Recovery – or Not – in Words and Pictures

First, the pictures. Paul Swartz of the Council on Foreign Relations has a new version of his charts on the current recession in historical perspective, which I first linked to in June. The overall impression? We are still considerably worse off today than in other postwar recessions at this point (21 months in), although some indicators appear to be bottoming out.

Now the words. Edward Harrison of Credit Writedowns has a guest post at naked capitalism presenting the arguments for a robust recovery and for no recovery at all. He cites Joseph Stiglitz for the proposition that statistical GDP growth isn’t everything, and extends the point to argue that  you can have “low-quality” GDP growth if that growth is financed by debt without corresponding investment. When you happen to control the world’s reserve currency you can do this for quite some time, and there’s no saying we can’t do it for a while longer. So one possibility Harrison foresees is a reasonable growth fueled by cheap money, yet no change to some of our underlying economic problems, including a financial sector with a put option from the federal government.

By James Kwak

8 responses to “Recovery – or Not – in Words and Pictures

  1. Not
    http://market-ticker.denninger.net/archives/1422-The-Consumer-Credit-Game-Is-OVER.html
    Karl lays out a convincing argument for “not”.
    The extend and pretend with the banks and Federal gov’t borrowing depend on growth to be successful, and growth is not happening. Therefore, no recovery.

  2. Denninger is a bit of a crank. I know, I know; pot, kettle.

    Apparently our central bank intends to hold interest rates at zero until the end of time. Hey, it worked for Japan. Oh, wait.

    (If only that were a perfect analogy, I would know what outcome to expect. Unfortunately…)

    Anybody who thinks they know how this ends is deluding themselves. We are a long way off the beaten track here.

  3. Crank, indeed he is!
    Anyway, you are correct about predicting outcomes, but Karl’s numbers (the graph is per capita, if I remember correctly) indicate the beginning of a big collapse rather than a bottom.

  4. This is my opinion. Only my opinion, based on not that much. Just me looking at the full moon, turning my head to just the right angle so I can hear clearly the howls of the other wolves. I don’t have a degree in Economics.

    But what if we do have a “recovery”? What difference does it make? I think at the end of 2010 a VERY POSITIVE scenario gives you somewhere between 2-3% annual growth. We’re not going to come roaring back at 5%. I don’t think we’re going to fall much more if we get the proper bank regulations in place. So I see a REALISTIC scenario somewhere between 1% to 1.5% growth January 2011 onward. Is it a recovery??? You can call an apple an orange and you can say an orange is an apple, it is what it is and it tastes the same. You can call a college a university, or a university a college, the quality of the teaching at that specific place is the same. You want to call 1.5% growth a “Recovery”, fine by me.

    This is one of your better posts James. You do yourself a much better service quoting information and thoughts from Paul Swartz and Joseph Stiglitz, 2 guys with real credentials, than quoting federal judges that wear a “wannabe” economist name tag on their lapel.

  5. Doesn’t it seem to anyone else that we need more markers by which to measure both recession and recovery? I hear words like jobless recovery and i have to wonder if it can really be called a recovery if the people who are benefiting from the upswing are the same ones that never felt actual pain from the fall.
    As I have similarly had to wonder whether or not we ever really recovered from the recession in the late 90′s or even earlier.

  6. One of Karl Denninger’s major points is that consumer credit is declining, and with no additional credit available to the consumer, consumer spending ( 70% of GDP) cannot grow. From that point of view the private sector cannot sustain any basis from which to grow.

    The argument there is a recovery once that is some grow growth is an illusion. Consumer spending has fallen drastically, and cannot grow in our credit situation. Major sectors of the private sector are moribund. Real unemployment considering the sorta self employed and underemployed is somewhere between 16 – 20% percent and growing . Minor GDP growth means those numbers and those sectors will continue to deteriorate.

    Wealth in this deteriorating situation is contracting rapidly , because the return on many investments right now is negative,( all too often really negative) and it is questionable with the declining credit available whether many businesses and investments continuing to function can function much longer. It is from this wealth that funding for the monumental government deficits and future growth must come. The burn rate of our cumulative wealth and capital is several times our savings rate and is unsustainable. Peter ( the government) can only borrow from Paul ( private capital) for only so long before everthing goes belly up and chaos ensues, particularly so since the foreign funding of our debt jig is up.

    Public sector priming of the pump spending may make the GDP numbers look better for a while, but the underlying economy is still declining and is in real scary shape.

  7. Don’t forget to mention that most taxes are on income and gains. This makes government deficits larger than they look, since their “income” won’t be what it normally is.
    The question is when will taxes start increasing, not if they will. It’ll be sad but interesting to see how they manage to extract every red cent out of the middle class and pass it to the oligarchs.

    Are we living a new version of the Great Depression or Fall of the Roman Empire?

  8. Jobless recovery.
    Jobless boom.
    Jobless recession.

    What’s the difference?