You also go into the vineyard (Sunday Reflections for February 14, 2010)

He went out and found others standing around; and he said to them, “Why are you standing here idle all day?” They said to him, “Because no one has hired us.”' He said to them, “You also go into the vineyard.” (Matthew 20)

I’m old enough to have lived through a few recessions. I’m also old enough to have parents who lived through the Great Depression. The current economic downturn is being viewed as somewhere in between these categories, hence its designation as the “Great Recession.”

The cover story of the current issue of The Atlantic is a disturbing report on the long-term effects of this recession’s worst consequence: our persistently high unemployment. The article summarizes the extensive body of research on the experience of unemployment. This includes unemployment’s consequences years after the experience, for individuals, communities and society.

We all recognize the emotional stress of being out of work. Research shows, however, that it is probably more devastating than we imagine.

Andrew Oswald, an economist at the University of Warwick, in the U.K., and a pioneer in the field of happiness studies, says no other circumstance produces a larger decline in mental health and well-being than being involuntarily out of work for six months or more. It is the worst thing that can happen, he says, equivalent to the death of a spouse, and “a kind of bereavement” in its own right. Only a small fraction of the decline can be tied directly to losing a paycheck, Oswald says; most of it appears to be the result of a tarnished identity and a loss of self-worth. Unemployment leaves psychological scars that remain even after work is found again, and, because the happiness of husbands and the happiness of wives are usually closely related, the misery spreads throughout the home.

Persons unemployed early in their adult lives are more prone to heavy drinking and depression years later. The lifetime earnings levels of young people who enter the work force during times of recession are permanently reduced compared to those who begin working in economically healthy time. And the significantly higher unemployment rate of men versus women is disruptive to both families and communities.

The weight of this recession has fallen most heavily upon men, who’ve suffered roughly three-quarters of the 8 million job losses since the beginning of 2008. Male-dominated industries (construction, finance, manufacturing) have been particularly hard-hit, while sectors that disproportionately employ women (education, health care) have held up relatively well…. At the time of this writing, it looks possible that within the next few months, for the first time in U.S. history, women will hold a majority of the country’s jobs.

Higher unemployment rates for men contribute significantly to violence, crime and drug abuse. Neighborhoods and communities that had seen real progress in these areas are now watching this progress reversed. Domestic violence rates are increasing. Out-of-wedlock births are increasing while marriage rates are declining.

Compounding the effects of this recession is that for most people it is exacerbating downward economic trends underway for at least a decade.

In a Pew survey in the spring of 2008, more than half of all respondents said that over the past five years, they either hadn’t moved forward in life or had actually fallen backward, the most downbeat assessment that either Pew or Gallup has ever recorded…. Median household income in 2008 was the lowest since 1997, adjusting for inflation.

The article’s author concludes that, while still mostly unseen at this point, the length and severity of this recession is causing serious disruption to personal lives and communities across the country. These consequences will be broad and deep.

We are living through a slow-motion social catastrophe, one that could stain our culture and weaken our nation for many, many years to come. We have a civic—and indeed a moral—responsibility to do everything in our power to stop it now, before it gets even worse.

There is wide acceptance that this recession is “different.” We are not just experiencing a hiccup in the business cycle but a serious breakdown in our economic engine. The recovery will likely be long, slow and uneven. Many communities and industries simply will not come back to their previous conditions.

This Great Recession is also raising questions about some of our economic realities and assumptions. The devastated construction and finance industries grew—with government collusion—to compensate for stagnating incomes and the loss of previously well-paying manufacturing jobs. Rather than face these problems directly, there is yet strong temptation to re-inflate these essentially nonproductive “bubbles.” In another case of economic denial and fantasy, government at all levels have been running ever-increasing deficits and accumulating enormous unfunded employee benefit obligations. None of this is going to be fixed quickly or easily.

But there are even more fundamental questions being asked. Why are so many communities in near-permanent states of depression? Why are economic inequalities growing? Why are we unable to have economic prosperity that doesn’t endanger the ecological health of the planet? Why are so many businesses focused on quarterly profits rather than long-term growth and development? Why can we not provide affordable health care to all our citizens? Why are there such enormous disparities in education? Why is our political process paralyzed when it comes to dealing with these problems?

The last question may be the most telling. The answer to it is that dramatic changes in our culture and indeed the world have resulted in new challenges for which there are no easy answers or consensus. Globalization is improving the standard of living for millions of previously impoverished people. At the same time, however, it is lowering that standard for millions of previously well-off people, as well as replicating much of the social chaos and ecological damage previously experienced in the developed world.

But the real challenge is even more fundamental. Technological innovation is creating such high levels of efficiency that in many areas of the economy, human labor is nearly superfluous. Bluntly, we are running out of things for people to do. This may be more recognized in Great Britain where what we call being “laid-off,” they call being “made redundant.” Yet surely it is now an accepted human right that no one can be considered “redundant.”

The challenge for us as a society is to reimagine what constitutes valuable work. There is no end to useful things people could be doing. For those things to constitute gainful employment, however, the benefits of economic efficiency have to be redistributed. Rather than making a relatively few investors fabulously wealthy, rather than constantly building and shrinking enormous corporate and government bureaucracies, rather than building ever-more houses and shopping malls, rather than manufacturing and marketing evermore pointless toys and gadgets—perhaps we need to be asking some really basic questions: What makes us happy? What makes for a good society? What do we want our world to look like?

For the truth is (but which we are too startled to realize) the human race is on the verge of making those questions, about which ancient people only dreamed, ones we can actually answer and do something about. In other words, as a species we are rapidly entering a whole new world which is asking of us a very different question than we faced before: Now that we don’t have to work to stay alive, what do we want to do that make us happy? Our problem, as so often happens, is that having finally gotten what we dreamed of for so long, we aren’t sure now what to do with it. Somehow, though, I think that’s a good problem to have and in solving will make us better people.

Be afraid. Be very afraid... (Updated)

…when Treasury Secretary Tim Geithner says there is nothing to be afraid of. NPR’s Michelle Norris interviewed him recently and questioned him about two things: 1) the prospects of a “double dip” or a second recessionary downturn, and 2) whether it’s really a good idea to be urging banks to be lending aggressively given the recent problems with bad loans and defaults.

Geithner says everything is wonderful: "We are not going to have a second wave of financial crisis." And when Norris asks, "So it's ok for [banks] to take risks right now?" Geithner responds, "Absolutely." Norris is understandably skeptical about all of this. Mike Shedlock obviously doesn’t buy it: "The arrogance and ignorance of Geithner are both appalling."

Be ready folks: 2010—to paraphrase Bette Davis/”Margo”—is going to be a “bumpy” year (and don’t be surprised by a major swoon on Wall Street). I hope to be posting more about this soon.

(Here's an earlier related post: Double Dip.)

Update: In an interview with ABC News today, Paul Krugman expressed his belief there is a "reasonably high chance" the economy will contract again in 2010. "I'm really worried about the second half [of the year]."

Running out of jobs? (2 updates)

(Perhaps it’s time to step away from the ELCA’s problems and look at problems that are of more consequence.)

A concern being raised by many economists is the potential for a “jobless recovery” from the current recession. In this scenario, economic activity begins to pick up but unemployment remains stubbornly high. One person in particular, however, has focused on this and raised serious concerns that this could be a long-term and even worsening development.

Martin Ford is a Silicon Valley software entrepreneur who has been studying and writing about technology produced automation and increased efficiency. The loss of manufacturing jobs is a well-known development of recent decades. Ford says this is already spreading into so-called knowledge industry employment and the process is certain to accelerate. The scenario he envisions is one of ever-growing “structural unemployment,” i.e. people indefinitely unemployed or grossly under-employed.

His blog has a lot of material and it is being picked up by others in the economics community. I’ll leave it to you to read more there (or in his new book) if you’re interested. Obviously if Ford is being prescient then dramatic changes and enormous challenges lie ahead.

Or are they actually already here? Unemployment figures are notoriously difficult to gather or interpret. It is widely accepted that many people that are under-employed or who have stopped looking for work are missed by these statistical reports. Many urban areas have large pockets of persistent double-digit unemployment and many people who haven’t worked in years. This reality is also common in many small towns and rural areas.

The social problems of such places have befuddled us for years: crime, gangs, drug abuse, mental illness, broken families, chronic illness, dysfunctional schools. One interpretation of this may not be as simplistic as it appears: people with nothing to do get into trouble. Ford is raising the alarm that this is a reality that, not only is not going away, but is actually growing.

What would happen if a society is developing in which an ever growing number of people are economically superfluous? If you have ever been unemployed you know how devastating it can be to your self-esteem. It doesn’t bring out your better self. Hollywood’s dystopian futures typically involve alien invasions, natural disasters, or horrendous wars. The future Ford is envisioning and warning about is much more mundane but equally disturbing: a world of millions of people with nothing to do.

