Well, it is over. Last night, President Obama went on national TV and gave us his best shot at a national pep-talk. He failed miserably. He either does not care, or does not understand, about the rather dire straits of America’s economy today. Unemployment is at nearly 10% (higher than that if you count the workers who have dropped out of the workforce and the under-employed), and has been there longer than any period since the last Depression. If Obama were a Republican, this would be called a Depression. Don’t let a couple of quarters of anemic growth fool you. There were periods of slight growth during the last Depression as well. It is the long-term unemployment and the structural problems in the economy that make this a Depression, not some artificial tick on some economist’s Power-Point presentation.
To see our structural problems, we need look no further than this comparison of manufacturing output vs. manufacturing jobs. We see growth in the manufacturing output, but a serious decline in the actual jobs numbers:
Since 1975, manufacturing output has more than doubled, while employment in the sector has decreased by 31%. While these American job losses are indeed sobering, they are not an indication of declining U.S. competitiveness. In fact, these statistics reveal that the average American manufacturer is over three times more productive today than they were in 1975 – a sure sign of economic progress.
The true cause of dwindling American competitiveness is a tax code that puts domestic firms at a clear disadvantage – not a lack of skill or innovation on the part of the American worker.
Read the highlighted part. This is key to understanding where we are, and what must be done to get us out of this Depression. American corporate taxes are among the highest in the world, and we add those taxes to a regulatory scheme that can only be described as predatory. Why should we expect such an environment to create jobs? It is like putting an orchid in bleached sand and watering it with saltwater. Not much will grow.
To cure this problem, we need to attack it on two fronts: tax code and regulatory. I will give Obama some credit. He mentioned both of these in his State of the Union speech. He did not really address them, though. The Republicans must act on his lead, though, and quickly move to eliminate or reduce over-regulation and give our dying corporations some much-needed tax relief. Only when these two things have been accomplished will we (hopefully) see some actual job growth. There is the third leg of the triangle, though, demand to consider.
American Demand was high throughout the 1990s as people saw unrealistic gains in their stock portfolios and housing values, and they borrowed heavily to spend on damn near anything. We are a nation with a lot of stuff. The economists called this the “Wealth Effect” as people spent to create lifestyles based on how wealthy they felt, rather than how wealthy they actually were. No one questioned whether or not this demand was sustainable. The stock market and housing prices seemingly always went up, so no one cared.
Well, that has all changed now. We call it the “Tech Bubble” and the “Housing Bubble” and yes, Virginia, housing values can go down:
Outside D.C., a grim housing market
By Dina ElBoghdady
Washington Post Staff Writer
Tuesday, January 25, 2011; 4:12 PMWhile home prices continue to tumble in many major metropolitan areas, the Washington region is one of the few bright spots where prices are rising, according to two reports released Tuesday.
Only four of the 20 areas tracked by the S&P/Case-Shiller Home Price Index posted year-over-year price gains in November. Washington led the way, with a 3.5 increase in single-family home prices, according to the report’s numbers.
A separate analysis by research firm Delta Associates found that average home prices in the D.C. area in the fourth quarter were up 7.5 percent from a year earlier, to $404,501. The jump was the area’s fifth consecutive quarterly gain, the report said.
The Washington region outshines many other metro areas in part because its robust job market has bolstered demand and prices for housing. But the area faces a risk over the coming months that the federal government could rein in spending and slash its workforce, undercutting the local economy and upending the gains in home prices.
Nationally, housing prices remain under pressure from the bloated supply of foreclosures and the nation’s high unemployment rate. As long as people are without jobs or fear losing their livelihoods, they are unlikely to buy homes and help drive up prices.
The closely watched S&P/Case-Shiller report shows that housing prices, compared year-over-year, have declined nationally for six consecutive months. The downward path suggests that housing prices could, by spring, hit their lowest level since April 2009, said David Blitzer, the index committee’s chairman.
Already, nine major cities have dipped to new lows, the report shows. They are Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, Portland, Ore., Seattle and Tampa.
In the past, a revival of the housing market has played huge role in pulling the economy out of downturns. So a double-dip in home prices would be a setback to the nation’s financial health just as the economy is starting to show signs of improvement.
We have been hearing much about an Obama Boom because “we aren’t in a Recession anymore”. The unemployment numbers tell a different story, and the housing market offers us a grim picture for the coming months. Housing values are going down, and there will be a negative “Wealth Effect” as people feel poorer, even if their income has remained steady. Couple that with high personal debt brought on by over-borrowing during the boom years, and it presents a stark, but realistic, view of the near-term future. In the past, it was relatively easy for a person with a solid middle-class job to borrow a quarter- or even a half-million dollars between mortgage, second mortgage, car, boat, and credit cards and the like. Easy to get into deep debt. It will be harder paying that debt off, especially now, when housing prices have declined and so many people are upside-down on their homes.
