There is a critical point that I fear the commentariat is just not getting. In my darker moments I fear that some of my fellow economists aren’t getting it either but we aren’t going to go there.... We have very low capacity utilization (75%) and very high unemployment (10%). That is, we have factories sitting idle for lack of workers – low capacity utilization. At the same time we have workers sitting idle for lack of factories – high unemployment. There are machines waiting to be worked and people waiting to work them but they are not getting together. The labor market is failing to clear.I puzzle what there is in a politician's brain that prevents them from understanding somethings as basic as trillions of dollars lost every year that this Great Recession drags on. Lost production that can never be regained. Lost. Lost because they would rather quibble or play political games. Lost because they refuse to see the facts before their very eyes. Lost because they are heartless and don't care anything about the 14 million unemployed Americans. Incredible!
This is a fucking disaster.
Excuse my language, but you have to get that this is a big deal. This is not a big deal like the GOP doesn’t appreciate public goods. Or, Democrats don’t understand incentives. Or some other such second order debate that could reasonably concern us in different times. This is a failure of our basic institutions of production. The job of the market is to bring together willing buyers with willing sellers in order to produce value. This is not happening and as a result literally trillions of dollars in value are not being produced.
Let me say that again because I think it fails to sink in – literally trillions of dollars in value are not being produced. Not misallocated. Not spent on programs you don’t approve of or distributed in tax cuts you don’t like. Trillions of dollars in value are not produced at all. Gone from the world entirely. Never to be had, by anyone, anywhere, at any time. Pure unadulterated loss.
Time and time again I see people speak about recessions as if they are a bad harvest – an unfortunate event wherein we have to figure out how to go with less. Some say we should all sacrifice – some say the sacrifice should be based on X or Y. Some say each family should take their lumps as they come.
However, they are all getting the basic idea wrong. This is not a bad harvest. The problem isn’t that there is less to go around. The problem is that we are creating less, building less, making less.
We have people who would be working but are instead watching Judge Judy. We have machines that could be spinning but are literally rusting for lack of use. This is a coordination disaster.
The question is how do we end this thing as quickly as possible. How do we stop wasting our basic resources (men and machines), day-after-day, month-after-month, year-after-year.
Wednesday, September 8, 2010
The Great Recession: Cutting to the Chase
Here is Karl Smith on his blog posting entitled "Rome is Burning" putting the issue of the Great Recession in it most stark terms: