RSS Feed MenuNews of slowing growth, flat spending, and general malaise have led more than a few top economists to predict a “double dip” recession. Without getting into the debate over exactly what would represent a “double dip,” it strikes me that the current recovery, however weak, probably will prove self-sustaining.
Three trends points towards this:
- Worker productivity declined last quarter: Most of the time, declining worker productivity is bad news. But, with unemployment still near 10 percent, it is good news. Here’s why: Declining productivity shows that the strategy of cutting workers has reached its limits in the economy as a whole. To increase profits, employers will have to either hire more people or make new capital investments. They will. Baring something catastrophic happening, unemployment should begin declining soon and will probably fall below 8 percent by early 2011.
- The prophesized commercial real estate crash isn’t going to happen: Most fears of a double dip recession revolve around a massive commercial real estate crash as business property financing arranged at the height of the bubble needs to be re-financed. With much commercial property “underwater,” the logic goes, banks and commercial property holders will prove unable to refinance and economic chaos will result. While some individual projects will certainly end up in deep trouble, banks, regulators and borrowers all have enormous incentives to make things work out. It won’t be pretty. Indeed some areas, like Las Vegas–where two massive new hotel/condo developments sit mostly finished but vacant– have already seen their commercial real estate markets crash. A few others may follow. But lenders and property owners, in the aggregate, have every incentive to make enough compromises to avert a major commercial real estate crash.
- Monetary policy makers have no reason to make the same mistakes: The double-dip recession in the 1970s and 1980s happened when the Fed under Paul Volker raised interest rates sky high to squeeze inflation out of the economy. (The short term pain actually benefited the economy in the long run.) The double dip before that–a 1937 downturn that followed a general recovery in the mid-1930s—also happened when the Fed tightened monetary policy. With deflation a much bigger threat than inflation, the Fed has no reason, any time in the near future, to tighten monetary policy in any significant way.
Of course, it would be foolish to say that a double dip recession is impossible. Things could change. People may not start feeling better until sometime in 2012. But a double dip recession seems unlikely.
easton // Aug 17, 2010 at 7:10 pm
Generally agree but unemployment will still stay higher than that figure. The housing market is still a few years away from working itself out. My best guess is 7.2% unemployment come election time 2012.
WillyP // Aug 17, 2010 at 11:28 pm
Unending economic stagnation. Just like the depression of the 1930s.
FrumForum is probably the most pollyanna-ish site on the entire internet when it comes to the economy. And that’s not only on the right… the left now also recognizes that we’re totally screwed. Krugman is even pessimistic (albeit because we haven’t spent ENOUGH, like he conveniently suggested).
Eli here tells us we’re in a mild recovery. Yup… that 1.3% growth is great! We could grow at 1.3% GDP forever and it wouldn’t match our population growth. In other words, real wages continue to FALL.
David Frum meanwhile suggests that we magically erase debt via inflation. For someone who purports to read so much damn history, I’d like him to point out when this has ever worked in the history of mankind. By what mechanism do we distribute new money? How do we make sure that everybody gets an equal share (that is, how do we avoid merely redistributing wealth via money creation)? And what good what it do besides reward borrowers at the expense of lenders? Isn’t this why we’re in the big old fat problem to begin with??? – too lax lending? Why would we encourage more?
The straight truth is that we have a governing party that is not interest in recovery. They’re interested in systemic collapse. It’s doubtful we’ll be able to pay back these massive loans, even with moderate growth. And trust me, we don’t have moderate growth (3-4%) ahead. We have a roller coaster ride of bankruptcies, dislocation, bank failures, political uncertainty, tax hikes, new regulation, and severe inflation ahead.
Eli Eli Eli… your gullible readers are going to be blindsided by the impending catastrophe.
dave2 // Aug 18, 2010 at 5:07 am
Another funny article on Frum. I new I could count on it for my daily laugh…
So worker productivity declined last quarter…and according to Eli that’s a GOOD sign! Never occurs to him that productivity is declining because…PEOPLE AREN’T BUYING, and businesses are too stuck in a credit crunch to buy either. No, but they’ll just have to hire more people to make more product that isn’t moving…because, well, gee.. uhh…no, maybe they CAN lay off a few more people and just ride this thing out…ever consider THAT???
And the commercial real estate crash isn’t going to happen because…well, “it isn’t going to be pretty”…and a “few others may follow” Las Vegas’ bust, but golly, gee-willickers…banks have “every incentive to make enough compromises”…just like they did in the residential market, and well…it’s not like the FDIC is looking over their shoulder or anything. Of course, we haven’t YET SEEN the VAST majority of those loans come due which will happen over the next three years, and banks probably will play nice and won’t mind lopping a few hundred thousand or a couple mill off the balance…because well, it’s not like they WANT to own all those properties they already have on their books…
Oh, and with rates so dang low these days, heck…EVERYBODY can qualify for a mortgage or refinance that vacant upside down commercial building, right? It’s not like the credit markets have sand in their gears or anything…right? RIGHT???
Okay, I’ll stop with asking the obvious and just state it:
We ain’t seen nothing yet!!!
DFL // Aug 18, 2010 at 9:32 am
Basically, we are raiding from posterity at $ 1.4 trillion a year just to keep from relapsing into recession. Not only is that immoral, it can not be sustained. But Lawrence Kudlow and Eli Lehrer thinks we’re doing just dandy so all must be well.
