This recession is not like other recessions

Current job losses exceed any other post-war recession. Click to view.

This recession is not like other recessions.  By every measure, the downturn is the worst since the Great Depressions of the 1930s.  Stimulus programs that might have worked in earlier downturns are not working now.  That is because the current recession is not just part of a normal economic cycle.  It is a day of reckoning for 30 years of trying to run the U.S. economy on debt instead of production.

The great economist John Maynard Keynes had a prescription for recessions which is somewhat like Joseph’s advice to Pharaoh in the Bible.  Joseph advised the ruler of Egypt to store up grain during the fat years so it would be available to the people during lean years. Keynes advised the rulers of the United Kingdom and the United States to run budget surpluses and tight money during the expansionary years, and stimulate the economy by pumping money into the system during deficit years.

However, if you are stimulating the economy all the time, which was what was done during the George W. Bush administration, then you have nothing left to do when times turn bad.  When the economy is over-stimulated already, the traditional economic stimulus doesn’t work.  Historically, when people have more money in their pockets, they spent some of it.  Now sensible people will try to pay down their debts.

President Barack Obama is no worse than Presidents Ronald Reagan, George H.W. Bush, Bill Clinton or George W. Bush, who all were happy to go along with financialization and de-industrialization, but more is required of him than was required of the others.

So far President Obama has done good things.  He organized a well-thought-out effort to keep General Motors Corp. for failure, which would have been devastating to the industrial Midwest.  He has directed money to fostering green industry, which may have a good payoff in the future.

But his main effort seems to be to put Wall Street and the banking industry back the way they were before.  But the way things were before is not sustainable.  Inflating another financial bubble is not the answer.  It may not even be possible.

Rebuilding the U.S. economy will be a long, slow process, if it is possible at all.  I hate to think that the hollowing out of American industry has reached the point of no return, but there is such a point.  The first step is for our leaders – and this goes for Mitch McConnell, John Boehner and Mitt Romney as well as Barack Obama, Harry Reid and Nancy Pelosi – to make an effort to understand the situation instead of score points off each other, and the second step is to tell the American people the reality of our situation.

Click on The Danger of Living on Bread and Circuses for perspective on the U.S. economic situation from Alice Schroeder of Bloomberg News.

Click on Decline and fall of the American empire for perspective on the U.S. economic situation from Larry Elliott, economics editor of The Guardian in England.

Average length of unemployment. Click to view.

Click on  Average length of unemployment at an all-time high for an article by Catherine Rampell of the New York Times.

Workers’ share of national income. Click to view

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