Update: Elizabeth Warren is a Harvard law professor and chair of the congressional banking oversight panel. Her column today on Huffington Post presents a stark picture of the current state of the shrinking middle class. Notice in particular the chart showing the divergence, beginning in the 1970s, of growth in productivity and growth in hourly wages. This is one symptom of the situation Ford is describing: Why is wage growth not matching growth in worker productivity?

Update 2: Prior to yesterday's Washington job summit, economist and former Labor Secretary Robert Reich raised his concerns about the difficulty the recovery will have producing jobs in sufficient quantity and quality. Money quote:

But here's the real worry. The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that's been going on for years but which the Great Recession has dramatically accelerated. 

Beware of bankers in sheep's clothing (Sunday Reflections for November 15, 2009)

The heads of the world’s major banks have discovered that they have a bit of an image problem. A lot of people don’t like them or the companies they work for very much. So the biggest bank, Goldman Sachs, has been working on a strategy to change the public’s perception of them.

The problem, in their view, is that they just aren’t appreciated. People don’t understand what great guys they really are and how important their work is to the well-being of the planet (if not the universe). In fact—and they’ve been reluctant to share this information but realize they must now make it public—they are on a MISSION FROM GOD.

This secret was revealed by none other than Goldman CEO, Lloyd Blankfein. “I’m doing God’s work,” he told The Sunday Times of London.

"I know I could slit my wrists and people would cheer," he says. But then, he slowly begins to argue the case for modern banking. "We’re very important," he says, abandoning self-flagellation. "We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle." To drive home his point, he makes a remarkably bold claim. "We have a social purpose."

Blankfein omits a few recent bumps in this “virtuous cycle,” such as last year’s global economic near collapse. What, we might ask, is the “social purpose” of the loss of trillions of dollars in stock and real estate equity, throwing millions of people out of work, and putting governments trillions of dollars in debt to prevent the financial system from going into cardiac arrest?

Blankfein’s interview was reported just a couple weeks after a London conference on morality in the marketplace. Among the speakers was Goldman Sachs international vice president, Lord Brian Griffiths, who similarly insisted banks’ recent astronomical profits and employee bonuses were serving a higher purpose.

“The injunction of Jesus to love others as ourselves is a recognition of self-interest,” Goldman’s Griffiths said Oct. 20, his voice echoing around the gold-mosaic walls of St. Paul’s Cathedral, whose 365-feet-high dome towers over the City, London’s financial district. “We have to tolerate the inequality as a way to achieving greater prosperity and opportunity for all.”

Bloomberg.com also quotes the CEO of Britain’s Barkley Bank, John Varley, speaking at a similar event at another London church. “Profit is not satanic,” he said. And lest anyone miss the point, he added later, “Is Christianity and banking compatible? Yes.”

As expected, columnists and commentators had a field day ripping into the audacity of these claims. Rolling Stone’s Matt Taibbi (who has taken on Goldman Sachs before) identified the truly scary part of this story, which is that these guys very likely believe what they are saying. Living in the rarefied atmosphere at the top of the top, you only converse with people just like you. You convince one another that you all deserve to be where you are and that it really is to everyone’s benefit.

You think that reality coincides with your beliefs because your beliefs are true, whereas in truth it’s because you spend all your time with people who believe the same nonsense you do, and generations of your cultural ancestors just happen to have built very high walls all around you fools to keep reality from getting in and spoiling things.

As a result, famously evil nincompoops like Louis XVI and Adolf Hitler were genuinely surprised to discover most people didn’t buy into their systems and actually wanted to tear them down—which they did. Marie Antoinette thought she was being genuinely creative when she advised French peasants to deal with food shortages by eating cake. All it really showed was her total ignorance of what peasant life actually was like—the result, of course, of her never actually having to deal with real peasants.

Some have said Brian Griffiths’ “We have to tolerate the inequality as a way to achieving greater prosperity” may be the new “let them eat cake.” Compensation for Goldman Sachs 30,000+ employees will average over $700,000 this year. Hundreds will earns millions and even tens of millions—this in a company which a year ago was on the verge of collapse, threatening to drag down the country’s financial system with it, and bailed out by billions in federal tax dollars. “Inequality” seems like a meager word to describe this extravagance.

It’s a long stretch from Jesus “recognition” of self-interest to his endorsement of greed and larceny. There is no question that banks perform an important social service. But as one fund manager recently wrote,

[T]he public purpose of banking is NOT to provide profits per se to shareholders. Rather, the provision of the ability to earn profits is only a tool used to support the attendant public purpose.

