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The Outlook

from Peter Radford

I read yesterday that Moody’s suggests a new recession has about a 40% chance of occurring in the foreseeable future. I think that’s a bit high. The problem we have at the moment is that our elite is doing everything in its power to diminish growth. Moody’s says that policies will chip about 1.7% off of GDP growth next year. That I agree with.

Nothing in the recent spate of numbers suggests great strength. I cannot detect anything lurking in the weeds capable of jump starting robust growth. The great dead hand of low demand coupled with continued debt pay down by households dominates any countervailing positive movement. The lack of a coherent job creating policy, and the very real prospect that bitter politics will preclude such a policy anyway, will stop the recovery in its tracks.

Businesses are flush with cash, but are not expanding because they see no demand for their products.

Wages have been pummeled by the recession and were weak going into it anyway. Workers have been the butt end of productivity growth and have watched profits soar while being told they are at constant risk of dismissal. Consumers are fearful of the future and are holding back.

The housing crash exposed the growth – what growth there was – of the past few years as a total illusion. Debt is only a justifiable long term support for growth as long as wages keep its repayment within decent limits. Beyond such limits it becomes a time bomb that will eviscerate swathes of the economy and will create lingering after effects that take years, if not decades, to mop up.

The banks are still weak. They are now laden with sovereign debt. No one seriously believes that they are stable. Their dependence on gambling profits remains high. Their capital is stronger, but they resist true reform.

Europe is gripped by a fever of incompetent politics. The peripheral nations like Spain and Portugal are being asked to bear the brunt of poor decision making and improper policy by the central nations like Germany and France. The flood of cheap money – the core of the current crisis – perverted relative productivity within the Euro zone. No one cared until the crisis erupted. Now the obnoxious moralizing from the center diverts attention away from the culpability: the system was rigged. The failure to solve the problems is epic. It could lap across the Atlantic and erode our banks.

European failure means that trade will not be an elixir either. Indeed the world economy is slowing down as the emerging nations are all entering rougher patches.

So there is nothing to provide sufficient power to lift America out of stagnation.

Thus the economy looks stuck in a growth pattern of around 2%. Maybe 2.5% next year. With the majority of the variance from that level likely on the downside. Not a 40% chance of a new recession. But not a negligible chance either. We are well and truly stuck and thus vulnerable to any storm that crops up.

That is not a happy place to be. But it is where we are.

I read today that Moody’s suggests a new recession has about a 40% chance of occurring in the foreseeable future. I think that’s a bit high. The problem we have at the moment is that our elite is doing everything in its power to diminish growth. Moody’s says that policies will chip about 1.7% off of GDP growth next year. That I agree with.

Nothing in the recent spate of numbers suggests great strength. I cannot detect anything lurking in the weeds capable of jump starting robust growth. The great dead hand of low demand coupled with continued debt pay down by households dominates any countervailing positive movement. The lack of a coherent job creating policy, and the very real prospect that bitter politics will preclude such a policy anyway, will stop the recovery in its tracks.

Businesses are flush with cash, but are not expanding because they see no demand for their products.

Wages have been pummeled by the recession and were weak going into it anyway. Workers have been the butt end of productivity growth and have watched profits soar while being told they are at constant risk of dismissal. Consumers are fearful of the future and are holding back.

The housing crash exposed the growth – what growth there was – of the past few years as a total illusion. Debt is only a justifiable long term support for growth as long as wages keep its repayment within decent limits. Beyond such limits it becomes a time bomb that will eviscerate swathes of the economy and will create lingering after effects that take years, if not decades, to mop up.

The banks are still weak. They are now laden with sovereign debt. No one seriously believes that they are stable. Their dependence on gambling profits remains high. Their capital is stronger, but they resist true reform.

Europe is gripped by a fever of incompetent politics. The peripheral nations like Spain and Portugal are being asked to bear the brunt of poor decision making and improper policy by the central nations like Germany and France. The flood of cheap money – the core of the current crisis – perverted relative productivity within the Euro zone. No one cared until the crisis erupted. Now the obnoxious moralizing from the center diverts attention away from the culpability: the system was rigged. The failure to solve the problems is epic. It could lap across the Atlantic and erode our banks.

