National Commentary

The Dreaded ‘Double Dip’

bentonmugA commentator on CNBC this week offered his own variant on Time magazine’s declaration that the past 10 years constituted “The Decade from Hell.” He said the years are better classified as “The Decade of Sin” that will lead to “The Decade from Hell” now just beginning. Despite CNBC’s otherwise relentless crusade to tout signs of a recovery in order to separate people from their money to Wall Street’s benefit, this dose of reality is more likely to characterize the next extended period.

bentonmugA commentator on CNBC this week offered his own variant on Time magazine’s declaration that the past 10 years constituted “The Decade from Hell.” He said the years are better classified as “The Decade of Sin” that will lead to “The Decade from Hell” now just beginning. Despite CNBC’s otherwise relentless crusade to tout signs of a recovery in order to separate people from their money to Wall Street’s benefit, this dose of reality is more likely to characterize the next extended period.

For its part, the New York Times editorialized last weekend about “Avoiding a Japanese Decade,” citing the period from 1992 to 2003 when the Japanese economy, after decades of booming, was dead in the water, growing on average by less than a single percent over that time frame. The inability of the Japanese government to follow through on sufficient stimulus measures led to the malaise, the editorial noted, and the Obama administration, buffeted by its Republican and banking industry detractors, is at risk of doing the same.

Indeed, there are those who point to an impending, dreaded “double dip” in the stock market, predicted by many for around mid-March, when the inability of the economy, or government stimulus measures, to redress the depth of the housing crisis and nagging unemployment will lead to another financial sector-led dive in market values.

Put plainly, there appears to be a lack of political will to end this crisis, led by banks who continue to hang onto bad assets, overpay themselves and refuse to lend in anything like the volume needed to restart real growth. Meanwhile, they continue to stall the kind of regulatory reforms that would stem their appetite for the kind of risk-taking that put the global economy on a fast track to total implosion in the last decade.

Put on top of these factors the effects of an inevitable Federal Reserve decision to raise interest rates by summer, and another “peak oil”-driven acceleration of oil prices in the direction of the $140 a barrel level that was a major trigger in the ungluing of the global economy just a couple years ago.

As Peter S. Goodman put it in the Times this week, “Those skeptical of a lasting recovery assert that, once businesses have rebuilt inventories and federal largess runs dry, the economy will confront the same assortment of ills plaguing it for two years.” He continued, “Americans [remain] saturated in debt and nervous about job prospects, prompting many to hunker down in a mode of thrift; businesses still spooked by dysfunction in the financial system are reluctant to hire more workers until recovery proves real; and a cataclysmic drop in home prices has diminished spending power in millions of households, with another decline possible as foreclosed properties surge onto the market.”

There are three measures which define the real economy beneath all the hype and statistics: one is the level of disposable income in the nation’s households, and the second is the real cost of refining and delivering the core natural resources that are the underpinning of everything that is produced and consumed in society. A third, less essential but still indispensable, component is the accessibility of a means of exchange by which to match resources to needs, which is to say, money or credit.

On all three of these basic counts, the U.S. economy remains in deep trouble. They constitute stubborn boundary conditions that must be surmounted if anything lasting or durable will occur.

To fix the first measure, massive debt and foreclosure relief and job creation is required. To tackle the second, alternative energy technologies need to be addressed in a serious way. Instead of diddling around with soft technologies like wind and solar, a gargantuan push for nuclear power and major water diversion/hydroelectric projects is required. To address the third, either the banks need to be forced to loan, or the government may need to come up with some alternative method of exchange, altogether.

Finally, fixing these without also providing for the expansion of human capital, the education and training of an advanced workforce, will suffocate any nascent recovery in the cradle.


Nicholas Benton may be emailed at [email protected]

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