Commentary Magazine


Is This a Depression?

America lost 533,000 jobs in November, according to the Labor Department’s monthly jobs report released today. The unemployment rate now stands at 6.7 percent. The economy has shed 1.9 million jobs since last December.

That’s not all. The underemployment rate hit a record high 12.5 percent. Moreover, more than 420,000 discouraged Americans took themselves out of the job market in November. If they had continued looking for work, the unemployment rate would be around 7.0 percent now.

The disastrous jobs report is just one sign of alarming economic deterioration. Oil, for example, is today trading under $42 a barrel, down from $147 in mid July. A Merrill Lynch report says it could be heading to $25 next year. The stock market panic and financial crisis that froze credit in the banking system is now affecting the underlying economy. President Bush started his short remarks this morning from the South Lawn by saying we are in a “recession.” That’s in line with Monday’s official pronouncement of the National Bureau of Economic Research, which told us the downturn started in December 2007.

We are technically in a recession, but it is more precise to say we are experiencing the first stages of something more severe. This year, the Bush administration has tried all sorts of stimulus measures, including throwing previously unimaginable amounts of money at Wall Street and lesser sums at the rest of the country. The Fed, for its part, has continually cut interest rates this year. Ominously, nothing seems to be working. And nothing the Obama administration will be doing-including sponsoring a possible trillion-dollar stimulus package – will have much effect either. The imbalances in the economy appear simply too large to be unwound by superficial tactics like fiscal spending.

To see why government tactics are not working, let’s look at the job-loss predictions for this month. Analysts believe the December jobs report could be worse than November’s. Why? Businesses will be laying off staff simply because they do not want to be continually chasing the downturn next year. Deflationary psychology, therefore, is gripping Americans.

And not just Americans. The risk is that simultaneous economic failure around the world will exacerbate the situation everywhere. In good times, our trade and financial links to other economies propelled everyone forward. Now, the process is going into reverse. In July, we saw one nation-China-attempt to steal an advantage by artificially depressing the value of its currency to give an added boost to its exporters. On Monday, Beijing made the situation worse by driving the renminbi down almost one percent. At some point, other nations will retaliate with competitive devaluations of their own, and then we will find ourselves in another global trade war.

So, as nations squabble, a bad downturn will undoubtedly become something much worse. Although our elected leaders will not say so, we appear heading for a once-in-a-lifetime downturn. Call it a depression.