The Wall Street bank behemoths have completely inverted this reality. Their purpose now is first to provide obscene salaries and profits and, if it’s convenient, to provide business capital and personal finance.

Christians, and Lutherans especially, have long recognized the value of vocation. Blankfein is right: our work can indeed be God’s work, whatever it is, if it meets human needs and serves to make the world a better place. Nor does a Christian ethic require equal compensation for all. Indeed, most ethical theologians recognize the inevitability of inequality in a capitalist system and accept it for the creativity and productivity it encourages.

At some point, however, gross inequality is not encouraging but discouraging as many people rightly sense the system is rigged and their efforts are not being fairly compensated. Blankfein says his people are paid so much because they are so enormously productive—but productive at doing what, besides making lots of money for themselves and their investors? How does their astronomical pay match their contribution to the betterment of society?

It’s now obvious that the dizzyingly complex financial schemes and instruments which have made banks so much money have also made our economy unstable and have cost millions of people their jobs and their savings. The incentive of seven and eight figure salaries is not leading to productivity but to greed and fraud. It is not doing God’s work but undoing it.

Alas for those who lie on beds of ivory,
and lounge on their couches . . .
who drink wine from bowls,
and anoint themselves with the finest oils. . . .
Therefore they shall now be the first to go into exile,
and the revelry of the loungers shall pass away. (Amos 6)

Economic recovery: Not V or U but X

Robert Reich, Sec of Labor under Bill Clinton, has spoken often and wisely about our current economic predicament. In particular, he has tried to express a viewpoint that is more concerned with average consumers and less with banking and politics. In this blog post, Reich says the economy we had won't and can't recover because it was unsustainable. That's why we are in the mess we're in.

"My prediction, then? Not a V, not a U. But an X. This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained."

"Invest" in a house? Not so much

“Your house is your biggest and best investment.”

In how many ways and from how many sources have we heard this bit of commonly accepted wisdom? The collapse of the real estate bubble is, of course, the universally acknowledged source of our current economic downturn. Everyone now agrees that in many, if not most, markets house prices had increased at unsustainable rates. Bottom line: all at once it was recognized that real estate prices were too high and had to come back down—in some places, way down.

Okay, so things got out of hand and it’s going to take awhile for prices to readjust to realistic levels. A lot of people are going to lose money and/or their houses, but a lot of those were houses people really couldn’t afford anyway. But, conventional wisdom says, “Your house is still your biggest and best investment.” Isn’t it?

A recent post and resulting conversation at Economist’s View makes clear this “conventional wisdom” isn’t nearly so simple or obvious, and may be just plain wrong. The post is a look at causes of the housing bubble, especially the question of whether easy credit (and the financial chicanery that created it) was the primary culprit. Read the post and the comments yourself for that debate (the whole thing is very informative).

What jumped out at me, however, was the assertion that something that has become a staple of popular financial wisdom is likely wrong: houses, even over the long haul, do not increase in value. “[T]he belief that real housing prices rise over time is false, the evidence suggests that real housing prices are relatively flat over the long-run.” The piece looks at and shoots down several of the reasons people believe real estate will inevitably increase in value. It also recognizes that in such a large and complex market there are exceptions, but at the national lever these are balanced by exceptions in the other direction.

In any case, the assumpton that you can buy a house at a reasonable price and in a good location, live in it for twenty years, and come out money ahead, it would seem, is simply wrong. Much more likely is that you will break even. Am I wrong that this directly contradicts the beliefs of the typical American consumer?

In other words, don’t think of your house as an investment. Perhaps you can think of it as an enforced savings plan. Best of all, however, is probably just to think of it as a (nice) place to live. This is not a message you are likely to hear on HGTV, from a mortgage loan officer, or from a real estate agent. But as the mess on Wall Street and Main Street continues to spread we should all be relearning this basic truth: when someone is trying to sell us something always ask, whose interest do they most have in mind?

Has recession fat lady sung yet? Many saying, “Oh no”

The run up in stocks may be petering out and a small chorus of voices is saying it’s time to batten down the hatches. For them the market’s climb has been fueled solely on naïve hopes and Obama good will. The ongoing problems are many:

• foreclosures continue, now spreading into higher end properties
  
• credit remains tight for both consumers and businesses industrial production has suffered the biggest decline since the Depression
• S&P 500 profits are now down 90%
  
• the true state of the auto industry is finally beyond denial with GM’s bankruptcy a foregone conclusion
  
• small and medium banks are under increasing stress from the collapse of commercial real estate where they had much more exposure than in residential mortgages
  
• consumer spending will continue to be weak with many facing very uncertain short term economic prospects while others increase savings to compensate for the devastation of their retirement plans
  
• and the big question still unanswered is: Where is the recovery going to come from?

