Economic Recovery?

Last week Vice President Joe Biden took credit for the economic recovery underway. I disagree based on facts. First, the unemployment rate is 2-3 points worse than projected without a stimulus package. Second, four important housing numbers last week illustrate no recovery: existing home sales fell 27% over the prior month to a historic low, new home sales fell to the lowest number since 1963, existing home inventories rose to a historic level, and interest rates fell to a historic low. Third, the teen jobless rate is at the lowest level since 1948. Fourth, the GDP was revised downward for the second quarter by approximately 30%, thus deflating the optimism the already sluggish number was a sign of recovery. Fifth, the ratio of job seekers to jobs remains high at 5:1 versus historic averages.

In December 2008 I wrote a seven page paper detailing my predictions for the economy after the presidential election. One friend poked fun saying I had written my “manifesto” while away in the mountains. Interestingly, I re-read the paper before last week’s numbers came out and my predictions were prophetic. If we disregard the stock market, I accurately predicted any lack of recovery. In hindsight though, main street does not care about the Dow Jones 30 Industrials, nor should they. The pundits of financial television spoke of “green shoots” and pontificated recovery for the last twelve months while working Americans have lost jobs, homes, and credit. Concurrently, bankers subsidized by TARP have profited handsomely.

The biggest problem in measuring this recovery is the data itself. The DJIA changes, and has changed since the crash in March 2009. Thus, this index of companies is not the same index it was in the 1930s, or even 18 months ago. Second, the government has changed its methods of measuring inflation and unemployment. Our 9.6% unemployment rate, indicating we are in better condition than the Great Depression, is closer to 20% when measured the way unemployment was reported in the 1930s.

I therefore assert we are in a “Hidden Depression”. There are no soup lines, but 40.3 million Americans receive food stamps. Unemployment benefits have been extended to protect families. Unlike the 1930s, we own more “stuff” and it appears to protect our personal falls. Sadly, our leaders are repeating the failings of the Great Depression: providing false optimism, ignoring main street and rewarding banks, and implementing policies doomed to failure.