Wednesday, August 5, 2009

The Recession is Over....yeah, right!

Too many pundits and "experts" are willing to call the end of the recession now, and say we are merely in a "jobless recovery" (a term coined during the last recession), and that is a grave mistake. True, the hemorrhaging has stopped (or slowed to a trickle), as measured by GDP, thanks to an increase in government spending and the stimulus package. The Jow Dones is above 9000 and rising. Inventories have dropped as well, as did the trade deficit. But consumer confidence is still very low, and unemployment is approaching 10% nationwide (it is already in double digits in numerous states). The pain of recession will likely continue until at least the end of 2009, if not longer. And the recovery will likely be slow as well. Bottom line: Americans are still hurting, and still need help.

Most evident is the fact that the BLS publishes another, higher unemployment rate number. The more familiar number is what percentage of the labor force that is not working, but looking for work, as reported by surveys. But "discouraged" workers, namely those who simply gave up on looking because jobs are too hard to find these days, are not included in this figure because they are not considered part of the labor force. But the other unemployment rate number includes discouraged workers, and that rate has been given at 10.2% in July, up from 10.1% in June, while the more familiar rate was 9.4%, and declined from 9.5% in June since the labor force also declined (mainly due to discouraged workers). So the real unemployment rate is already in double digits, and still rising. (Although, when "seasonally adjusted," a slight improvement is noted even for the higher unemployment figure, which may be a glimmer of hope)

The good news is that the housing market has already hit rock bottom, and is starting to recover as we speak (notwithstanding the more recent and ongoing commercial real estate crash). This is necessary for the broader economy to get out of its funk, but unfortunately that alone is not enough since other problems have gotten us into this mess as well. A persistently high unemployment rate will also hinder a recovery since unemployed people have less cash to buy things with.

Yes, I know I have said before that economic growth is overrated, causes more natural resource consumption and pollution, and the benefits go primarily to the richest 1% of the population with minimal trickling down. But as long as the population grows faster than the economy does, unemployment will rise. And in every recession (shrinking economy), the first on the chopping block are the working class and working poor. Most companies would rather permanently axe 10% of their workers, and give lavish bonuses to the CEOs, rather than cut wages temporarily across the board (including the top) until business improves. In a society such as ours that expects all able-bodied adults to work for pay (except, of course, those fortunate enough to be endowed with the means to avoid work), and that has a relatively broken safety net, this is a huge problem.


Much needs to be done to not only get the economy back on track, but provide a long-term fix as well. Many long-term weaknesses are hanging over the heads of the American economy, and need to be addressed sooner rather than later. Here's what the government needs to do, with no apologies to libertarians or paleoconservatives:


  1. Send out a third (and final) stimulus in the form of a debit card which will expire in a fixed period of time if not used. It MUST be spent, not put in the bank or invested, and can be used to buy anything but bullion. $300 per person sounds about right, but any amount will work. Give it to every adult over 18, regardless of any sort of criteria.
  2. Temporarily extend unemployment benefits for at least six more months, and increase the amount of food stamps.
  3. Call a moratorium on foreclosures of all kinds for at least six months, and delay the resets of ARMs, both until after the new stimulus fully kicks in.
  4. Create more public sector jobs, even if only minimum wage, to get the unemployment rate down. Especially green jobs and infrastructure jobs to rebuild America.
  5. Accelerate the withdrawal from Iraq dramatically, and start pulling out of Afghanistan. These wars are a huge burden on the economy, and we have no business being in either country any longer (if we ever did).


  1. Replace the income tax, both individual and corporate, with a value-added tax VAT of 25-30% on nearly everything, with a lag time preceding its phased-in implementation. But have a 25% income tax on every dollar individuals make over $100K, and 50% on every dollar over $1M, with no loopholes whatsoever.
  2. The VAT will also replace the payroll taxes (FICA) for Social Security and Medicare, and put those on a sounder footing. And instead of taking 7.65% of every paycheck for FICA, take 7% and put it in a personal account for the employee's retirement, invested in stocks and bonds. (This will also give the stock market a huge bounce.)
  3. Fight outsourcing, and keep jobs from moving overseas. Put a heavy protective tariff on goods from all countries that pay their workers next to nothing, and/or pollute the environment worse than us. (That's just about every country except Canada, Australia, New Zealand, most of Europe, and Japan).
  4. Reduce immigration by 80-90%, to no more than the previous year's emigration rate. This will free up numerous jobs that would otherwise be taken, as well as ameliorate overpopulation. Crack down on those who hire illegals as well.
  5. Invest in alternative energy and other green industries, and rebuild America's infrastructure, especially the passenger rail system.
  6. Invest in education to build human capital in America, and make college tuition in public colleges affordable for even the poorest Americans. This will also discourage outsourcing.
  7. For those companies who were given bailouts, much will be asked of them.

Long-Term (Never Again!):

  1. Go back on the gold standard, and abolish the Feral Reserve within a year.
  2. Regulate speculation better, especially in oil.
  3. Bring back the "uptick rule" for short-selling.
  4. Ban credit-default swaps, CDOs, SIVs, and other exotic, Ponzi-esque derivatives.
  5. Abolish (or phase out) subprime mortgages altogether, and put a cap Alt-A mortgages (liar's loans). Require more transparency for ARMs.
  6. Crack down heavily on white-collar crimes, and toughen the penalties.
  7. Abolish "limited-liability" corporations and partnerships (LLC and LLP). Go back to full liability for a change.
  8. Add a balanced-budget amendment to the Constitution, and begin paying down the national debt. Do so with a wealth tax on the net worth of those with more than $10 million in net assets.
  9. Cut government waste.
  10. No more bailouts, ever! No one is too big to fail. That should be a promise, not an idle threat.

If even half of these things were done within short order, we would all be much better off in the long run. Except, of course, the greedy, parasitic elites who profit from the world's misery, of course. I can just hear them howl about it now.

A few more things that could be done include:

  1. Raise the federal minimum wage to $9.50/hour, or what it was in 1968, adjusted for inflation. And index it to inflation permanently so it never has to be raised again. The current rate does not provide a living wage in most of the country. And some states and cities would need to be even higher than $9.50 as well.
  2. Create a job guarantee program, in which everyone who is currently working less than 40 hours a week, or not at all, will be guaranteed an offer of a public sector job at minimum wage to make up the difference, if so chosen. That would be better than a handout, and (involuntary) unemployment could theoretically be reduced to zero. And there is plenty of work that needs to be done!
  3. Have a basic income guarantee (citizen's dividend) for everyone, with no means test, replacing welfare, food stamps, and related programs. Alaska already has one, albeit very meager.

These three things alone would greatly reduce the poverty rate as well as improve the economy. The upsides of one will counteract the downsides of the other two as well.

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