As this table of quarter-to-quarter GDP change shows, the first signs of this recession were seen as early as early 2007, with no growth in the US in the first quarter, and negative growth in Japan the next quarter. Signs remained scattered until the second quarter of 2008, when change was negative for four of the big seven, and zero for one other, with negative growth overall for the Euro area and the EU.
Quarterly GDP Volume Growth
Percentage change on the previous quarter
The table of changes compared to a year before is less sensitive in terms of showing early declines, with the first negative growth showing up in Italy in the second quarter of 2008, but now shows much deeper ones, with the OECD drop of 4.2 exactly double that of the quarter-to-quarter figure:
Quarterly GDP Volume Growth
Percentage change on the same quarter of the previous year
NY Times reported:
The combined gross domestic products of the 30 countries in the organization fell 2.1 percent in the first quarter when compared with the previous quarter. If that preliminary estimate holds, it would be the largest drop since 1960, when the organization began collecting such data. The G.D.P. of member countries fell 2 percent in the final quarter of 2008.
"The figures confirmed the impression that we already had from the individual countries' reports," said Jörg Krämer, chief economist at Commerzbank in Frankfurt. "It shows the world economy was in free fall in the final quarter of last year and the first quarter of this year."
Despite the dismal data, Mr. Krämer said that "the economy is now in its landing approach." He predicted that the world economy would begin to expand modestly in the fourth quarter of this year, followed by "subpar growth" in 2010.
But economist Nouriel Roubini put a less rosy gloss on things, according to Reuters:
Bottom of US Recession Hasn't Arrived: Roubini
Economist Nouriel Roubini on Wednesday said the end of the global recession is likely to occur at the end of the year rather than the middle, and that U.S. growth will remain below potential afterwards.
"We are not yet at the bottom of the U.S. and the global recession," said Roubini. "The contraction is still occurring and the recession is going to be over more toward the end of the year rather than in the middle of the year."
"There is still too much optimism that a recovery is just around the corner," said Roubini, a professor at New York University's Stern School of Business and chairman of RGE Monitor, an independent economic research firm.
This is consistent with Roubini's earlier assessment, at greater length in the NY Review of Books forum:
Nouriel Roubini: It's pretty clear by now that this is the worst financial crisis, economic crisis and recession since the Great Depression. A number of us were worrying about it a while ago. At this point it's becoming conventional wisdom.
The good news is probably that six months ago there was a risk of a near depression, but we have seen very aggressive actions by US policymakers, and around the world. I think the policymakers finally looked into the abyss: they saw that the economy was contracting at a rate of 6 percent-plus in the US and around the world, and decided to use almost all of the weapons in their arsenals. Because of that I think that the risk of a near depression has been somewhat reduced. I don't think that there is zero probability, but most likely we are not going to end up in a near depression.
However, the consensus is now becoming optimistic again and says that we are going to go from minus 6 percent growth to positive growth in the second half of this year, meaning that the recession is going to be over by June. By the fourth quarter of 2009, the consensus estimates that growth is going to be positive, by 2 percent, and next year more than 2 percent. Now, compared to that new consensus among macro forecasters, who got it wrong in the past, my views are much more bearish.
I would agree that the rate of economic contraction is slowing down. But we're still contracting at a pretty fast rate. I see the economy contracting all the way through the end of the year, going from minus 6 to minus 2, not plus 2. And next year the growth of the economy is going to be very slow, 0.5 percent as opposed to the 2 percent-plus predicted by the consensus. Also, the unemployment rate this year is going to be above 10 percent, and is likely to be close to 11 percent next year. Thus, next year is still going to feel like a recession, even if we're technically out of the recession.
The continued high levels of unemployment could best be countered by a government jobs program, like the WPA, which is at least twice as effective in the number of jobs created per dollar spent than the most efficient parts of the stimulus package. But that's not going to happen without very significant outside agitation.
No one credibly challenged Roubini's assessment, but the forum was much more wide-ranging in the subjects discussed, and several other observations bear mentioning. Conservative Niall Ferguson worried about what he saw as the two "contradictory" policies of Friedmanite monetarism--giving tons of cash to the banks in search of liquidity--and Keynesin fiscal stimulus--investing in public spending. Being a conservative, Ferguson approved of money for the banks, but not for the rest of us.
