Category Archives: The Great Recession

Seemed Like A Good Idea At The Time

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Joe Doakes from Como Park emails:

Reading a book from 2004 called “Dark Age Ahead” by Jane Jacobs, who has written about culture and cities and societal change.

When it was written, everybody assumed the house price bubble would never burst.

When it was written, everybody assumed that if the house price bubble did burst, the market would quickly correct itself making housing more affordable.

Nobody saw the endless string of stimulus packages and interest rate cuts to bail out foreign banks hoping to keep home prices propped up for a decade.

A whole string of public policy recommendations turned out to be based on bad assumptions.  We see it now, of course.  But at the time . . . .

So: what bad assumptions are we using today as a basis for public policies which, in 15 years, will have people shaking their heads saying “What a bunch of idiots”?

Joe Doakes

Mitchketeers?  Go to it!

Participation

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Joe Doakes from Como Park emails:

Liberals object when I say we ought to run government like a business.  Here’s an example why we should (from the public land records, nothing confidential, all public information):

 House in the 1300 block of Fremont Avenue in St. Paul sold in 2007, peak of the market just before the collapse.  First mortgage $164,000 federally insured loan; second mortgage $20,000 to Family Housing Fund; third mortgage $3000 to Minnesota Housing Finance Agency.  Fourth mortgage in 2010 for $6,000 to St. Paul HRA.

 House was foreclosed in 2016, bank bid $97,000, sold it this Fall to new buyer for $90,000 using a realtor, for which the bank paid the commissions.

 All told, the public lost about $100,000 on that single deal. 

 Yeah, but it helped out a poor person, right? She had a place to live for nearly 10 years. 

 Sort of.  She made payments on four mortgages – that’s enough to cover a ton of rent – and now she has a foreclosure on her credit report and possibly an eviction on her judgment history.  Nobody will lend her any money now, and no landlord wants to rent to her, either.  So did pouring that public money down the drain really do her any good?

 I wonder if she got a participation trophy?  Seems like the least they could do.

 Joe Doakes

When you make something “worth” other than what people would pay for it on their own, there will be unintended consequences.

Diminished Expectations

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I find myself more and more these days trying to give historical context to current events, to clarify current events for the various millennials in my life.

Here’s a big one:  while the media is turning cartwheels about the “Obama Recovery” (happening an unprecedented eight years after the crash – worse than the Great Depression), the best quarter of GDP growth in this “recovery” is lower than the worst quarter of Reagan’s recovery, from 1983 through 1987.

But never mind – the media will keep the narrative of Obama the Economic Lightworker warm and dry.

But with Hillary Clinton in the picture, there’s another wrinkle.   John Hinderaker notes at Powerline (with some emphasis added):

n 1992, Bill Clinton announced that “It’s the economy, stupid.” That was pretty much the sole theme of his campaign. He ludicrously claimed that the country was then experiencing “the worst economy since the Great Depression,” a lie that the press, to its everlasting shame, not just allowed but often endorsed. So what was the level of GDP growth that Clinton relentlessly denigrated?

According to the Bureau of Economic Analysis, the quarterly growth numbers for 1992, in chained 2009 dollars, were 4.8%, 4.5%, 3.9% and 4.1%. That’s right–the growth that Bill Clinton derided as the “worst economy since the Great Depression” was around four times what we are now seeing under Barack Obama. And Hillary Clinton promises to continue Obama’s anti-growth policies.

I remember the recession at the tail end of the Bush 41 administration – as the economy adjusted from a Cold War economy to civilian spending – very well; it slowed down my transition from radio to IT by a few harrowing months when I was welcoming a couple of new children into the world.  But it was a short recession with a sharp recovery (“Thanks, Ronald Reagan, for that “peace dividend!”) that led to 15 mostly-prosperous years…

…whose various windfalls are long in the past.

Some Poor Chump Is Always The Last To Get The Word

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Joe Doakes from Como Park emails:

The US economy grew in the first quarter of 2016, but only a tiny bit, 0.5%.  That’s technically enough to keep us out of a “recession.”

 First, do you believe that number?  Economic estimates are routinely announced with pronounced spin showing how well the administration’s policies are working, then quietly revised downward a few months later.  There’s not much room to revise this number downward.

 Second, look at the formula for calculating GDP: 

Gross Domestic Product = Consumption + Investment + Government Spending + (Exports – Imports)

 If the federal government wants the GDP number to look good, it can manipulate the result by increasing government spending to offset decreases in Consumption, Investment and Net Exports.  But federal government spending slowed down in the first quarter as Quantitative Easing winds down.  And the GDP number is falling as a result.  The implications are important.

