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A tale of two recessions?

David Leonhardt's article in today's New York Times paints a picture of diverging fortunes in our "Great Recession": some groups (a minority) are doing very badly, while the majority remain employed and are in fact benefiting from gains in purchasing power.

He notes that, to a greater extent than in previous downturns, those made unemployed have remained jobless for longer: "Almost 45 percent of today's unemployed workers have been without a job for at least 27 weeks. In no other downturn since World War II did the share exceed 26 percent." This raises the risk of a so-called permanently unemployed group.

In contrast, those with jobs appear to be prospering. Unlike in prior post-World War II recessions (but in line with the experience of the 1930s Great Depression), workers' wages are up after adjusting for inflation. "Since this recent recession began in December 2007, real average hourly pay has risen nearly 5 percent." As Leonhardt summarizes:

Obviously, real wages could begin falling again if inflation picks up or more employers cut pay. And many workers are already struggling with big debts and diminished 401(k) accounts. Still, the contrast is pretty stark. The typical jobless person has been out of work six months. The typical worker has received a  raise.

This image of a prospering majority raises a basic question: if people are doing so well, why does there seem to be so much economy-related angst and anxiety in society?  As Andrew Sullivan asks, why are "the Democrats are under so much electoral pressure when so many people are doing fine in this economy, indeed enjoying hefty wage increases in an era of very low inflation"? He adds: "Of course, I'm not arguing for selfishness, but it's odd to me empirically that so many are complaining when such a discrete and relatively small section of the country is in such economic pain." 

I think this is a question worth pondering more, but my immediate reaction is twofold. First, in economic terms, and as Leonhardt himself notes, people are not necessarily experiencing higher living standards because they are repaying debt and increasing their savings to replace those depleted 401(k) accounts. Furthermore, for many employed there is still some anxiety that their job isn't 100 percent secure, and the talked-about possibility of a double-dip recession doesn't help in this regard.

But second, and more importantly, all economics is viewed through the prism of politics. And here, the big-picture issue is the lack of vision for our economic future. President Obama was elected with the messages of "hope" and "change", but the reality has been economic firefighting without a broader sense of purpose. In monetary terms, the stimulus package was ambitious as the New Deal, but it was nowhere near the same in terms of ideological coherence and inspiration (indeed, it's hard to think of a case of so many bucks having so little bang). And now that this stimulus money has been alloted, people have moved on to worry more about the deficits, which they believe will impact either their own retirement and/or their kids' future. Politics, like nature, abhors a vacuum, and the Obama regime has not been able to articulate a way out of the impasse.

Again, those are just some initial thoughts. At any rate, the Leonhardt article is recommended. Here are some other fascinating nuggets from it: 

  • "Over the course of 1980, 18.1 percent of the labor force was unemployed at some point. In 2008, the first year of this slump, only 13.2 percent was."
  • "The hardest-hit parts of the country have been manufacturing regions, like Michigan, Ohio and Rhode Island, and areas that had huge housing bubbles, like California, Florida and Nevada. The least affected area is a band running from the Dakotas and Minnesota down to Texas and Louisiana... This band includes some of the manufacturers and other businesses that have emerged from the recession the quickest."
  • "The first two years of the downturn were disproportionately blue collar. In 2008 and 2009, the construction industry shed 25 percent of its jobs, and manufacturing lost 16 percent. This year has been different. Manufacturing - especially of so-called durable goods, like computers and machinery, many of which are purchased by companies - has been adding jobs. Many white-collar fields, meanwhile are losing jobs... This shift from blue to white collar is the main reason the downturn has also become more female."
  • "The downturn has still exacted a much harsher toll on the less educated. The unemployment rate for college graduates is still just 4.5 percent, and the gap between their pay and everyone else's is larger than it has ever been."

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