Headlines 08/18/2010 // Aug 18, 2010 at 10:36 am
[...] Double Dip Recession? Not Likely [...]
easton // Aug 18, 2010 at 10:45 am
So worker productivity declined last quarter…and according to Eli that’s a GOOD sign! Never occurs to him that productivity is declining because…PEOPLE AREN’T BUYING
Not true, Corporate balance sheets have significantly improved, and the Stock Market has roared from 6500 in April of last year to over 10,000 today. Now how can companies possibly make huge profits if people aren’t buying? You simply can’t make up your own facts. Look, maybe you aren’t buying, but YOU are not everyone. So look at the stats before you rant.
This from that Socialist rag Marketwatch:
U.S. before-tax corporate profits from current production increased at the fastest pace in more than 25 years over the past year, the Commerce Department estimated Friday. Before-tax profits increased $108.7 billion, or 8%, in the fourth quarter. Compared with the fourth quarter of 2008, profits are up 30.6%, the most since 1984. Net cash flow increased $69.1 billion in the fourth quarter, while taxes rose by $40.9 billion.
gee-willikers, how dare facts get in the way of your ranting.
As to mortgages, um…people’s income have been stagnant, there is also understandable uncertainty on the part of many, now is not the time to buy a home especially if housing prices have not stabilized across the board. Who wants to buy a house that might be worth less next year.
But you can’t blame Obama for this, the Bush housing bubble (er..ownership society) bursting is going to take a few more years to play out.
pnumi2 // Aug 18, 2010 at 4:36 pm
Weak recovery. Double Dip Recession. These are spin words. They’re meaningless.
Remember the excitement at the end of October, 2009? The GDP for the third quarter came in at 3. 5%. The Dow was up 200 points. The final number was 2.2%. And the Dow went up 50 more. The market is totally controlled by the big players. They pushed the Dow from 6500 to over 10000. Why?
Because they can. Plus they made everyone’s 401(k)s better and everyone more likely to consume.
Oh, and did I mention they pocketed billions in trading profits.
If we come put of this with our pants on, we can thank the lies and deceit of Wall Street and Washington (after blaming them
for getting us there in the first place.)
WillyP // Aug 18, 2010 at 6:30 pm
easton, you should get a refund on that lobotomy.
dave2 // Aug 19, 2010 at 3:25 am
Easton….obviously there is more to the puzzle of why unemployment continues to remain high if so many corporations are raking in the big moolah! (Hmmm…could it be they are waiting for the day soon coming when they get pummled by expiring Bush tax cuts and Obamacare health costs? Nah!)
Anyway, it’s a conundrum even Marketwatch finds troubling:
“That’s because structural — not cyclical — forces are behind a substantial chunk of the current unemployment in the U.S. …
… but monetary levers are ineffective when jobs are lost because industries become obsolete (buggy-whip makers) or are overtaken by innovation (phone operators).
Instead, whip makers and operators need retraining to find the new skills needed by growing industries. Retraining satisfies two economic requisites: businesses’ need for skilled, productive labor and consumers’ need for jobs and income.”
So…maybe if someone came up with a plan for job retraining it just might have an effect on this
“structural” problem… instead of just “hoping” corporations start hiring just because they have the SOOOO much money to. (Well, maybe the big ones on the stock exchanges…not your small businesses though)
And if anyone cares to actually read Rep. Paul Ryan’s Plan, there IT IS… a framework for EXACTLY that…one of the main sections. Who’da thunk it?
(But don’t tell David Frum…he thinks it’s only about cutting taxes and creating a balanced budget…bad things like that.)
forkboy1965 // Aug 19, 2010 at 2:10 pm
@easton – many would suggest corporate profits are up because they have slashed their respective payrolls to the bone. But this leaves them with nothing left to slash. Will corporate profits continue to roll in dough for the balance of 2010 and into 2011. That remains to be seen.
And as indicated by @pnumi2 there may be strong reason to believe the run-up of the market has more to do with it being controlled by those who make their livings in it than anything else related to the health of the economy.
easton // Aug 19, 2010 at 5:35 pm
The US direct investment in China is at an all time high, so obviously a lot of the money is being reinvested there. Good for US businesses, not so good for US workers. This is just the way it is.
And as to the US market, yeesh, we live in a Global market, I can just as easily invest abroad as here (in fact, I do hold the majority of my investments outside of the US, and it has done a hell of a lot better than it did under Bush)
And retrain workers as what, exactly, and who will pay? Are people suggesting Government dare insert itself into the private sector?
And Ryan is a hack. His plan has been demolished time and again as being an utter fraud (not everything he said is terrible, he has a few minor ideas, like raising retirement age, that many people agree with). Read Ryan though, he has only a “proposal” no actual bill put forward in the house. If even he won’t put forward a bill, then to hell with him.
Have you even bothered to see how many bills he has sponsored in all his years in Congress? 2.
2 bills. 03/13/2008 Substitute Amendment for the House Budget Resolution
H Amdt 972 Sponsor
03/07/2006 Line Item Veto bill
HR 4890 Sponsor
And neither of which he even bothered to vote on.
The same with a number of the bills he co-sponsored, and it ain’t many, 31 many of which are just crap: 02/24/1999 Flag Desecration Resolution
H J Res 33 Co-sponsor or
03/13/2001 Flag Burning Resolution
H J Res 36 Co-sponsor or
01/07/2003 Flag Burning Resolution
H J Res 4 Co-sponsor
and because this is such a “burning” issue how about:
01/25/2005 Flag Desecration Resolution
H J Res 10 Co-sponsor
Yes, over 10% of the legislation this guy co-sponsored is about the Flag. What a wanker. And a lot of his other co-sponsored bills he just attached his name to a hundred other Republicans.
Ryan is a hack.