Third Millennial Depression…where’s the Intervention?

Posted: June 30, 2011 in Alternative Energy, The Economy
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The double dip in housing prices in the United States is occurring as I type this post.  It’s why I walked away from my property in Central Phoenix.  The news reported that prices would fall another 5% and since the Phoenix area had seen double and even triple the national rate, I estimated that housing prices would fall 10 to 15% here.  So I walked away and so far, it has been to my advantage. Suffice it to say I’d be happy to stay in the house but Bank of America who owns the mortgage made a profit of $6.3 Billion in 2011 total and they don’t give a crap about my loan of a piddling $197,000 outstanding. They are perfectly happy to see it sit empty for the next two years until the market stabilizes so they can sell it at a loss and write off on their U.S. taxes of which they will not pay a SINGLE EFFIN PENNY.  Are you starting to see why I don’t feel so guilty any more?  They sold me a house they KNEW to be overvalued and then expected me to continue to pay on as a servant until my dying day.  Instead I said, take it back, please.  Do me a favor and take it back. Either way they win and I will suffer a credit bump in the road for 8 years.  Truth is I will suffer much more than they ever will.

But I digress…this second dip signals to me, and many others not schooled in economics, that we are in not only a recession but a Depression (with a capital D).   What is the difference between a Recession and a Depression?  Well it’s hard to say because there are multiple definitions.  According to the Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) a recession is when they look at the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales and then say a recession is when business activity has reached its peak and starts to fall until the time when business activity bottoms out.

A Depression on the other hand is when there is a severe downturn in GDP that lasts several years.  In the Great Depression that started with the crash of 1929, we saw declines in GDP as follows:

  1. 1930 -8.6%
  2. 1931 -6.4%
  3. 1932 -13%
  4. 1933 -1.3%.
During the Depression, unemployment was 25% and wages (for those who still had jobs) fell 42%. Total U.S. economic output fell from $103 to $55 billion and world trade plummeted 65% as measured in dollars.*
I would estimate, and I am no economist, that in some portions of the country that the total current unemployment rate is actually around 20%.  Not too much less than the 25% of the Great Depression.  Why do I estimate this?  Because unemployment numbers today do not reflect those who have given up on finding work and the underemployed, and instead rely on new jobless benefits applications filed.
Now we get to the crux of the matter.  Why do I, amateur that I am, refer to our current economic situation as a Depression and not just a Recession, as many economists currently do?  Because our economy is not the same nor are we the same nation.  What has changed?  We are no longer a nation of manufacturers.  We are a nation that predominantly provides services and in particular services of indeterminable value.  Estimates say that as of 2010 that manufacturing was 11% of GDP. Now compare that to manufacturing in 1929….I am trying to find a source but I bet it is a lot higher.  I feel safe in assuming this fact because we know historically that things were built to last back then as to the built in obsolescence of modern items (i.e., most items, even big tickets items like computers, TV’s, etc often require the consumer to buy new because of wear & tear and because of the fast pace of advancing technology).  But during the early 1900’s everything was made of more durable materials.  Dolls were made of wood or porcelain.  Toy cars were made using metal.  Even into the 1950’s houses were made using solid brick walls for the outer structure.  Today it is extremely expensive and rare to find houses made using brick.   Beyond the more permanent and therefore more manufactured type goods created back in the 1920’s and 30’s we know that manufacturing as a large part of our GDP continued to increase up to a certain point.  For example, in 1939 the U.S. began to churn out materials for WWII and manufacturing increased a whopping 50%.  This increase continued until the peak in 1979.  Since then it has been declining.  No one disputes this and most people do not dispute it’s cause.  The “new” economy is more service based and will likely continue that way for the next 30 to 50 years.  My point is that GDP is calculated using what we produce but what we produce is less and less based on concrete things.
If our GDP is miscalculated based on the misunderstood value of services, how in the hell can well tell if we’re actually in a Recession.
I would posit to economists that they redefine what a Depression is in light of the massive changes engendered by the ubiquitous nature of computers and the Internet and the fundamental change in the kind of things we produce (e.g., Information versus concrete Things).  Once you have an idea of our real GDP, I think we’ll see that we’re not only being outclassed in old style manufacturing but also new style manufacturing  (e.g., explosive growth of solar panel construction in China versus the U.S.).  Not to mention being shown up on the production of services and information (e.g., contracting externally to India, Bangladesh, etc for customer support functionality, etc.)  We’re being defeated old school AND new school.  Furthermore, no one is acknowledging it, not even the supposed Liberals in Economics who haven’t accepted the paradigm shift that has resulted.
So here’s the scope of our problem.  We have Economists saying it is only a Recession, which I believe is an error.  We have a nation that doesn’t understand the urgency of what is happening and what has to be done to fix it.  In essence, we’re at an impasse, so to speak.  What we need is an Intervention.  It’s like we’ve become a nation of alcoholics focused on our feelings and rejecting facts because we either haven’t understood them or we haven’t experienced them. Either way we can’t accept them.  So our fall back position is how we feel.  And how we feel is shitty and why, well, we don’t really know why.  We only know that people like Reagan, McCain, Palin, Bachmann and any fill-in-the=blank GOP politician lately (and some Dems to be honest) say things that make us feel better.   You know like, those brown folks are why we don’t have any jobs.  Sound familiar Arizona?  It makes you FEEL better when they say it but it doesn’t make it an ACTIONABLE FACT upon which to base good policy.  And that’s the root of our problem.
Our country needs an Intervention!  Unfortunately I don’t see anyone capable of doing it internally or externally–where is our interventionist(s)?  I don’t think they exist.  For the U.S. the intervention that occurred was WWII.  It would take something on a similar grand scale and it would have to be something that would make us or break us.  However, no one in their right mind wants to see WWIII happen just so we can be back in the black again and without some other kind of intervention I believe we will simply continue to decline.  On that sad note, good night and good luck!

Sources:

*http://useconomy.about.com/od/grossdomesticproduct/f/Depression.htm

http://www.cnbc.com/id/43222783/Double_Dip_in_Housing_Prices_Even_Worse_Than_Expected

http://www.nber.org/cycles/main.html

http://www.shtfplan.com/headline-news/the-real-unemployment-rate-215_07022010

http://www.ourfuture.org/blog-entry/2010030902/us-manufacturing-losing-out   

http://www.huppi.com/kangaroo/Timeline.htm  

http://www.policyalmanac.org/economic/archive/manufacturing_employment.shtml

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Comments
  1. The Dork Knight says:

    Very we’ll stated IG.

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