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Green Shoots or Red Flag?

May 09, 2009

Jobless After a week of rain, Manhattan is starting to resemble a waterlogged Emerald City, and the natives are getting restless. Green, as in shoots, also seems to be the color of choice among economists this spring, and the stock market has responded with gusto, up 30 percent from its Death Valley bottom in early March.

The decline in equity prices has exacted a terrible toll on endowments and individual investors alike, dealing a double blow to nonprofits. So a rebound in stock prices is welcome news. But is the rally sustainable? And is it a sign the economy itself is on the road to recovery?

No, writes New York Times columnist Bob Herbert in today's paper ("Far From Over," May 9, 2009), quite the opposite. "The economy," he says, "is in shambles. Nearly 540,000 jobs were lost in April, a horrifying number. The unemployment rate rose to 8.9 percent," and is expected to hit double digits by the end of the year. Yes, the rate slowed some in April, thanks in part to 72,000 mostly part-time Census Bureau jobs added by the government. But job losses in February and March were revised upward, from 651,000 and 663,000 to 681,000 and 699,000, respectively. Yikes.

As the nonprofit sector knows all too well, rising joblessness is also causing poverty and homelessness to increase. According to the Economic Policy Institute, the poverty rate is in danger of increasing from 18 percent, the 2007 figure, to 27.3 percent by 2010. And the rate for black children -- an already appalling 34.5 percent -- could go to 50 percent if the "official" unemployment rate rises to 10 percent, as expected.

"Joblessness is like a cancer," Herbert writes.

The last thing in the world you want is for it to metastasize. And that's what's happening now. Don't tell me about the stock market. Don't tell me about the banks and their perpetual flimflammery. Tell me whether poor and middle-income families can find work. If they can't the country's in trouble....

Herbert is right, of course, and outside the precincts of Wall Street and affluent communities where a million dollars is just a down payment on a third home, people are scared. Scared that they'll lose their jobs, their homes, their hopes for the future. The question is, What are we going to do about it?

-- Mitch Nauffts

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Posted by Bruce Trachtenberg  |   May 09, 2009 at 06:58 PM

Timely post, Mitch. I guess the Obama administration would respond that its stimulus package will eventually work its way through the economy, creating jobs. And if it doesn't -- and Herbert isn't the only one doubtful (do I suspect some uncertainty from you?) -- maybe we'll need yet another stimulus. Of course, all we can do is speculate at this point because no one really knows what, if anything, will work. No wonder people are scared.

Posted by Renee Westmoreland  |   May 10, 2009 at 03:50 PM

Thanks for the comment, Bruce. Yeah, I'm not convinced the stimulus package will do much to create jobs. It may save a lot of jobs that would've been lost had the economy continued to deteriorate, but as far as creating new employment? I don't know. Too much of the money (a third?) is going to tax cuts, which will be saved, and not enough of the money is front-end loaded, although I give the administration credit for getting things up and running pretty quickly.

The bigger problem, of course, is that the economic policies pushed by Washington for the last thirty years -- unrestrained free trade, outsourcing of manufacturing, union busting, out-of-control deficit spending -- have favored the interests of Wall Street elites and the hedgies and private equity boys who run the "shadow" economy at the expense of Main Street. I really do believe that, and I think Joe Six-Pack is beginning to figure it out -- although given the way-too-cosy relationship between Wall Street and our elected officials, I'm not sure there's anything any of us can do about it. (For a different perspective, see the TED talk by economist Alex Tabaroff I posted earlier today.)

Still, I'm hopeful Obama can do something to begin to alter the dynamic, though as he has said, it will take time -- decades, even -- to fundamentally change the way Washington works. But, hey, I'm a patient man, and starnger things have happened.

Posted by Renee Westmoreland  |   May 10, 2009 at 03:53 PM

Note: My bad -- that's Alex Tabarrok, not Tabaroff.

Posted by DJ  |   May 11, 2009 at 01:10 PM

Even if the economy makes some semblance of a rebound, the prospect of implementing "cap and trade" is looming. And that bodes ill for the economy.

As for this:

"The bigger problem, of course, is that the economic policies pushed by Washington for the last thirty years -- unrestrained free trade, outsourcing of manufacturing, union busting, out-of-control deficit spending -- have favored the interests of Wall Street elites and the hedgies and private equity boys who run the "shadow" economy at the expense of Main Street. I really do believe that, and I think Joe Six-Pack is beginning to figure it out -- although given the way-too-cosy relationship between Wall Street and our elected officials, I'm not sure there's anything any of us can do about "

The out of control deficit spending isn't going to end anytime soon, as the current administration showcases. But I just don't see where "Main Street" and Wall Street are adversarial. Nowadays, "Joe Sixpack" is the investor class. Those who have public pensions and market-based retirement plans are the investor class. It's in everyone's interest to see Wall Street do well. And I'm not so sure that a bump in the road- even one as bad as this one is - is proof that something is seriously broken. I'd rather have a system that has the occasional recession than a system that is basically a recession 365 days a year.

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  • "[L]et me assert my firm belief that the only thing we have to fear is...fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance...."


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