A Never Ending Recession

I'm two classes short of a minor in economics, but I do have a Master's in Accounting. And two years into the Recession, I have the same thought about it I did going in. "How did the Great Depression end?" and "Will this not be a self perpetuating crisis?" Frankly, I don't think there is a way out, and it's a good and bad thing. Much like the crisis we have created with healthcare, it is a crisis of our own doing.

Let me explain.

During the recession, people are either out of work or afraid they will become out of work, or they are asked to take a pay cut. As such, they cut back on spending all but the necessities. This causes companies that make "luxury" items (anything that is not clothes, food, houses, cars) to lose revenue and lay people off, adding to the recession. Now, some of these companies struggle as well, because we have found creative ways to make a necessity (car) a luxury (fully-loaded SUV, a new one purchased every two years). So more people lose jobs, less people buy luxuries. I really don't see the cycle ending until we are back to food, utilities, cars, houses, etc. (On the other hand, when the iPad and the Kindle are some of the hottest selling items of the year, can anyone really say that we are in a recession? Perhaps people just traded their annual splurge on a car to a splurge on an electronic device - I could see that).

But there is something, I think, different about this recession than there was about the Great Depression. We actually have enough resources to go around. Yes, there has been an influx of homeless and no structures in place to take care of them, but that is just because shelters take time to build. Americans still produce enough food and clothes and shelter to give everybody the necessities.

Take a simple economy. 100 years ago people spent all day every day making food. Everybody worked and everybody ate. Then someone discovered a way to make twice as much food using half the workers. Now there is a surplus of food, but there is 50% unemployment. The question becomes, how do you distribute food to people who aren't working? So the newly unemployed start being creative. They invent luxury goods and a perceived "need" among the employed. They trade those goods for food. Again, someone refines the process, and the number of employees needed to produce food is cut in half again. Pretty soon, only a small fraction of the population is producing food for the entire population, but a large economy has sprung up to trade non-food luxury items back and forth.

Now, let's look at real history. In the 1950's we suddenly had an influx into the workforce. We always talk about women going to work, but in reality, we mean middle class women. Any perusal of a 19th century novel will show you that women had been working for centuries - either to support themselves or if their husbands could not make enough to support a family. So what we mean by women in the workforce is "women who otherwise would not HAVE to work and still be able to feed their family."

Of course this caused an economic boom. Families' incomes doubled, so they were able to purchase more luxury goods. And these luxury good companies sprung up and hired the additional workforce that had caused such an influx.

Now we are faced with the opposite problem. Baby boomers are starting to retire - which may help our employment numbers. But it also means the largest portion of the population will be scrapped for cash.

But if we think about present unemployment numbers and then walk back to the pre-1950's era, are we really surprised that we now see 10 - 17% unemployment? (17% is the estimated actual unemployment when people who have dropped out of the job market are considered). Would this represent the previously unemployed middle class woman?

I wonder if every married, parenting couple that could affor do to so voluntarily selected a parent (let's be feminist here and say it could be the father OR mother) to stay home with the children, I imagine our unemployment numbers would fade away. Sure, these families may have to downsize and not live the large life they had been living. But look at the alternative. Employment is allocated sporadically across the population. Most families still have two incomes, while young singles right out of college and divorced mothers may have been hit by layoffs. Going back to a pre-1950's model may actually put our economy back in balance. It would just lower our standard of living.

But once again, our standard of living was actually over-inflated. Partially because so many people were living up to their ears in debt (I am still furious at what I see as the majority of American people who put us into this terrible mess and still expect someone else to get them out of it). But also because we had two-income households.

I am not writing this as a sort of action item, although I do think the real benefactors of having single income families would be the children who get to be raised by their parents again instead of corporate day care. I am just pointing out that the economy is a big and complicated monster - prone to cough up problems rooted decades ago. We must face the reality that perhaps our productivity is so good that we can only ever gainfully employ 90% of the population. And we have resources enough for everyone - we are just in the middle of growing pains to discover how to make sure everyone has them.