European failure means that trade will not be an elixir either. Indeed the world economy is slowing down as the emerging nations are all entering rougher patches.

So there is nothing to provide sufficient power to lift America out of stagnation.

Thus the economy looks stuck in a growth pattern of around 2%. Maybe 2.5% next year. With the majority of the variance from that level likely on the downside. Not a 40% chance of a new recession. But not a negligible chance either. We are well and truly stuck and thus vulnerable to any storm that crops up.

That is not a happy place to be. But it is where we are.

  1. October 12, 2011 at 4:42 pm

    This argument about whether we are going into a double dip or not is ridiculous. It reminds me of the old economist”s joke (popular in the 1950s and 1960s) where a recession is defined as when your neighbor is out of work and a depression is when you are out of work. With over 15 million unemployed or having abandoned the labor force, I think there is enough evidence that this is a 15 plus million depression!!

    Where are the economists who are willing to say — NOTHING SHORT OF FULL EMPLOYMENT Is AN ACCEPTABLE AND ATTASINABLE STATE OF THE ECONOMY– EVEN IN THE SHORT RUN!!!

    Paul DAVIDSON

    • Peter Radford
      October 12, 2011 at 6:06 pm

      Paul: I agree. The very notion that we discuss various levels of unemployment as targets, or as goals to attain is socially unacceptable. There is only one level of unemployment to target: none.

  2. Edward Allen
    October 12, 2011 at 5:20 pm

    Thanks for another insightful post. At the moment, things do look terrible … except for “the 1%.”

    Suppose, though, that rapid growth could be resumed, would that be a blessing or a curse?

    Given the threats of climate chaos, pollution, fisheries collapse, and other degradation of the systems on which human life depends, I think a strong case for curse exists.

    Is it possible we’ve reached a true crisis point and must start considering alternatives to growth, such as undoing the maldistribution of the wealth & income pies and creating meaningful work (as opposed to the life-destroying labor so well depicted in _Modern Times_)?

    I don’t believe we can expect much from the power-holders, but what about from economists?

    Stephen R. Covey gets to the intellectual core: “The way we see the problem is the problem.”

    • Dave Taylor
      October 12, 2011 at 6:51 pm

      Edward, I’m very close to your and Stephen Covey on this. My reaction to Paul’s challenge was that full employment is the last thing we need. What we need are secure livelihoods leaving us free to perform work worth doing, usually in partnerships or cooperation with others. I don’t think “no employment” is quite what Paul and Peter had in mind with “no unemployment”, but that very much illustrates Stephen’s point!

  3. October 12, 2011 at 6:51 pm

    Edward, thanks for the down to Earth nitty gritty. Peter, thanks for the great start (of thread) on The Outlook. Paul, thanks for the potent rejoinder with numbers that may be mo real than what most bankers, governments, and so-called economists are using.

    Ed, it seems to me you understate the case & The Problem. It also seems that anyone who doubts that humanity has reached “a true crisis” is missing most of the AR (actual reality) data points. Yet, you clearly are aware that there are severe AR impacts directly, physically, biologically & ecologically caused & aggravated by the 1% – 99% dichotomy. So, are you framing your argument with deliberate craft, so as not to put off the more fragile neurotics “out there” or what?

    Paul, you’re clearly a reasonable guy but, short of a Chinese conquest of the USA (which may be occurring by stealth & attrition as we speak), how do we create & enforce “full employment” without robbing Peter [sic]?

    Now, if I am elected King or Hegemon (and remain alive for awhile, both of which seem highly unlikely), then maybe we could have a sensible hybrid economy with approximately 100% employment. In such an unlikely event, sooner or later, the King or Chairman (of the PRC-USA), would probably need to count education as an occupation deserving of compensation.

    Hey, has anyone started a study & projections of what will happen if China is able to start its proposed international exchange currency? That seems another project worth tackling (and an N Prize?). And, naturally, you’d want to factor in the radical changes accompanying the projected level of loss of polar Antarctic & Arctic ice (including Greenland) by 2030-2040; and the population of 9 billion and double the square footage of global real estate.

    As a rather holistic generalist & researcher of global AR, I will be glad to assist. Hmmm… What do you think about changing RWE to ARE (as in Actual Reality Economics)? After all, the definition of “world” is subject to several competing camps, not all of whom live in or care about AR.

