Robert Reich Turns Pessimistic

Robert Reich is a smart guy and I respect his opinions, but I sure hope he is wrong on this call. In his blog he writes:

Why aren’t Americans being told the truth about the economy? We’re heading in the direction of a double dip – but you’d never know it if you listened to the upbeat messages coming out of Wall Street and Washington.

Consumers are 70 percent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the lowest point of the Great Recession.

The Reuters/University of Michigan survey shows a 10 point decline in March – the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low — and a large part is due to expectations of fewer jobs and lower wages in the months ahead.

Pessimistic consumers buy less. And fewer sales spells economic trouble ahead.

What about the 192,000 jobs added in February? (We’ll know more Friday about how many jobs were added in March.) It’s peanuts compared to what’s needed. Remember, 125,000 new jobs are necessary just to keep up with a growing number of Americans eligible for employment. And the nation has lost so many jobs over the last three years that even at a rate of 200,000 a month we wouldn’t get back to 6 percent unemployment until 2016.

But isn’t the economy growing again – by an estimated 2.5 to 2.9 percent this year? Yes, but that’s even less than peanuts. The deeper the economic hole, the faster the growth needed to get back on track. By this point in the so-called recovery we’d expect growth of 4 to 6 percent.

Consider that back in 1934, when it was emerging from the deepest hole of the Great Depression, the economy grew 7.7 percent. The next year it grew over 8 percent. In 1936 it grew a whopping 14.1 percent.

Add two other ominous signs: Real hourly wages continue to fall, and housing prices continue to drop. Hourly wages are falling because with unemployment so high, most people have no bargaining power and will take whatever they can get. Housing is dropping because of the ever-larger number of homes people have walked away from because they can’t pay their mortgages. But because homes the biggest asset most Americans own, as home prices drop most Americans feel even poorer.

There’s no possibility government will make up for the coming shortfall in consumer spending. To the contrary, government is worsening the situation. State and local governments are slashing their budgets by roughly $110 billion this year. The federal stimulus is ending, and the federal government will end up cutting some $30 billion from this year’s budget.

In other words: Watch out. We may avoid a double dip but the economy is slowing ominously, and the booster rockets are disappearing.

He goes on to discuss why this pessimism is not more obvious and why Wall Street and Washington ignore this situation. It is well worth your time to read this bit as well.

He isn't outright calling for a double dip, but he is very worried. I think he fear is overdone. I think the recovery is on solid ground, but very, very weak for the reasons he identifies. But I don't see the economy sliding back into recession. But it is a great tragedy that the lessons of the Great Depression were not applied in this, the Great Recession. Instead, right wing ideologues who helped create this Great Recession, are actively undermining any effort to get the US out of the recession. They should be villified for this and be sent into the political wilderness. But they aren't. They are rampant and controlling more and more of the media and the reins of power. This is a great tragedy for the American people. It is simply astounding that the nuts who caused the problem blame Obama and the Democrats for the disaster that Republicans (with the aid of some Democrats) created by their "free market" fanaticism, their "deregulate, deregulate, deregulate" philosophy, their corrosive view that "government is the problem and not the solution", and their vicious attacks on the bottom 90% of society as evidenced by state governments busily tearing up contracts with public sector unions and mounting an all out attack on workers.

Funny, when it came to rolling back bonuses to Wall Street fat cats, these fanatics all wrung their hands and claimed it couldn't be done because contracts are "sacred". But when it is a union contract, suddenly there is no "sacred" and the legality is ignored. In fact, Governor Walker in Wisconsin is publicly flaunting the judicial branch of the government by refusing to recognize a court decision that his pushing legislation through a midnight session is illegal because it ignores a law requiring 24 hour notice to allow the opposition to know what is being jammed down their throats.