Political Economy category archive

Bonddad on the new unemployment figures:

Remember, I’m working from the assumption that the worst we’ll see in job losses is a 50% loss of all jobs created during the last expansion. Accelerating job losses indicate we’re moving into phase 2 of the recession — the period when companies start laying off larger numbers. Compounding this issue is we’re at the end of a fiscal year for most companies. Management is thinking, “let’s just get this over with before the end of the year so it’s reflected on this year’s earnings.” It’s akin to ripping the bandage off quickly simply to get it over with.

I ran out to the local liquor store today.

The owner got talkative. He told me that, for the first time in the 17 years he’s owned the store, he is having to roll and deposit loose change in his daily bank deposits.

All the time in the past, he’s had to withdraw change so his cash drawer would be ready for business the next day.

People are buying their sixpacks with loose change. Which means they probably shouldn’t be buying the sixpacks.

It also means they really, really need that drink.

Bonddad is such a little optimist.

Millions for Millikens. Not one cent for millworkers.

Several years ago, when I was out on the Left Coast doing a training gig, I registered with the L. A. Dogtrainer (as Harry Shearer calls it).

From time to time, seldom more than once a month, I get email notifications from them.

This one is truly special.

Bonddad looks at a possible unintended positive consequence of the crash in consumer spending:

Banks are starting to attract customers the old fashioned way; they are luring people by paying them a meaningful rate on their deposits. Simply put, banks must return to standard, nuts and bolts banking. They need to increased their deposit base to make loans. And the way to do that is to acquire depositors. So while the retail news is bad in the short run, it looks as though an important and fundamental change may be starting. And that’s a good thing.

Unemployment at the highest total in seven years.

Local mall drowning in debt (not that I care all that much–I use the other local mall).

Leyland trucked.

QVC not so qute any more.

And ya know what?

On January 21, 2009, it’s not going to magically change into Obamanomics.

We’re gonna be celebrating Bushonomics for years.

James Galbraith on Radio Times discussing The Predator State on how the Republican Party sold–and sold out–the country. From the Radio Times website:

Monday 11/10/2008
Hour One
We discuss the economic crisis with JAMES GALBRAITH, Professor of Government and Business at the LBJ School of Public Affairs at the University of Texas at Austin. He is author of several books, most recent being “The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.”

To listen, go to the website and use the “search” feature to go to 11/10/2008 or click here (Real).

. . . is pretty much how Robert Reich characterizes bailing out banks and businesses by giving them moola, pointing out that

But even if credit were flowing, those loans wouldn’t save jobs. Businesses want to borrow now only to remain solvent and keep their creditors at bay. If they fail to do so, and creditors push them into reorganization under bankruptcy, they’ll cut their payrolls, to be sure. But they’re already cutting their payrolls.

He goes on to say that

Introductory economic courses explain that aggregate demand is made up of four things, expressed as C+I+G+exports. C is consumers. Consumers are cutting back on everything other than necessities. Because their spending accounts for 70 percent of the nation’s economic activity and is the flywheel for the rest of the economy, the precipitous drop in consumer spending is causing the rest of the economy to shut down.

I is investment. Absent consumer spending, businesses are not going to invest.

Exports won’t help much because the of the rest of the world is sliding into deep recession, too. (And as foreigners — as well as Americans — put their savings in dollars for safe keeping, the value of the dollar will likely continue to rise relative to other currencies. That, in turn, makes everything we might sell to the rest of the world more expensive.)

That leaves G, which, of course, is government. Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression. Even Fed Chair Ben Bernanke is now calling for a sizable government stimulus. He knows that monetary policy won’t work if there’s inadequate demand.

The Current Federal Administration, of course, has perpetuated a policy of making the rich richer, while making the poor poorer.

This is not a slogan.

This is an accurate description of what they have done.

Read Mr. Reich’s entire post. He suggests that the way out of this mess is to adopt strategies that steer money to those who must spend it, not to those who are able to hoard it.

New Jersey to close restrooms in state parks on weekends.

What precentage of visitors go to their state parks on weekdays? one wonders.

(New Jersey–ed.) DEP Commissioner Lisa Jackson said residents will still be able to visit the affected parks on weekends; they just will find that shops and restrooms in administrative buildings will not be accessible. In addition, residents planning to camp at Bass River, Jenny Jump and Stokes parks will have to make their camping reservations ahead of time on weekdays, she noted.

So far this year 1.2 million jobs have been lost, 651,000 in the past three months alone, showing labor markets are crumbling faster and heightening chances of a deep recession.

Over at the Booman Tribune.

One of the stories making the rounds is that current economic situation is the fault of poor folk: specifically that government efforts to stop racial and ethnic profiling in bank lending practices somehow forced lending institutions to make loans to persons who couldn’t afford to repay them.

One of the laws mentioned in this urban legend lie is the Community Redevelopment Act of 1977. This law was intended primarily to end the practice of redlining, under which lending organizations would refuse to lend to persons living in particular areas regardless of the creditworthiness of the loan applicants.

Joe DiStefano points out in yesterday’s local rag that (emphasis added):

. . . CRA only applied to loans made directly by banks. It does not apply to mortgage firms, some of them owned by banks, that specialized in subprime loans that caused the trouble.

In Philadelphia, CRA-compliant banks such as PNC and Mellon PSFS were pushed out of the inner-city home loan market in the late 1990s by subprime lenders. The latter weren’t subject to either the CRA or to traditional credit discipline, but found a ready market for higher-priced, high-risk loans on Wall Street.

In other words, the CRA had nothing to do with the ditzy mortgages that started all this. Blaming the CRA is as nonsensical as blaming Franny Mae and Freddie Mac, who got into ditzy mortgages late and only because it seemed the only way they could keep business. By then, the merry-go-round was already spinning too fast (follow the link for a fact-filled discussion of the roles of Fannie and Freddie).

But, you see, under Republican Economic Theory, the poor must be to blame.

Here’s how it goes:

1. Wealth = Virtue (see the proof here).

2. The wealthy, having wealth, are virtuous.

3. The virtuous do not do bad things.

4. The poor, having no wealth, are not virtuous.

5. The poor, not being virtuous, are to blame. For everything. Q. E. D.

No, poor folk did not cause this mess. (But other folks believe the scapegoating because, I guess, they just don’t want to take the time to determine whether there’s a fact behind each talking point.)

The current economic situation results logically from Republican Economic Theory.

Republican Economic Theory does not attempt to understand economics.

It is no more than a fancy suit of clothes to disguise the purpose of the Republican Party: to make the rich richer and the poor poorer.

(Slightly edited to correct poor phrasing at 20:08 EDT 11/03/2008.)

Change we can trust:

In recent days, data have shown that U.S. consumer spending in September was down 0.4% on a year-over-year basis, the first such drop since the recession of 1991. And it turns out that the U.S. economy contracted at a 0.3% annualized rate in the third quarter, as consumer spending declined at the fastest rate in 28 years.

Why such worry? On top of watching their retirement savings dwindle and foreclosure notices rise, reports about mass layoffs keep rolling in. With weekly initial claims for state jobless benefits hugging the half million mark, a bottom of the labor market doesn’t appear to be in sight.

One more time:

It wasn’t the fast-and-loose bankers, the shady mortgage sellers, the throw-caution-to-the-winds investment banks, the deal-from-the-bottom-of-the-deck hedge funds, or any of the other the miscreants who made it happen.

It was Republican Economic Theory that did it.

It was the Republican policies–the ones that allowed bankers to be fast and loose, mortgage sellers to be shady, the investment banks to throw caution to the winds, the hedge fund managers to deal from the bottom of the deck, the policies that worship wealth as a sign of virtue–that did it (emphasis added below).

Long before the financial chaos of September and October – before Lehman Bros. went bankrupt and Merrill Lynch needed to be rescued by Bank of America, before the government bought an $85 billion stake in American International Group and adopted a $700 billion bailout, before credit markets froze and the stock market tumbled – the U.S. economy was in trouble.

The nation has been hemorrhaging jobs all year, and consumers already had cut back on their shopping sprees. Housing prices were well into a downward spiral, and consumer confidence started dropping in January.

Perhaps all that’s left is for an official declaration that the U.S. economy is in a recession. The first step in that pronouncement could come next Thursday, when the government is to release its initial estimate of third-quarter gross domestic product, the broadest measure of the economy.

Chrysler LLC says it will accelerate the closure of its sport utility vehicle factory in Newark because of the slowing global economy and a continuing shift toward smaller vehicles.

The Newark closure will be effective at the end of the year and affect about 1,000 jobs, the company said in a news release.

Of course, it doesn’t help that the American automobile industry is headed by idiots.

Robert Reich:

Pardon me for asking, but if a company is too big to fail, maybe – just maybe – it’s too big, period.

We used to have public policies to prevent companies from getting too big. Does anyone remember antitrust laws? Somewhere along the line policymakers decided that antitrust would only be used where there was evidence a company had so much market power it could keep prices higher than otherwise.

We seem to have forgotten that the original purpose of antitrust law was also to prevent companies from becoming too powerful.

(snip)

Maybe the biggest irony today is that Washington policymakers who are funneling taxpayer dollars to these too-big-to-fail companies are simultaneously pushing them to consolidate into even bigger companies.

And the rest of us are too small to be helped.

My project got cancelled.

My current customer’s client, which is not a member of the financial sector, is going into armadillo mode until the economy settles down.

My customer had to lay off two of his full-timers, in addition to me, a contractor, and reshuffle the remaining work to his most senior guys (I would have done the same thing, by the way).

$700,000,000,000 bailout divided by 9,387.61 increase in the DJI yesterday = $74,566,369.93 per point.

Don’t worry. Be happy.