    Best of Fortune (not the magazine), etc…

  4. October 12, 2011 at 7:10 pm

    By the way, does anyone remember who did the study featured in an article in either Entrepreneur or Inc. Magazine back in late 2007 or early 2008? Sorry to be so swamped I haven’t looked him up myself, but he shows with a simple bar chart that what “they” call a “recession” is really the aftermath after the damage (rape & pillaging). The chart features a long term time line and bars for the levels of 1) retail consumer spending and 2) inflation indexed wage growth. Now, clearly, we could make a more robust case for him by adding in a few other indicators of plutonomic reaming or harvesting, if you like, but the 2 original indicators were convincing for both me and the publisher/editor. In fact, until somebody can show me how we can have a robust, affluent, democratic culture without a well paid working class and a thriving middle class, I will remain convinced that all other problems & issues in AR economics pale to ephemeral insignificance by comparison. Until that issue is resolved, unless I am mistaken, the plutonomy & Neo-Classical Neo-Liberalism will keep devolving to Neo-Feudalism and economics will be unnecessary except for show (and not so secret jokes among the Plutocrats & their thugs). Uh-oh… is that what’s really happening already, and I’m just a boob lost in the dark? Please correct me if I am mistaken. I appreciate light from the end of the tunnel as much as the next Twainian-Trumanist (AR theorist).

    • Alice
      October 13, 2011 at 9:51 am

      Micahel – you say “Uh-oh… is that what’s really happening already, and I’m just a boob lost in the dark?”
      Yes – it is happening. Someone somewhere needs to sack Rupert Murdoch for starters and limit his political power (let alone what the unethical family does with mobile phones – this is bigger and uglier than that – and he has been at it too long). What a dangerous media baron..but in history he has his counterparts in the vindictive and destructive press of Hearst.

  5. October 12, 2011 at 10:13 pm

    “Not everything that counts can be counted, and not everything that can be counted counts.” – A. Einstein

    Here’s some food for thought that seems relevant and potentially nourishing from a couple lowly education scholars:

    “Indeed the Gates Foundation has spent over three billion dollars influencing American public schools, and while the donations seem laudable on some fronts, especially in an era of increased federal demands coupled with reduced federal spending, his philanthropy remains problematic. When corporate leaders shape government institutions according to their needs, countries move away from democracy and toward corporatism, a relative of, and arguably a precursor to, fascism. This paper is no place for a complete analysis of American democracy and fascism writ large, and we believe scholars have made a compelling case for keeping corporate leaders out of our classrooms as, despite their “best” intentions, their ideology ultimately undermines the democracy our schools purportedly serve. Corporations are out for corporations, whereas democratic citizens, ideally, are out for each other.

    “John Dewey, American philosopher and vocal critic of traditional public schools, defined
    democracy as a system of associated living where individuals participate in the institutions
    governing them. In a democratic school system, parents, students, teachers, academics
    and business leaders would participate in curricular decisions. Corporatism, on the other
    hand, requires citizen obedience to corporate demands; individual needs are ignored. In the
    case of U.S. public schools, CEOs have great influence on the curriculum whereas parents
    have little to none. Individual students become products whose manufacture is subject to
    the whims of the market. As our society becomes more market based, we have seen stricter
    coordination between government and industry. This coordination often comes in the form
    of government-business partnerships, where elites from both groups decide how public
    institutions should be shaped and run. Ultimately, corporatism undermines the legitimacy of
    individual citizens and any possibility of democracy, as these elites, often unelected, make
    decisions for the people. This paper problematizes the Bill and Melinda Gates Foundation‘s
    involvement with the reformation of U.S. public schools. Focusing on four organizations
    funded in-part by the foundation, we use Chris Mooney‘s work on ―political science abuse
    to illuminate how corporate-funded think tanks and advocacy groups generate ―spontaneous consent for pro-corporate educational reform. We then raise questions about the legitimacy of what these organizations say and do, with the hope that scholars will work to counter misinformation campaigns made possible by corporate philanthropists such as Bill Gates.” – Philip E. Kovacs & H.K. Christie, from their paper, The Gates’ Foundation and the Future of U.S. Public Education: A Call for Scholars to Counter Misinformation Campaigns

    It may be time to integrate RWE/ARE with the other disciplines concerned about the real intent and direction the plutocrats are heading/herding us… Might it not?