 It means there never was any growth in the Consumer or Investment side of the economy, that’s all been propped up by federal government spending.  In other words, we’ve been experiencing negative economic growth for months, maybe years, but it’s been masked by federal government spending.  I’m looking at you, Barack Obama, and your $20 Trillion national debt.

 The take-away is simple: don’t worry about Great Depression 2.0 coming; it’s already here.  Worry about what happens when the ordinary public figures it out.

 Joe Doakes

Look!  Bathrooms!

Your Smile Is Thin Disguise

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Joe Doakes from Como Park emails:

Liberals claim the economy has been turned around for years, big recovery going on, stock market booming, unemployment at all-time lows.  I don’t believe the government’s statistics; I think bureaucrats manipulate the numbers to make the administration look good. 

 How about a more concrete number: vacant buildings in St. Paul.  856.   Economy is in a huge rebound thanks to the libs who have fixed all Bush’s errors but 856 vacant properties remain?  That’s nearly as high as during the bad years.  People generally don’t just walk away from their homes, their businesses, their investments, not without a damned good reason and in recent years that reason has tended to be “can’t afford to make the payments.”  That is not a sign of prosperity.

 When the city is littered with vacant buildings, businesses are moving out, restaurants are folding up, but the government statistics say everything is rosy, who are you going to believe: them or your lying eyes? 

Joe Doakes

There’s a place for “fake it ’til you make it”; the old Hungarian saying “the best way to become wealthy is to appear as if you already are” is one of the guiding principles of my life.

But not for “journalism”, thankewverymuch.

“A Cold Mississippi”

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One of the Minnesota left’s favorite conceits is that Minnesota is just plain better than The South.  Their favorite imprecation against some conservative budget-cut or program-trimming plan is that conservatives would “turn Minnesota into a cold (fill in a southern state)”.

Perhaps Minnesota’s African-American community would wish that were the case; household income for black people in Minnesota plunged 14% in the past year, dropping black Minnesotans’ incomes below those in Mississippi (I’ve added all emphasis):

From 2013 to 2014, the median income for black households in the state fell 14 percent. In constant dollars, that was a decline from about $31,500 to $27,000 — or $4,500 in a single year.

Meanwhile, the statewide poverty rate for black residents rose from 33 percent to 38 percent, compared to a stable overall state poverty rate of 11 percent.

The median black household in Minnesota is now worse off than its counterpart in Mississippi. Among the 50 states, along with Puerto Rico and Washington, D.C., Minnesota ranked 45th in median black household income. Mississippi ranked 44th.

Income and poverty for other racial groups in Minnesota — whites, Hispanics and Asians — remained stable. Only blacks saw a worsening of income and poverty.

“It’s alarming,” said Steven Belton, interim president and CEO of the Minneapolis Urban League. “It’s a deepening of the income disparity, not only across the state but across the nation. When you pair that with the continuing disparities we have in education, health and wealth, it’s disturbing.

“The alleged rising tide has not lifted all boats.”

Of course, the Urban League is a DFL front; of course they’re going to take a whack at classic bit of conservative rhetoric.

But the truth is this; the vast majority of Minnesota’s Afro-Americans vote DFL, and live in DFL-dominated cities.   I don’t have the figures handy, but I don’t think it’s controversial to say that they are disproportionally not heavily represented in the parts of Minnesota’s economy that are prospering – health insurance, medical devices and financial services, all heavily subsidized by the Obama Administration.

They tend to live – again, no stats immediately at hand, but by all means, try to prove me wrong – on the economy that the rest of Minnesota lives on; the one that, for all of the DFL’s boasting and bragging, just isn’t doing all that well.

Imbalance

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Joe Doakes from Como Park emails:

Does it seem as if Americans are struggling to find jobs, but immigrants have no problem? That’s because it’s true.

Joe Doakes

“They take the jobs Americans won’t to do”, in some cases, because Americans don’t get to them first.”

No, it’s not hyperbole:

The one chart that matters more than ever,has little to nothing to do with the Fed’s monetary policy, but everything to do with the November 2016 presidential elections in which the topic of immigration, both legal and illegal, is shaping up to be the most rancorous, contentious and divisive.

The chart is the following, showing the cumulative addition of foreign-born and native-born workers added to US payrolls according to the BLS since December 2007, i.e., since the start of the recession/Second Great Depression.

Anyone wanna seize this one from The Donald?

