meanwhile, more than five hundreds small community and regional banks have either failed outright or have been forced into mergers by government regulators to protect what little depositorsâ€™ assets remain on their books. In short, a small layer of wealthy households, professional speculators and investors, big banks and multinational corporations, CEOs and senior managers, have indeed â€˜recoveredâ€™. But virtually no one else. The preceding undisputable facts lead to the second major theme of the book:
How to explain this historically unprecedented lopsided economic recoveryâ€”enjoyed so much by so few at the expense of so many?
The Obama team has introduced no fewer than three economic recovery programs over the past three years. One each year in 2009, 2010 and 2011. This does not include Obamaâ€™s election year proposals he offered in 2008 as a program for economic recovery. This book will look at each of the three recovery programs and his pre-election promises and analyze each in depth.
Each of Obamaâ€™s economic recovery programs share certain similarities, no doubt in large part explaining why all have similarly failed. They are all composed of a particular mix of tax cuts, spending stimulus, Federal Reserve monetary policies, and lesser efforts to expand manufacturing exports and trade. Each subsequent economic recovery program, however, has been less in magnitude and scope than the preceding. In turn, each recovery programâ€™s impact on the economy has therefore been weaker and of shorter duration. Obamaâ€™s first economic recovery program (2009) produced a brief and weak recovery of barely 12 months. The second (2010) recovery program produced an even weaker and shorter 9 months recovery. And this writer predicts the third (2011) recovery program, in development since September 2011, will be weaker still than the preceding two.
The book is about the evolution of Obama economic recovery programs and policies from 2008 through 2011, why they were so â€˜lopsidedâ€™ in favor of the wealthiest few and their corporations why they failed to generate sustained economic recovery. The book not only describes those programs and policies in some detail, but also provides a critique and an analysis of why they failed at recovery as well as benefited just a wealthy few. The book therefore constitutes an indictment and critique of traditional fiscal and monetary policies at the heart of the Obama programs and policies.
The book argues Obama economic programs and policies have been both ineffective and inefficient. Ineffective because they have failed to generate sustained recovery. Inefficient because a mountain of trillions of dollars in tax cuts, spending, and money injection into financial institutions has brought forth a molehill recoveryâ€”a recovery that appears faltering yet again.
The current economic crisis has always been global and never just a US centric event. As 2011 draws to a close, not only are signs growing the US economy is undergoing a second â€˜relapseâ€™â€”leading perhaps to an even a more serious double dip recessionâ€”but may have entered an evolutionary trajectory toward eventual global depression.
The global economy itself is clearly slowing and heading toward growing instability. While the US economy hovers somewhere between economic relapse and double dip, many economies elsewhere are already experiencing a double dip recession. The Eurozone periphery economies are already there. So is Japan. The main engines of the Euro economy, France and Germany, are near zero growth as of October 2011 and may well soon slip into recession by the fourth quarter should the Euro debt crisis not be resolved soonâ€”which in all likelihood it appears it will not. The U.K. economy is slowing rapidly, to less than 1%, and approaching stagnant growth much like Germany and France. All are on the cusp of a double dip. Meanwhile, economic growth is rapidly slowing in China, India, Brazil and other key emerging economies that over past two years were able to grow robustly and temporarily to help dampen the global contraction of 2007-10 in part somewhat. But now they too are slowing rapidly. There are no remaining props to offset the worsening condition in the core capitalist economies of North America, Europe and Japan.
The eventual slipping into global double dip was predicted by this writer in late 2009 in a prior work, Epic Recession: Prelude to Global Depression, which was written at that time, as others were predicting recovery coming in only a few more months. As others predicted a â€˜V-shapeâ€™ rapid recovery from the June 2009 recession bottom, this writer was warning that a long stagnation would follow the June 2009 recession bottom. That stagnation would take the form of a series of short, weak recoveries followed by short, mild downturns (relapses) or even double dips. The policies introduced in early 2009 by the Obama administration were rejected as inadequate for generating any sustained, true economic recovery. Not only were those policies, it was argued, insufficient in magnitude of stimulus, but the composition and timing of the stimulus were even more incorrect. And so far as Obamaâ€™s and the Federal Reserveâ€™s monetary policy was concerned, it would prove ineffective in whatever form it assumed, given the massive debt that was allowed to remain on bank, general business, and household balance sheets. In other words, Epic Recession argued the â€˜system was still fragileâ€™ and would remain so since the Obama economic recovery program of 2009 did not address this key condition affecting banks, businesses, and household balance sheets.
Unlike Epic Recession, however, Obamaâ€™s Economy: Recovery for the Few, will not address such issues of economic theory. Readers nonetheless interested in theory are directed to the short Appendix I of this book, â€˜A Note on Theory and Historyâ€™. That Appendix explains in brief the relationship between Epic Recession and this more pragmatic policy critique book, Obamaâ€™s Economy. The former work is about how and why the current economic crisis occurred. Obamaâ€™s Economy is about how and why recovery from the crisis has failed these past three years and why similar policies will continue to fail to generate a sustained recovery. Appendix I, â€˜A Brief Note on Theory and Historyâ€™, links the two works and expands briefly on the topic of theory.
But Obamaâ€™s Economy goes further, beyond just describing, analyzing and critiquing the Obama economic recovery policies of the past three years. Describing and explaining todayâ€™s failed recovery is only half the task. If the Obama policies of the past three years have failed, what alternative policies may perhaps prove successful? The most important part of this book therefore is its final chapterâ€”â€˜An Alternative Program for Economic Recoveryâ€™. For the most important question of the day is not answering â€˜how did we get hereâ€™. It is not even explaining â€˜why did recovery failâ€™. The most important question is: â€˜How do we get out of the crisis; what will it take?â€™ Thus the third major theme of this book, in addition to Why has Recovery Failed and Why Did So Few Benefit So Much a the Expense of So Many is:
What Alternative Policies and Programs Are Necessary to Ensure a Full Recovery for All?
This book therefore concludes with recommendations of policies and programs needed to generate a sustained economic recovery. The proposals for recovery described in the final chapter of this book are of three kinds. The first are immediate policy proposals designed to check the tendency of the economy to continue on its current â€˜stop-goâ€™ The second type of proposals address more intermediate level demands. They are institutional in character and are designed to lead to sustained economic recovery. The third set of policy proposals are more long-term, deeply structural and even transformative of the economy, They are designed to make changes that would prevent a future recurrence of todayâ€™s continuing systemic crisis in the U.S. economy.