    It would be a shame to get caught, pants down (bending over with a sheepish look of dumb dismay and a foppish squeal) as the Neo-Fascist Plutocrats boldly castoff their Neo-Liberal Corporatist disguise and start pumping away even harder with the whole world watching.

    Rereading John C. Maxwell’s little classic, Ethics 101, may help. I find it refreshingly direct and surprisingly useful. Not that I was unaware of the efficacy of the Golden Rule in conventional socioeconomic and ecological interactions. Sometimes, it really is helpful to just call a duck a duck, and speak out plainly and boldly against evil and injustice. Several humanistic See-ers besides Einstein, Twain, Gandhi, Will Rogers, & Pres. Truman (possibly the last true man in the White House) have recommended this approach as well. It does require a seemingly unusual level of courage, but there IS strength in numbers.

    PS: Does anyone know how many heroes of RWE/ARE there are now?

  6. Alice
    October 13, 2011 at 9:46 am

    Peter says “I cannot detect anything lurking in the weeds capable of jump starting robust growth.”
    Strange but I see more in the weeds threatening further downturns than I see in jumpstarting robust growth – there is just too much wrong inside the financial sector. Really Europe is still trying to reinflate a bubble at cost to taxpayers in their recent bailout of Greece – (they call it staving off a crisis??? I dont think so. A drop in an already leaky bucket)..

    Its not over. Unfortunately. Politics in the US has no clue which way to go. Obama is fighting at least in the right direction even if he is not winning – he is up against it. I feel some sympathy for him. As for the rest…lost, just plain lost (but probably doing just fine as individuals).

    Where is full employment? I for one am tiring of the economists who keep playing with Nairu and saying it has risen. Garbage. Absolute garbage – and an abrogation of economic responsibility (but we are well used to that by now arent we?).

  7. October 13, 2011 at 2:52 pm

    I guess I must not be communicating effectively about the ease, validity, feasibility, legality and practicality of starting a free, nonprofit credit system to counter-balance the plutonomy, and counter-act it as needed for the sake of us little folk who just want modest affluence & a nice life for our kids & other animals. Alice, did you read my attempted explanation in Green Credit & Commonwealth? It just seems so much more viable than whipping the dead horse’s ghost (the plutonomy) over and over again.

    No offense, Peter, but of course you won’t find anything in the weeds other than what Alice or anyone else finds there. If you look under the hood and revisit the basics, instead of dismissing any possibility of starting a new era, a new age of biocentric AREs with the co-creation of an evolutionary hybrid system, I am sure that you will discover the principles and mechanics required for jump starting the economy for the middle class with the fresh, fully charged battery of the future community credit system. Otherwise, you’ll keep “seeing” the receding light at the end of the ever longer tunnel or else whatever it is you’re convinced is the only possible interpretation of the data.

    It reminds me of one of my favorite Einstein quotes, “Insanity is doing the same thing over and over again while expecting different results.”

    Now I can’t say that I see most posters expecting different results but, in this case, a defeatist attitude of subclinical ennui or whining about the atrocities or armchair quarterbacking without seriously considering an active/proactive concerted effort with the most well informed pros in economics seems close to ecocidal collusion by default. Like the old saying, all that’s required for the triumph of evil is for good men to stand by and do nothing [about it].

    You know I discovered PAER/RWER back in late 2007 or early 2008, and it filled me joy and hope. Now, I refuse to let that die or wither away to a dull, righteous resignation. I am moving forward to more active engagement in my AR community, with or without the active collaboration of economic specialists. As I’ve said or implied in other posts, I cannot imagine why any RWE pro would not want to change the game for the best possible success for one and all. There are so many reasons it seems the ideal choice for a RWE/ARE.

    But I’m a holistic generaist… so what do I know…?

  8. October 13, 2011 at 3:17 pm

    Alice, Thanks for the response. Now, are we going to whip dead virtual horse’s for the duration or stand by and look down on delusional fools playing musical deck chairs on the Titanic as the lower decks are filling up (drowning the lower classes) or what…?

    Surely a nonprofit community credit system can’t seem much more exotic than a local currency or scrip system or online VR “currency” and frequent flier miles…? Can it?
    It seems far less bizaare & complicated than Club Fed’s plutonomy.