Patching The Balloon

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Joe Doakes from Como Park emails:

Fannie Mae used to allow 97% loan-to-value meaning you only had to have 3% down to buy.  After the crash, they lowered that to 95% meaning borrowers needed to save up 5% to buy.  It turns out women and minorities are hardest hit by that change.  So Fannie Mae raised it again to 97%.

 

They point out that only 7% of all such 97% loans given between 1999 and 2012 went bad, about the same as all other loans.  What could go wrong?

defaultrate

Yes, and if you started with all loans since Moses, it’d be an even smaller percentage.  Look at the loans given in 2007, when prices were at the max and everyone knew the crash was coming but the feds were still signing up any warm body they could find.  28% of the low-money-down loans failed.  And by 2011, lending restrictions were so tight nobody could qualify for a house so none of those loans went bad, which makes the overall percentage look even better but means millions of people lost homes they should never been able to buy in the first place.

 

I can’t help but wonder if this is the start of another boom-bust cycle in housing.  Are we intentionally repeating the mistakes of the past because it would be politically incorrect not to?  Has fiscal sense gone completely out the window?

 

Joe Doakes

Or does crisis become the current regime?

A Thousand Words

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If there’s one thing I cordially detest about social media today, it’s the photo-memeification of all political debate.  On Facebook and Twitter, thousands of people can pass along a graphic, often wrong, frequently giggly/snarky photo in lieu of understanding an issue or being able to state a coherent case.

But sometimes they’re right:

I’ve been harping on the workforce participation numbers since 2011 – and they’ve just gotten worse.

And the fact is, if we’re ever going to reduce that debt figure (which doesn’t, by the way, count all the other unfunded entitlements that are floating about in the ether in numbers that look like they should be expressing Zimbabwean currency), it’s going to take actual productivity – which you’re not going to get when a huge percentage of your most-nominally-productive population are sitting idle, having given up hope that the economy will find a place for them.

(“But Mitch”, someone will no doubt say, “the workforce number reflects the number of baby-boomers that are retiring!”.  Sure, some of it.  But the percentage of Americans over 65 who are at work has actually risen – alone among the age groups – since the recession started.  And people drop off the Bureau of Labor Statistics’ figures after 70, so any retiring boomers will be out of the statistical picture momentarily, here…).

Ghost Of Crisis Future

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“Progressives” the world over are pretty much all the same.  Kevin Williamson on the Greek crisis:

When Greece’s sham economy went ass over teakettle, it agreed to a bailout package, finalized in 2010. That deal is now widely blamed by the Left for exacerbating Greece’s economic crisis with excessive “austerity.” The problem with that line of argument is that there was no Greek austerity: Greece lied about its debts before the crisis, and it lied about its reforms after the bailout. It didn’t take the meat axe to its public sector: Greece went out and hired 70,000 new government employees instead. It stopped selling government assets, which it had agreed to do, and government’s share of GDP actually increased rather than declining.

Lying about finances to lull the gullible?  Sounds like the DFL to me.

Greece’s problem – and you’re seeing it here, too – is that “progressive” economists (and the governments who love them) have the wrong measure of economic health:

As one Greek supporter of Tsipras’s wheedling told the New York Times: “We’re all pensioners here.” Indeed, and that’s the problem. A society’s wealth may be measured by its consumption, but its wealth consists of its production. One cannot consume what has not been produced, and consumption can exceed production only as long as your credit lasts, and credit — n.b., congressional clown conclave — is never eternal. Greece has too few people working in productive business enterprises and too many receiving government checks, either as employees or as welfare recipients — a distinction that is increasingly difficult to make in Greece and elsewhere.

Keep that in mind, as America’s employment participation rate drops below its lowest levels in a generation or two, even as our population  – especially the population with a Greek-like love of getting something for nothing – grows.

Who Could Have Predicted?

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The economy under wan, feeble socialist Obama has grown at an anemic rate compared to the rates under the healthy, happy free-marketeer Reagan.

Ronald Reagan’s economic plan saw GDP surge at a 3.5% clip – 4.9% after the recession. That’s a 32% bump.

During the Obama years, thanks to his big government policies, the US economy has stalled. Today the quarterly GDP was announced. The GDP for the first quarter of 2015 braked more sharply than expected at only a .2% pace. The US economy has grown an anemic 9.6% during the Obama years (excluding today’s dismal number).

Who woulda thunk it?

Everyone who didnt’ skip Econ 101 to go to a Noam Chomsky speech, that’s who.

Smarter Than Our Leaders

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Back during the 2008 presidential campaign, John McCain was right about one thing, anyway; despite all of governments foul-ups the fundamentals of the American economy are basically strong.

