Nine years ago, January 2010, was the bottom of what I’ve come to call the Managed Depression. Here is a piece from that time which is still relevant. At that time, we were awaiting a “recovery” and hoping for productivity gains to get us out of it. But they didn’t. And the core issues outlined here remain.
What would make a recovery sustainable? If you ask an economist, they’d tell you that what makes any economy grow and prosper is, ultimately, what they call “productivity gains”. That’s the ability to make more with less that allows a people to prosper. During the 1990s this was given as the reason why interest rates could remain low and we could have one Hell of a party – a sloppy, hazy bender. We live in the hangover that resulted, but have we really learned how intoxicating this one, simple idea is?
Through the first decade of Barataria, one theme becomes clear. There is always hope, there is always a better way if we just figure out how to talk honestly about what’s wrong and how we have to work together. The exceptions to this theme are the most illuminating. This post is from January 2010, the low point in the recent Depression. The distinct lack of hope is a bit chilling.
What would make a recovery sustainable? If you ask an economist, they’d tell you that what makes any economy grow and prosper is, ultimately, what they call “productivity gains”. That’s the ability to make more with less that allows a people to propser. During the 1990s this was given as the reason why interest rates could remain low and we could have one Hell of a party – a sloppy, hazy bender. We live in the hangover that resulted, but have we really learned how intoxicating this one, simple idea is?
The decline in productivity, first noted 15 months ago, is starting to become a serious issue. It is true that an increase in GDP is most likely and most sustainable when the output for every worker constantly goes up. But over the last year, we’ve had a sustained drop of 0.4% annualized.
The message is starting to creep into popular media. A scapegoat now has to be found, lest our politics actually focus on something real and useful. The blame for this decline now falls on smartphones – especially in the hands of those slacker Millenials.
Those kids! They just won’t get off our lawn. Or put down their phones and start mowing it, something like that. We’re never sure. What we do know is that rather than discuss economic trends we now have someone to blame so we can divert our attention from reality. This is just in time for the problem to solve itself.
If you’re like most people, you probably think that you can never have too much access to credit. After all, you never know what might go horribly wrong or when an opportunity to really follow your dream might come up. A little scratch ready in the background might be the difference between the good life and something much less.
Then again, a lot of credit has a corrosive effect. In a world saturated with borrowing everything is judged against the expected return if the money was simply loaned out at market rates. It seems reasonable that where a little credit is a good thing a lot of credit, defining everything in the world, is the biggest enemy of both long-term thinking and a society looking to maximize happiness and human potential.
Logic says that where a little credit is good a lot could be bad, meaning there is an optimal point. Where is that? Where are we with respect to a good level of credit? It turns out that train left the station a very long time ago – and this may explain a lot of the problems in this economy.
Last week the Bureau of Labor Statistics (BLS) announced labor productivity declined for the second straight quarter. It’s a worrisome figure for many reasons, the most important being that this is usually the signal of an upcoming recession. Headlines in the financial world were quick to fret that this is the first back-to-back decline since 2006, a strong signal in advance of the big recession in 2007.
Should we be worried? This is never a good sign, but the situation is very different. There are very good reasons why there is a decline in productivity and they all have the potential for signaling a recession ahead. But it also may be the last gasp of the bizarro economy where good news comes to us in the form of bad news, at least at first.