In fact, the whole debate about when and how a recovery
will begin is wrongly framed. On one side are the V-shapers who look
back at prior recessions and conclude that the faster an economy drops,
the faster it gets back on track. And because this economy fell off a
cliff late last fall, they expect it to roar to life early next year.
Hence the V shape.
Unfortunately, V-shapers are looking back at
the wrong recessions. Focus on those that started with the bursting of
a giant speculative bubble and you see slow recoveries. The reason is
asset values at bottom are so low that investor confidence returns only
gradually.
That's where the more sober U-shapers come in. They
predict a more gradual recovery, as investors slowly tiptoe back into
the market.
Personally, I don't buy into either camp. In a
recession this deep, recovery doesn't depend on investors. It depends
on consumers who, after all, are 70 percent of the U.S. economy. And
this time consumers got really whacked. Until consumers start spending
again, you can forget any recovery, V or U shaped.
Problem is,
consumers won't start spending until they have money in their pockets
and feel reasonably secure. But they don't have the money, and it's
hard to see where it will come from. They can't borrow. Their homes are
worth a fraction of what they were before, so say goodbye to home
equity loans and refinancings. One out of ten home owners is under
water -- owing more on their homes than their homes are worth.
Unemployment continues to rise, and number of hours at work continues
to drop. Those who can are saving. Those who can't are hunkering down,
as they must.
Eventually consumers will replace cars and
appliances and other stuff that wears out, but a recovery can't be
built on replacements. Don't expect businesses to invest much more
without lots of consumers hankering after lots of new stuff. And don't
rely on exports. The global economy is contracting.
My
prediction, then? Not a V, not a U. But an X. This economy can't get
back on track because the track we were on for years -- featuring flat
or declining median wages, mounting consumer debt, and widening
insecurity, not to mention increasing carbon in the atmosphere --
simply cannot be sustained.
The X marks a brand new track -- a
new economy. What will it look like? Nobody knows. All we know is the
current economy can't "recover" because it can't go back to where it
was before the crash. So instead of asking when the recovery will
start, we should be asking when and how the new economy will begin.
More on this to come.
Robert Reich was
the nation's 22nd Secretary of Labor and is a professor at the
University of California at Berkeley. His latest book is "Supercapitalism."
LINK: Common Dreams