We have ideas, and entrepreneurial energy, I don’t labor force that (2008 and 2012 elections not withstanding) we’re pretty smart and capable, and one of the worlds larger, wealthier consumer markets. Those, among other things, give the American economy’s a degree of resilience that is going to be hard to extinguish, even after 14 years of flagrant overspending and six years of crypto-socialism.

That’s the economy. Not the governments massive piling up of debt. That’s a whole ‘nother thing.

Why does it matter? Because the fact that the American private market is bigger, stronger, and smarter than its government – for now – may be the only thing that saved it from complete collapse six years ago.

Rosy

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As the media relentlessly chants about “economic recovery”, at least one article (from the AP) notes that those “new jobs” aren’t really doing much for the lower-middle-class – people who may be doing OK on the surface, but are only a missed paycheck or two away from depending on someone else.

And it’s worth noting that every previous sharp recession – like 1982 – had a correspondingly sharp rebound; within two years of the bottom of that recession, the economy was adding 500,000 jobs a month.

The 2007 recession was, along with the Great Depression, part of a tiny, exclusive club; sharp corrections that didn’t bounce back fast – as in, almost like an inverted bell curve.  And what did they have in common?

Govenment efforts to “help”.

Hunky Dory

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SCENE:  Mitch BERG is driving down the road, when he notices Avery LIBRELLE by the side of the road.  LIBRELLE is standing by the trunk of a Chevy Volt; on the trunk is perched a miniature windmill, attached by cables to a terminal under the Volt’s open hood.   LIBRELLE is blowing on the windmill. 

BERG sighs, pulls over.  He gets out of the car, notes that there is no wind – it’s a flat calm – and walks up to LIBRELLE.

BERG:  Hey, what’s…

LIBRELLE:  Hah, Merg!  The economy is doing fantastic!  You were wrong!

BERG:  Um, what now? 

LIBRELLE:  Unemployment is under 6%

BERG:  That’s that’s because so many people have left the workforce, as we see on this chart here…:

 

…which is the Bureau of Labor Statistics’ Labor Force Participation Rate, representing the percentage of the labor force – able-bodied people between 16 and 70 – that are actually working.  As you can see, since Obama’s election, that number has plummeted from the mid-sixties to under 63%.  .

And six percent of them are unemployed, which means that the actual share of the population that’s working is more like this:

That’s the labor force participation rate minus the unemployed.  Now, if there were an economic recovery going on, that number would be ticking back up. 

LIBRELLE:  Hah, Hah, Hah, Merg!  You’ve been watching too much Faux News!   (Goes back to blowing on the windmill, spinning the blades madly)

BERG: That’s pronounced “foh”, not “fowks”.

LIBRELLE:  Standard pronunciation is a microaggression of the patriarchy!  Anyway – you lie.  The labor force participation rate is dropping because Baby Boomers are retiring!  Hah!

BERG:  That’s a great theory – because statistics show that older people are working less, and that hours and productivity are ticking up among people in their prime working years.

LIBRELLE:  Hah!  Got that right! (LIBRELLE blows on the windmill some more)

BERG:  Except that both of those statements are untrue.  Neither is actually the case. 

Older workers are the only group of workers who are actually increasing their share of the workforce:

And the “inactivity rate” of men between the ages of 25 and 54 – the prime income-earning years – is double what it was during the Reagan Administration…

…and a good third above what it was under Dubya.  And since the “end” of the recession, it’s just kept climbing. 

LIBRELLE:  So you admit you lied to me?

BERG:  Huh?

LIBRELLE: By saying that the stats said one thing, and then showing that they said another!

BERG:  Uh…right.

LIBRELLE:  (Resumes blowing on windmill)

BERG:  What are you doing?

LIBRELLE:  My car ran out of battery.  I’m trying to give it a sustainable jump start. 

BERG:  With a…

LIBRELLE:  With a Personal Wind Generator. 

BERG:   Er…where…

LIBRELLE:  I got it at Sharpened Image.  It was $499. 

BERG:  Don’t you mean “Sharper Image?” 

LIBRELLE:  No. Sharpened.  It’s from Nigeria. 

BERG:  Huh.  Have a great week.

LIBRELLE continues blowing on windmill as BERG walks to his car. 

And SCENE. 

All That DFL Happy Talk About The Economy…

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…is baked wind.

