Robert Reich suggests we should stop waiting for the old economy to recover because the old economy was unsustainable.
My prediction, then? Not a V, not a U. But an X. This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.
The X marks a brand new track -- a new economy. What will it look like? Nobody knows. All we know is the current economy can't "recover" because it can't go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come.
Mark Thoma agrees and explains. If they're right, and I'm inclined to think they are, it's very hard to see what the new economic drivers will be. We need something to drive up domestic wages, but core policies are still oriented toward reducing labor costs. Obama's green jobs push seems too small to have a big effect on the whole economy. We've run a trade deficit for 26 of the last 27 years, so an export led recovery seems unlikely. What are the realistic possibilities?
The media and technology moguls at the Allen & Co. annual Sun Valley conference are discouraged too, according to this LATimes report.
"I'm shocked at the business mood, which is talking about either that we're at the bottom or going lower," News Corp. Chairman and Chief Executive Rupert Murdoch said in an interview he gave during the conference to his Fox Business Network. He had just emerged from spending a morning with the most powerful people from Wall Street, Silicon Valley and Hollywood. What was the word from inside?
"It's going to take years and years, like five years at least before we see any real growth coming out of this," Murdoch said.
"We don't see things improving," added Martin Sorrell, chief executive of WPP Group, one of the world's largest conglomerates of advertising agencies and someone pretty close to knowing the willingness of companies to spend money.
. . . .Google Inc. Chief Executive Eric Schmidt offered a sobering dose of reality, calling today's economic environment "the new normal" and advising everyone to "figure out how to be happy and get our lives together in this new configuration." And this comes from an executive whose company saw its revenues increase 6% in the first quarter.
Mark Thoma says differences of opinion about the expected shape of the recovery are bottomed mainly on different views about whether the post-recovery economy will be very similar to the pre-crash economy or will be quite different:
I increasingly think that the debate between V and other shaped recoveries is really a debate over the degree of structural change occurring in the economy. If you believe this is a typical cycle, and that what was demanded and how it was produced is roughly the same after as before the recession, a V-shaped recovery is your likely candidate. If you believe that the current recession is simply intensifying a period of intense structural change, than you are looking for a U or L-shaped recovery. Notably Bernanke, by acknowledging that the US consumer is in no shape to continued its 25 year role as a shaper of global economic trends, seems to be siding with the structural change side of the coin.
Not only does Obama's green jobs push seem too small to have a big effect on the whole economy, but it doesn't look like American companies and American workers are going to be a big factor.
This NYT piece describes the Chinese government's push to dominate production of photovoltaic panels, providing subsidies, protecting home markets, and even selling products at less than the variable costs. Interestingly, the Chinese manufacturer, Suntech, is planning to build at least one assembly plant in the US to avoid having us block imports, which we could because China has not signed on to that part of the WTO agreements that require it not to discriminate in government procurement. So US protectionist policies may create 75-150 jobs in Texas or Arizona and, given the Chinese strategy of "buying" market share dominance, the US selling price of those solar panels is unlikely to be affected--at least in the near term.