About the only (potentially) positive factor is the fact that most of the stimulus money has not yet been dispersed. This will certainly help but already voices are calling for another stimulus package on the assumption (voiced at the time it was passed) that this one is not big enough. Few think Congress has the stomach for yet more deficit spending, however. If more spending is needed, it is unlikely Congress would pass such a plan until so much economic damage was done that its necessity was beyond dispute. One exception may be passage of another extension of unemployment benefits as there will be hard statistics to support this (and they are unlikely to drop anytime soon.)

One further psychologically depressive factor will be the growing awareness that whatever this recession’s depth, its length it going to be truly unprecedented. The tipped over “L” rather than the “U” now seems to be the almost unavoidable graph shape for this downturn. The simple loss of a truly staggering amount of money around the world can’t be overcome quickly or easily. Regardless of the markets’ gyrations we still have a lot of drama ahead before the fat lady gets her moment.

When we hit bottom, then what?

Paul Krugman is interviewed by the Cincinnati Enquirer (from Calculated Risk):

Q. What will it take to pull out of this crisis?

I'm in the camp that really worries about the L-shaped recession. We level off but we don't get the recovery. We hope it isn't, but it has all the markings of it. This looks like the kind of slump that has all the markings of where normal recovery forces are very, very weak.

It's hard to see where recovery comes from. Almost always the way a country recovers from a financial crisis is with an export boom. The problem is that we have a global crisis this time. So who are we going to export to, unless we find another planet to take our stuff?

Perils of optimism

A priceless cover from the Economist. Be careful little fishies!

(Note to CCblog users: the site is sending you here in error for my most recent posts. They are listed to the right and clicking on them will take you to the one you want. Sorry for the confusion.)

I'm back

A week in Las Vegas has meant no blogging but I hope to make up for it over the next few days. I'm still amazed how difficult the Ballagio, our supposedly luxury hotel, made it to access the internet. Free wifi in the lobby but with no place to sit. No wifi anywhere else including its many restaurants and bars or at the pool. In the room there was an ethernet port with service @ $15/day/laptop (and the cable, if you didn't have one, was $13). Nor was wifi readily available elsewhere on the strip from what I could tell. Oh well, enough complaining.

The stock market is in a nosedive this morning over the impending bad news for GM and Chrysler. Again, the ups-and-downs of the markets will drive you crazy if you pay too much attention to them (though it is hard not to). That said, there are still a number of voices saying we are a long way from being out of the woods and there is still not enough being done either in terms of stimulus (especially in Europe) or in restructuring the financial system. Yves Smith at Naked Capitalism draws attention to an article in Financial Times regarding continuing trouble with the banks. One quote:

Even if a recovery were to start early in 2010, as some optimistic forecasters believe, most of the pain of the recession is still ahead of us: unemployment and default rates will rise sharply everywhere. Most of the pain in the financial sector is also still ahead of us. This will feel like a depression long after it has ceased to be one.

In my own congregation I am hearing of reduced hours and mandatory days off. Yesterday a woman told me she lost her well-paying administrative job of 18 years when the company went out of business. An importer of items for fund raising programs, they were unable to get financing to carry them through this lean time. I am afraid this story is being repeated with small companies across the country but with little publicity.

Krugman sounds the alarm

Paul Krugman is really, really upset--and he's not alone. The Geithner toxic assets plan will be announced Monday but details are already available. Read Krugman's take below. As this and the AIG bonuses fiasco are showing, what to do with the insolvent bank, mortgage and insurance institutions is the big issue, more so than the stimulus plan. Krugman thinks Obama could be making huge and potentially fatal (for his administration) mistake here. Hopefully he's wrong--and if not, that Obama is paying attention.

"Despair over financial policy"

"More on the bank plan"

Meanwhile, a cry has gone up (!) for Prof. Krugman to come the rescue and replace Mr Geithner.


But as Calcutated Risk reminds us Krugman himself thinks this is a bad idea:

And for those of you wondering about yours truly — I’m temperamentally unsuited, have never had any desire for the job, and probably have more influence as an outside gadfly than I ever could in DC.

"Takeover" or "nationalization"?

(Click on above to enlarge.) I’ve never seen Gallup intentionally demonstrate the limitations of polling. Wording is everything, which we already knew but often forget. It also shows how important education is if the general public is going to have any idea what is going on as Team Obama tries to fix our economic train wreck.