 Minnesota lost 4,200 jobs in July, and is adding them at an anemic pace year-to-date:

State officials said Thursday that Minnesota employers shed a seasonally adjusted 4,200 jobs in July. Meanwhile, they also revised June’s numbers downward by 3,600 jobs.

That means that, year-to-date, Minnesota has added a meager 2,900 jobs, or about 400 per month, on an adjusted basis.

During July, the education and health services sector lost 5,300 jobs. Information shed 1,000; construction, 700; financial activities, 200; and government, 100.

The sectors that added jobs: trade, transportation, and utilities (up 1,600); manufacturing (700); leisure and hospitality (600); and other services (200). Logging and mining, and professional and business services held steady.

Look for the Alliance for a Better Minnesota’s lie machine to fabricate a lot of phony economic happytalk in the next ten weeks; as we discussed earlier, they’re off to a running start.

No – a lot.

Unexpected

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The “Obama Recovery” still isn’t. 

The U.S. economy shrank at an annual rate of 2.9 percent during the first three months of 2014, government bean counters announced this morning. That matches the worst non-recession contraction of the U.S. economy in over 40 years.

Perhaps, taking a cue from minimum wage hike laws, the Administration could issue a decree for everyone to build, spend and borrow more?
 

This Is Your Obama Economy, Part MMMCCXVLIII

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A report from the center-left Brookings Institution shows that not only is busines dynamism – the pace of new business openings and old business closings – the slowest it’s been, but during the Obama “Recovery” the pace of closings has far outrun the pace of new business creation, for the first time in post-Great-Depression history:


Says Brookings:

Research has firmly established that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation.But recent research shows that dynamism is slowing down. Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued. This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech. …

While the reasons explaining this decline are still unknown, if it persists, it implies a continuation of slow growth for the indefinite future, unless for equally unknown reasons or by virtue of entrepreneurship enhancing policies (such as liberalized entry of high-skilled immigrants), these trends are reversed.

Why has America become less entrepreneurial? 

I’m going to suggest it’s two things; the constant accretion of new regulations atop old regulations, which continually make new businesses harder and harder to launch, and a culture – especially a school system – that is slowly leaching the desire independence out of the citizenry.

(Via Ed)

Deja No

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If you weren’t around – at least in a cognitive way – in 1984, then you have no frame of reference.  You’ve only been through so many downturns, and so many recoveries.

There’s been one traditional rule of thumb; the harsher the downturn, the more dramatic the recovery.

There’ve been two exceptions; the Great Depression (the recovery from which didn’t actually end until well after the Second World War; putting everyone to work on war-related production, or drafting them into the service, wasn’t a “economic recovery”, it was the mother of all temp job programs) and the current one.

How much different is the current one?

If you were in the workforce, or old enough to think about what “the workforce” was, between 1976 and 1982, you don’t need a reminder about how terribly slow the economy was; between Stagflation, the Fuel Crisis and the Carter Malaise, it was wretched time.  And when Reagan (and Fed chief Paul Volker) tightened the money supply to squeeze out inflation, things got ugly.  1981-1982 were awful times.

And yet by 1984, the economic blender had switched to puree, and Ronald Reagan coasted to the most lopsided presidential triumph in history.

If that’s what you remember – you’re right.  Job growth after the 1982 recession was a virtual mirror image of the “growth” under The Lightworker.

As John McCain said in 2008 (to Democrat derision), the fundamentals of the US economy are strong; lots of smart, hard-working people with ideas big and small to generate wealth equals an economy that, left to its own devices, can weather the cycle.

But the political system (both parties, although mostly the Democrats) have not left the economy to its own devices.

And that’s the problem.

Chanting Points Memo: “It’s The Retirees, Stupid!”

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Every month for the past couple of years, I’ve been pointing out the nearly constant decline in the Labor Force participation numbers.

With unemployment taken out of the participation numbers, the actual share of people actually working in the economy today is as low as it’s been since they’ve been tracking the numbers.

The left has a brisk retort; “People are retiring!”   Supposedly, enough baby boomers are leaving the workforce to cause the participation rate to drop.

As if that’s good news.  Someone has to be working to pay into Social Security to pay for all those aging ex-hippies, after all!  Having historically low labor force participation rates means more debt incurred to pay for statutory entitlements that we just can’t control.

So even if that were true – the slide in labor force participation is entirely due to baby boomer retirements – then that’s still bad news.

But it’s not true.

According to Mercatus, oldsters are faring much better in the workforce than younger workers.

No – much better:

Retirees aren’t retiring – and youngsters aren’t working.

At this rate, we’re going to have a nation of 50+ workers paying both for their parents and their kids.