As the United States reels from the effects of the worst economic crisis since the Great Depression, and as the media becomes all agog with talk about a possible double-dip recession, it is worth examining some consistency questions regarding the economic data being put before the public and regarding some claims about the economy being made by the government. Anyone who has studied the recent recession and the last recession of the early 2000s in any detail should be aware that the gross domestic product recoveries from these recessions have been jobless ones. In other words, the gross domestic product starts growing after some time, but the unemployment stays high for much longer. What is intriguing and puzzling about the recent recession which followed the financial crisis of 2008-09 is that while the unemployment numbers have stayed above 9% ( that is 4% or more above the usual unemployment rate ) for long enough to make this the worst period for jobs since the 1930s, an end to the recession was announced officially.
How exactly does an economy start growing while 4% more than the usual unemployment number persist ? It cannot be due to additional exports since the global economy has been having serious problem along with the American economy. Also, the fact that the unemployment number has been 4% above the usual 5% and that the economy started growing with such persistently high unemployment implies that there must have been redundancy of labor in the economy to the tune of 4% because it is very difficult for automation to replace labor to the level of 4% of the workforce in two or three years. In a capitalistic economy, it is difficult for businesses to have 4% of slack as far as the labor force goes. One can imagine big companies cutting down on exploratory research and things like that, but that is not sufficient to explain a 4% slack in the required labor force. Since a lot of the layoffs during the financial crisis were in the finance sector, one can try to come up with a model where a lot of the labor in the financial sector was involved in non-crucial activities and that the functions of risk allocation and financial resource allocation could be carried out without a large part of the previous labor force. The economic crisis had cascading effects on the rest of the economy. For example, the automobile industry was badly affected, and there were a lot of layoffs in that sector as well. Green automobile technology has not developed to the extent required to compensate for the output loss in the conventional sector.
If we examine the question from the demand side, unemployment rates of between 9 and 9.5% and underemployment rates of close to 20% are not exactly conducive to a reurgence in demand required to spur the economy. Also, the housing market is well below its peak, implying that the wealth perception of many people in the middle class and in the rich class has diminished. How exactly does demand recover to the extent required to bring about the official end to the recession ? As already mentioned earlier in this article, the global economic scenario is not exactly conducive to the creation of extra demand. Further, the American export sector has not really shown any significan t sign of improvement. So, who was buying extra amounts of what in which sector of the economy to bring about the official end to the recession ?
As the country and the world ponders if the United States will plunge into a double-dip recession, it is worth considering the question - was the official announcement of the end of the recession following the 2008-09 financial crisis based not on the economic data, but on considerations of mass psychology ? In other words, is it possible that the announcement of the end of the recession was done in order to prevent consumer sentiment and investment sentiment from deteriorating ? It is a conspiracy theory worth examining in the extraordinary times we are living in. As with all economic measures ( undertaken by the government and by the relevant economic agencies and institutions ) that are intended to have a salubrious effect on mass psychology in the economic area, it can be harmful to persist with them if they do not start yielding the intended benefits within a few months or a couple of years. For example, Keynesian monetary and fiscal expansions should not be undertaken in perpetuo because they are meant to counteract temporary slumps in consumer and investment sentiment. Systemic problems with the economy and structural adjustment requirements of the economy can dominate over consumer and business psychology. Beyond a certain timeframe ( which is difficult to ascertain with accuracy due to the inexact and imperfect nature of economic sceicne and due to the complexity of the questions under consideration ), the systemic aspects of the problem will need to be addressed seriously. If the relevant institutions have advertised numbers about economic growth after the recession following the 2008-09 financial crisis, it may be a good idea to let the public know the actual state of affairs if the economy and the job market does not show significant signs of improvement for a long time. In the long run, only real information can lead to the right economic decisions by economic agents in the economy. Is it possible that the current discussions about the possibility of a double-dip recession are acknowledgements of the fact that the last recession did not actually end as far as gross domestic product is concerned ? In these unprecedented times, the public would do well to scrutinize the government's announcements about the economy in greater detail than is necessary under normal circumstances. It is well-known that the American political system has been hijacked by plutocratic elements in many ways. The 5% of the population that owns an overwhelming majority of the nation's wealth and that leaves no stone unturned in its efforts to buy politicians and to control the political system has a vested interest in projecting positive news and in suppressing negative information about the economy. It is possible that the technocrats and the experts who analyze the economic data and make the official pronouncements can make wrong decisions. Further, given the influence of money on the political system in the United States, what is the guarantee that the agencies that study and announce official economic data are actually free from the effects of money power ?
by C. Jayant Praharaj ( send comments to [email protected] )