Krguman followed him, starting from a realistic look at where we are, working through an empirically-grounded explanation of what's happening right now, and swinging around, eventually, to a direct refutation of Ferguson's contradiction" thesis:
Paul Krugman: Let me respond to that a bit. Let's think about what is actually happening to the global economy right now. On the one side there has been an abrupt realization by many people that they have too much debt, that they are not as rich as they thought. US households have seen their net worth decline abruptly by $13 trillion, and there are similar blows occurring around the world. So the people, individual households, want to save again. The United States has gone from approximately a zero savings rate two years ago up to about 4 percent right now, which is still below historical norms; but suddenly saving is occurring.
That saving ought to be translated into investment, but the investment demand is not there. Housing is flat on its back because it was overbuilt; housing bubbles collapsed not only in the United States, but across much of Europe. Many businesses cannot get access to capital because of the breakdown of the financial system. But even those that do have access to capital don't want to invest because consumer demand is not there. Between the housing bust and the sudden decision of consumers to save, after all, we have a world with lots of excess capacity. The GDP report that just came out says that business-fixed investment, non-residential fixed investment, essentially business investment, is falling at a 40 percent annual rate.
This causes a problem. There are lots of people who want to save, creating a vast increase in savings, not only in the US but around the world, combined with a sharp decline in the amount that the private sector is willing to invest, even at a zero interest rate, or rather even at a zero interest rate for US government debt, which is what the Federal Reserve has the most direct impact on.
One way to think about the global crisis is a vast excess of desired savings over willing investment. We have a global savings glut. Another way to say it is we have a global shortage of demand. Those are equivalent ways of saying the same thing. So we have this global savings glut, which is why there is, in fact, no upward pressure on interest rates. There are more savings than we know what to do with. If we ask the question "Where will the savings come from to finance the large US government deficits?," the answer is "From ourselves." The Chinese are not contributing at all.
Those extra savings are, in effect, the savings that America has wanted to make anyway, but that US business is not willing to invest under current conditions. That is the way Keynesian policy works in the short run. It takes excess desired savings and translates them into some kind of spending. If the private sector won't do it, the government will. There is actually no contradiction between the Federal Reserve's actions and the actions of the US government with a fiscal stimulus. It's very much necessary to do both. By buying a lot of private securities, the Federal Reserve is essentially going out there and playing the role that the private banking system is no longer playing properly; by engaging in investment, the federal government is playing the role that businesses are not now willing to play. All that debt-financed spending on infrastructure by the Obama administration is basically filling the hole left by the collapse in business investment in the United States.
Krugman went on to say that his real concern is the GOP senators calling for "another round of Bush-style tax cuts that will reduce revenues by $3 trillion over the next decade." And he concluded by saying:
This crisis has been so large and the political process has been so sluggish that the difficulties have been greater than expected. And yes, there are some green shoots. Things are getting worse more slowly, but we have not managed to head off a crisis that could turn out to be self-reinforcing, and leave us in this trap for many, many years.
What worried me about this exchange is that Ferguson appears to be something close to the stand-in for the de facto Obama Administration position--a point I'll return to shortly.
But first, Soros weighed in, aiming directly at what Obama is trying to avoid thinking about:
George Soros: There are two features that I think deserve to be pointed out. One is that the financial system as we know it actually collapsed. After the bankruptcy of Lehman Brothers on September 15, the financial system really ceased to function. It had to be put on artificial life support. At the same time, the financial shock had a tremendous effect on the real economy, and the real economy went into a free fall, and that was global.
The other feature is that the financial system collapsed of its own weight. That contradicted the prevailing view about financial markets, namely that they tend toward equilibrium, and that equilibrium is disturbed by extraneous forces, outside shocks. Those disturbances were supposed to occur in a random fashion. Markets were seen basically as self-correcting. That paradigm has proven to be false. So we are dealing not only with the collapse of a financial system, but also with the collapse of a worldview.
