Are they predicting a V or a W?

Published on Real-World Economics Review Blog, by Edward Fullbrook, November 19, 2009.

Over the past six months we hare repeatedly reminded ourselves, as well as non-economists, that although recessions/depressions are usually V-shaped, sometimes they are W-shaped (double-dipped). Time has now come for high-profile economists to give us their predictions as to the shape of the one we are living through.

Yesterday Robert Reich did just that. In a short piece well-worth reading, The Great Disconnect Between Stocks and Jobs, he predicts a W. He writes:

The result, overall, is an asset-based recovery, not a Main Street recovery. Yes, the economy is growing again, but the surge in productivity is a mirage. Worker output per hour is skyrocketing because companies are generating almost as much output with fewer workers and fewer hours. The Fed, meanwhile, has become an enabler to all this, making it as cheap as possible for companies to axe their employees. 

Money costs so little these days it’s easy to substitute capital for labor. It’s also easy to buy up foreign assets with cheap American money. And it’s now blissfully easy for Wall Street to borrow money almost free and buy all sorts of interests in foreign assets, especially commodities. That’s why we’re seeing the prices of foreign commodities and other assets go through the roof.  …”

“No economy can recover without consumers. Yet American consumers, who constitute 70 percent of the U.S. economy, are facing mounting job losses as well as pay cuts. They’re in no mood to buy and won’t be for some time. Where is this heading? No place good. Without a major shift in policy — both at the Fed and in the White House — the economics point to a big stock-market correction and a double dip.”

… (full text).

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