Saturday, 17 October 2009

New York Times, Better Late Than Never Department

Yves Smith at naked capitalism savages the NYT for, well, stating the obvious with their story Bailout Helps Fuel a New Era of Wall Street Wealth.

She's right. To most sentient observers of the financial industry, that Wall Street was getting a big earnings shot of adrenalin through the bailout was evident after first-quarter earnings were reported. Back then though, as I recall, the media was still mesmerized by "green shoots" pixie dust. They were speculating about how the banks were turning themselves around.

But what we do we have today, two quarters later? A moribund economy (a close to 10 percent jobless rate with foreclosures creeping higher and the other shoe yet to drop on commercial real estate). This isn't the sort of economy you'd expect two quarters after the banking industry started turning itself around. But it is exactly what you'd expect after a massive government intervention to prop up the biggest players in the financial system (there's a good reason the Federal Reserve is prepared to fight Bloomberg News' open record request all the way to the Supreme Court, if necessary). The intervention goosed the Too Big to Fail (Wall Street) sector of the economy, while at the same time arguably juicing the stock market as well. But it was a small, directed intervention that strangely rewarded the culprits behind the financial mess while doing little for the larger economy.

All this has brought us to a weird place, namely the province of the "jobless recovery." This increasingly strikes me as an amusing oxymoron, like "jumbo shrimp." What the hell is a "jobless recovery"? Seriously. Oh, I know technically what it is. I know what you wonk types will say, about GDP expanding even as the unemployment picture stays bleak. But how can you call that creature a "recovery"? It boggles the mind. Consumer spending is what -- two-thirds or so of economic activity? And people can't spend at a normal pace without jobs.

So what the hell is a jobless recovery when the jobless rate is almost double digits? Personally, I think if the unemployment rate is north of 8 percent, we should just automatically call it a recession.

I've always been of the opinion that inflation is more of a bookkeeping problem. It's inconvenient, it does exact a cost (don't get me wrong), and it's downright hazardous to your economic health when it reaches Zimbabwean levels.

But unemployment is a tragedy. Above a certain level, it's senseless. And so I wonder whether we should even be allowed to talk of "recovery" if it's in the face of such high and unacceptable levels of unemployment.

We need the wealth to spread farther than a group of financial institutions huddled on a stub of street on the bottom tip of the island of Manhattan.