    After all, people are now quite used to using “money” that’s virtually valueless, and we reward entertainers, including sports stars, for their contributions to culture and our happiness. Nobody wonders much about whether that will keep “working”or not. All kinds of cash prizes & scholarships are awarded to worthy members of society. Why not let everyonedo the same all the time, at every level?

    Other important possibilities are given in the Greenbook > mm-greenbook.blogspot.com

  9. Alice
    October 14, 2011 at 9:23 am

    Hang on a minute Michael…by now you will find that everyone offering such a nice credit arrangement as you suggest “has to be licensed” by you know who “complict governments” and likely must have “experience with some recognisable banking authority” to get the license.

    Catch 22.

    Are you really free to offer such a co-operative credit arrangement (and they have had these instruments in history and I applaud them).

    Or have the banks stitched up deals with governments to ensure their protection, over other new starters in the credit game. This is the late stage of our capitalism..regulatory capture.

    How did the banks get so damn big and powerful (we might ask ourselves at this point) ?

  10. Dave Taylor
    October 14, 2011 at 10:29 pm

    How I wish I had some of Michael’s verbal fluency: I’ve been working all afternoon trying to answer a couple of questions! But Michael, I’ve pointed out already that the Mondragon co-op is precisely a community credit scheme (though it is a community of interest, not just of locality). And Alice: firms and corporations throughout the world have cooperative credit arrangements between their different activities, even when their management is dictatorial rather than democratic. As I pointed out earlier, the big supermarkets are now so flush with funds in transit through them that they have been able to take on the banks at their own game – and no-one is stopping them! The point is that this has to be internal to a company’s legal identity. As to how the banks got so damn big and powerful, that’s down to Margaret the Unready [heir to Ethelred?] opening the doors to our stock markets and inviting in hostile foreign investors to help her undermine rebellious miners. SHE asked for what WE got.

    • Alice
      October 15, 2011 at 10:36 am

      Well we are all miners now – with a non existent union to fight for our non existent rights and nothing but a worthless non negotiable contract that guarantees the next three months, if we are lucky. Someone remind me to thank Marge.

  11. October 15, 2011 at 10:13 am

    Alice, Dave, thanks for tackling the challenge. 1) Alice, legally, in the USA, all rights and powers not granted solely to government are reserved to the people. 2) My proposed system is no more sacrosanct than frequent flyer miles or any of the more than 20 virtual currencies online. A nonprofit, nonmonetary credit system can be started with or without a corporate sponsor, but a corporate association makes the most sense for a large scale implementation. There is no legal need for a license, and without any compromise to floating debt-money’s notional “monetary” value, there is nothing to regulate. Each award or transaction can be as uniquely specific and voluntary as a restaurant owner’s decision to set a particular value on a discount coupon. 3) My proposed CCCS system is based on a deep, comprehensive, viable & sustainable understanding of credit and monetary policy issues.

    The main advantage of the CCCS (cooperative community credit system) that I envision and its TUs (trust units) over all the other online “currencies” and local currencies is its purity and scope, and that it is designed for optimal, large scale practicality for all purposes.

    Dave, thanks for the compliment and the info on the supermarkets getting into the financial & banking services. Another example of grassroots alternatives is the “complementary” currencies of small towns, etc., which are much more like money and are valued in direct relation to monetary values. See “Ithaca HOURS” via Google, etc. I’m also glad that you brought up the examples of various business sectors that use credit directly. There are many examples of pure credit being used in inetrnational trade daily.

    Need sleep… Ciao

  12. October 18, 2011 at 6:42 pm

    Michael:

    If you want to know how to get to full employment without inflation and withour terrible balance of payments deficits read my 2009 book THE KEYNES SOLUTION:THE PATH TO GLOBAL ECONOMIC PROSPERITY.

    This book was written as a “trade book” without a lot of professional jargon –so the intelligent layperson can understand it. It introduces a 21 century version of “THE KEYNES PLAN” (that was presented at Bretton Woods and vetoed by the USA) to deal with international payment imbalances, financial asset crisis contagion, plus Keynes’s correct stimulus plan and also dealing with what Keynes called Commodity Inflation and Incomes Inflation.

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