That's the situation that President Obama inherited. He's faced with two objectives. One, he must arrest the collapse and, if possible, reverse it. Second, he has to reconstruct the financial system because it cannot be restored to what it was. This is a new situation. When people see this crisis as being the same as previous financial crises, they're making a mistake.
Obama's failure to push for fundamental regulatory reforms now when the banks are least able to resist, is indicative of his failure to really grasp the lessons that Soror is trying to focus our attention on. From all his market-worshiping talk, it appears that Obama is quite inclined to agree with the following assessment Ferguson offered later on:
N.F.: Well, I tell you what, I feel depressed after what I've heard tonight. We are now contemplating a massive expansion of the state to substitute for the private sector because that's the only thing Paul thinks will deliver growth. We're going to reregulate the markets, we're going to go back to those good old days. Where were you in the 1970s when all these wonderful regulations were in place? I don't remember that going too smoothly. But what else are we going to do? We're going to print money. Almost limitlessly we'll print money. That's going to be fine, too. And when we're done with that, we're going to raise taxes. What a fabulous package we have in store for us. You know, back in late 2007, I was asked what my big concern was, and I said, "My concern is that we're going to get the 1970s for fear of the 1930s." It's very easy to forget, in your iron indignation at the failure of the market, where the true mainsprings of economic growth lie. The lesson of economic history is very clear. Economic growth does not come from state-led infrastructure investment. It comes from technological innovation, and gains in productivity, and these things come from the private sector, not from the state.
Of course, any sane person will tell you that the 1930s were much, much worse than the 1970s, so Ferguson's fears are absurd on their face. And it's also pure poppycock that "Economic growth does not come from state-led infrastructure investment." Not only did the immediate post-WWII period of unrivalled growth and broadly-shared prosperity come largely from such investment--the GI Bill boosting massive increases in a highly educated workforce, VA mortgages driving an unprecedented housing boom, the interstate highway system creating a national economy far more integrated and robust than ever before, and military spending at levels never seen in peacetime before--but the "technological innovation, and gains in productivity" he claims are the real well-springs of economic growth also came from state-lead investments, especially in aerospace, with its multi-generational spin-offs into the computer and communications sectors, and their subsequent spill-overs into manufacturing. Without government investments in cutting-edge technologies decades before private markets appeared, there never would have been a computer revolution, a communications revolution, or anything remotely resembling our current high-tech sector.
Getting right back down to everyday brass tacks, though, Krugman pointed out:
The other thing not to miss is the importance of a strong social safety net. By most accounts, most projections say that the European Union is going to have a somewhat deeper recession this year than the United States. So in terms of macromanagement, they're actually doing a poor job, and there are various reasons for that: the European Central Bank is too conservative, Europeans have been too slow to do fiscal stimulus. But the human suffering is going to be much greater on this side of the Atlantic because Europeans don't lose their health care when they lose their jobs. They don't find themselves with essentially no support once their trivial unemployment check has fallen off. We have nothing underneath. When Americans lose their jobs, they fall into the abyss. That does not happen in other advanced countries, it does not happen, I want to say, in civilized countries.
And there are people who say we should not be worrying about things like universal health care in the crisis, we need to solve the crisis. But this is exactly the time when the importance of having a decent social safety net is driven home to everybody, which makes it a very good time to actually move ahead on these other things.
And that brings us right to the Huffington Post story about the families featured in Obama's 30-minute ad, and how little difference his presidency has made in their lives so far:
Obama's "American Stories": Families Profiled In Campaign Ad Struggling Six Months Later
Arthur Delaney
First Posted: 05-29-09 09:55 AM | Updated: 05-29-09 07:21 PM
As Election Day neared last fall, the Obama campaign went big with a 30-minute television ad that profiled four American families struggling to keep afloat in a worsening economy. Between each of the "American Stories," as Obama called them, the video showed the candidate on the hustings, promising "a rescue plan for the middle class."
