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The Recession Analysis I Havenít Seen, Or Why We May be About to Make Economic History

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marmar Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Dec-04-07 10:18 AM
Original message
The Recession Analysis I Havenít Seen, Or Why We May be About to Make Economic History
from TPM Cafe:



The Recession Analysis I Havenít Seen, Or Why We May be About to Make Economic History
By Jared Bernstein | bio


The media has been brimming with recession analyses, but as far as Iíve seen, itís all been from the perspective of financial markets. The central question of these articles is what impact a downturn might have on the markets. Whatís missing, of course, is an analysis of the impact of recession on those of us who depend on paychecks, not stock portfolios.

Thatís a huge oversight, because this may be the first business cycle wherein the typical familyís real income fails to regain its prior peak.

First, a little background. While the question of whether a recession will occuróor is already underwayóis compelling, itís important to recognize that from a living standards perspective, thereís not a lot of difference between an economy thatís growing at a 0.5% pace and one thatís contracting at -0.5% (current forecasts for growth this quarter range from about 0.5% to 1.5%). Most commentators will tell you that if 0.5% is the trough, weíll have dodged a bullet, but it just ainít so. Recession or not, when the economy grows too slowly, employment growth slows, unemployment rises, and real wages and incomes take a hit.

Here's where we stumble on an extremely telling possibility, one weíll miss if we focus solely on the Dow: this could be the first recovery on record wherein the real (inflation-adjusted) median family income fails to regain the ground it lost since the last business-cycle peak in 2000.

The chain of events in a slowdown is consumers and/or investors stop spending, the macro-economy slows or contracts, and employers react to the diminished demand for the goods and services they produce by laying workers off, cutting their hours, and shelving hiring plans. The weakening job market will lead to lower wages, true, but the real damage to the income of working families comes from the disappearance of work.

That why median incomeóthe 50th percentile, right in the middle of the income scaleóalmost always declines in recessions. In the last two downturns, this middle-class metric fell not only in the relatively short recessions, but in the initially weak recoveries that followed. Though the early 1990s recession ended in 1991, it wasnít until 1996 that the real median family income recovered.

In the second half of the 1990s, it grew solidly, at 2.2% per year, as uniquely tight job markets helped to ensure that the benefits of faster productivity flowed broadly to the middle class. In the current recovery, productivity growth has been even faster, yet real family income fell through 2004, and has since crept along at less than one percent per year.

As of 2006, the most recent data, the typical familyís income remained 1.7%, or about $1,000, below its 2000 peak. We might make that up this year, though the presence of faster inflation and slower job growth as the year winds down make it a tougher call. But in a recovery as productivity rich as this one has been, simply regaining the prior peak is an absurdly low bar.

The fact that real middle-class income may barely make it back to its 2000 peak stands as the strongest indictment against the current American economy. Itís partly due to the fact that this recovery began with the longest jobless period on record, but the forces of inequality are the main driver of this unfortunate outcome. Globalization, YOYO economics, and the absence of worker bargaining power have interacted to steer the lionís share of the economyís growth to a narrow sliver at the top of the wealth scale. ......(more)

The complete piece is at: http://www.tpmcafe.com/blog/coffeehouse/2007/dec/02/the...



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ayeshahaqqiqa Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Dec-04-07 10:21 AM
Response to Original message
1. Paychecks are the key
If people don't have money to spend on stuff, they don't buy. And if they don't buy, companies go out of business.
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marmar Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Dec-04-07 10:40 AM
Response to Reply #1
2. Yup, and it looks like the Corporate "geniuses" are going to have to find out the hard way....
:nopity:
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Deja Q Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Dec-04-07 11:44 AM
Response to Reply #2
5. India and China can't help there
:(

Or can they?

:)

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Qutzupalotl Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Dec-04-07 12:48 PM
Response to Reply #1
6. Will the minimum wage hikes be enough to stem the bleeding?
Getting money into the hands of millions who will spend it has got to help. The question is, will it be enough?

(The hikes take effect in the summers of 2007, 2008 and 2009.)
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ayeshahaqqiqa Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Dec-04-07 01:16 PM
Response to Reply #6
7. too little too late, I fear
Many states, such as mine, have hiked their minimum wage, but it still isn't enough for many to make ends meet.
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flashl Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Dec-04-07 10:56 AM
Response to Original message
3. IF the Consumer Price Index (CPI) basket is empty
why can't we deduce that there is already a recession for some Americans? Like the "working" poor.

And, doesn't recession really depends on an individual's earning capacity in this stratified economy?
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marmar Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Dec-04-07 11:29 AM
Response to Reply #3
4. Great points.....
n/t
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tom_paine Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Dec-04-07 01:22 PM
Response to Reply #3
8. The disinformation program is very VERY close to complete, then.
n/t
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