Thursday, May 26, 2011

Remember the American Dream? Shhh, they might be listening.

Initial unemployment claims jumped unexpectedly last week when economists had predicted claims to continue to subside. The economists they poll for these opinions seem to always get these things wrong. It’s like the kid you remember from high school that could consistently score less than 50% on a true/false quiz, a knowledge black hole where the only things they know are wrong.

Economists that do have a reputation for getting these things right are predicting that the GDP numbers are going to continue shrinking quarter to quarter. Paul Krugman is still predicting the third Depression, the first was the Long Depression from 1873 to 1896 and then the second was Great Depression in the 1930s. He’s predicting this one to be another Long Depression where misery is widespread but not as severe as the Great Depression.

My take on this is the continued high unemployment numbers even as new jobs are being created is indicative of the falling wages you would expect to see during a Depression. Upswings in economic activity are common in these circumstances but each backslide is worse than the one before and we could easily see another big backslide anytime.

Falling wages are sucking more wealth from the middle class all the time so any economic shock becomes harder for the average family to weather. Red states are cutting unemployment coverage down to 20 weeks and making food aid harder to get. This isn’t just mean spirited, it’s really much worse. You can find the answer in Econ 101, if the people who still have money are afraid to spend it, the economy simply goes into a death spiral. The lack of spending causes layoffs, businesses to fail, mortgages go unpaid, tax collections plummet and it all repeats again and again.

The Republican response is austerity across the board, cut wages, cut jobs, don’t spend anything, cut benefits, no “welfare” for anybody. (except the rich)  To balance the budget they sell off public assets for pennies on the dollar and then lease them back at the equivalent of double digit interest. This government fire sale is charging ahead like never before and as deflation and shrinking economic activity continue, these leased assets consume an ever bigger portion of declining tax revenue.

Eventually there is nothing left to sell and nothing left to cut and nothing left to privatize. Then you will be living in a libertarian paradise, if successful it will resemble something like the old Soviet Union where everything is organized in giant corporate structures that are run by a handful of elites. It may even have a veneer of socialism to keep the proletariat in line or maybe they’ll go with an absolute security state instead.

Of course it could turn out like that other libertarian paradise of Somalia but where ever we end up it won’t include the American Dream that we used to take for granted.


Anonymous said...

Old Soviet Union/present-day Somalia...hmmm. What to choose...what to choose? Those are my only choices? You mean Scandanavian-style democratic socialism is no longer on the menu? Its too late to get an order of that with a side of New Deal banking regulations and Hamiltonian trade policies. This is worse than McD's! Oops-can't diss McD's-they are the only ones hiring.