Four months into Obama's presidency, only one of those folks has seen anything resembling a rescue -- and it wasn't because of any government program. After the ad aired, a mysterious angel donor helped cover the costs of surgery and copayments for the Ohio retiree who suffered from crippling rheumatoid arthritis in her right hand.
But not much has changed for the New Mexico educator. And the Ford employee in Kentucky has been anxiously watching the administration as it guides General Motors into bankruptcy, a process with ripple effects that could cost him his job. Things are bad enough for the fourth person featured, Rebecca Johnston, a 34-year-old mother of four in Missouri, that she has come up with a rescue plan of her own.
Obama said in the ad, Johnston is "all about her family." That's why next week she'll be joining the Army Reserves.
"My kids' ages range between 15 to 3. At this point I look at it like I can't contribute anything to their college, I can barely make their health care costs, we're just skimming by paycheck to paycheck," Johnston told the Huffington Post.
The families profiled aren't angry with Obama, as the story goes on to explain:
Despite her personal sacrifice, Johnston said she still thinks President Obama is doing a decent job.
"I believed in everything that he wanted to do for us," she said. "I'm not disappointed yet."
The positive feelings of the participants in the Obama campaign ad reflect recent polls showing that the president continues to receive high approval ratings despite rising unemployment and economic uncertainties.
Mark Dowell, a union rep at a Ford plant in Louisville, Kentucky, also approves of the young administration.
"I really truly think the Obama administration is doing everything they can to help out the domestic auto industry," he said. "This has got nothing to do with the president allowing me to be in this commercial."
And they've even been attacked by rightwingers:
The New Mexico educator, Julianna Sanchez, 43, said in a telephone interview that right-wing radio host Rush Limbaugh didn't like her story.
"I had phone calls coming in telling me Rush Limbaugh's talking about you, everybody's talking about you," she said.
Obama described Sanchez as a widow with two children and a mortgage in Albuquerque, N.M.
"Financially, the pressure is just to keep your head above water," Sanchez said in the Obama ad. "So you don't feel like you're drowning all the time. Health care, food, electric, gas -- it takes out so much out of my pay check. You go buy a gallon of milk and you're like going ok -- is it a gallon or half gallon? What can I afford? You feel like you can't breathe even though you need to breathe."
Limbaugh certainly found something to criticize about the Sanchez segment.
"This humongously large fat family eating dinner at a huge table," the right-wing talk show host told his audience. "I said my gosh, this is a bad TV show. Mom goes off to teach problem kids at what looks like a kid prison...Mom has to ration milk because of high gas prices, bad economy. This fat family had to be twelve people sitting around the dinner table."
"He judged me for two and a half minutes," Sanchez said.
Sanchez said her basic situation hasn't changed since the ad aired. She works at a school for at-risk kids and takes care of a 7-year-old with special needs in the afternoon. At night, she takes business classes online.
....
The Stuarts, an older couple in Sardinia, Ohio, also took some right-wing heat for their role in Obama's ad. Namely, the conservative FreeRepublic.com questioned their existence. (There are no Stewarts in Stuarts' county -- FreeRepublic.com had the wrong spelling.)
And Juanita Stuart, 65, told the Huffington Post that some people called their house to say strange things.
"One gentleman stated that he was my grandson. He said I'm right outside your door cutting your grass," Stuart said. She asked her husband, Larry, to look outside. Nobody was there. "The next week somebody messed with my car."
Well, God bless those folks for their patience, but unlike Paul Krugman, they probably have no idea what a civilized nation does to ensure that it's people can live with dignity, even in the midst of hard times. And isn't it way past time that they found out first hand?
Definitions
The OECD area (i.e. OECD-Total) covers the 30 OECD member countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States.
The euro area (13) covers the following 13 OECD member countries: Austria, Belgium, Finland, France, Germany, Greece, Italy, Ireland, Luxembourg, Netherlands, Portugal, Slovak Republic and Spain.
The euro area covers the euro area (13) plus Cyprus , Malta and Slovenia.
The European Union covers the euro area plus Bulgaria, Czech Republic, Denmark, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Sweden and United Kingdom.
The Major Seven are Canada, France, Germany, Italy, Japan, United Kingdom and United States. |
