What to Call This Unpleasantness? Little Depression or Workers’ Depression?

Brad Delong has had enough.  So have I.

“The Little Depression”

Back in late 2008 people asked me: is this a recession or a depression? I said that I would call it a depression if the unemployment rate kissed 12%. I said that I would call it a depression if the unemployment rate stayed above 10% for a year.

Neither of those has come to pass. But the unemployment rate has kissed 10%, and has stayed at or above 9% for two years now.

So I am moving the goalposts. I am adopting a suggestion in comments of Full Employment Hawk . Henceforth, I will call the current unpleasantness not “The Great Recession,” but rather “The Little Depression.”

It’s a good question.  In late 2008 when people were asking me, I said I wasn’t sure.  It would either be “The Great Recession” or “The Lesser Depression”, I said.  Eventually I fell in line with most commentators and referred to it as “Great Recession”.  But with the continuing bad, very bad, news on employment, wages, and growth, I’m with Brad.  We need to call this what it is.  It’s not been a “Great Recession”.  Recessions are events when the central bank says things have gotten out of hand, they raise interest rates, and everybody sobers up.  Then after an appropriate time of perhaps 6-12 months, the growth machine fires up and we start to regain lost territory.  This is different. We aren’t regaining lost ground and people are suffering.

What most folks are calling the “Great Recession” I think we ought to call the “Panic of 2008”.  It was, after all, a good old-fashioned financial panic updated with 21st century technology and corporate forms. It lasted roughly the time period the NBER says was the recession.

What has me going though is the continuing poor conditions for the millions of Americans.  This unpleasantness has gone on too long and been too severe to call it recession.  It’s a depression of some form.  The problem here is how to distinquish it semantically from the Great Depression of 1929-1940, or the Long Depression of 1873-1896.  My personal preference is for Workers’ Depression.  I think it sums it up.  For the banks and rentier classes, it’s good times again.  It’s only for working stiffs that things continue so ugly.  But if people want to use “Little Depression”, I could go along for the sake of clarity.

Solar Power Looking Brighter Economically

John Quiggin of Crooked Timber sends us to Grist.org for “Solar Gets Cheap Fast” for good news about solar power.  The cost of producing solar photovoltaic cells (the silicon-based cells that convert sunlight to electricity) has been declining consistently at 20% per year since the early 1980’s.  Solar power is now close to the point where it is cost-competitive with fossil-fuel (coal, natural gas) and nuclear.  When we consider that any new coal-fired power plants will take 5 years or more to build (nuke even longer), then solar is now in the competitive horizon.  This is great news.

It really shouldn’t be news though.  We should have expected it.  Anytime a new product/technology goes into production, per-unit costs generally decline.  And, they generally decline at a predictable rate.  Two micro-economic phenomena combine to produce this predictable declining cost curve.  The first is often described in principles textbooks (although often over-stated):  economies of scale.  As production volumes get larger, often (not always) per unit costs decline because cheaper production technologies become feasible – it’s the phenomenon of mass production.  But another curve is involved.  It’s called an experience curve. Basically an experience curve summarizes how, even with using the same scale technology, as producers get more cumulative experience with producing the item, they produce it more efficiently.  In plain talk it’s called learning-by-doing.  It’s a staple of many business strategies, particularly in electronics.  While the specific improvements aren’t foreseeable ahead of time, the fact that costs will decline is predictable.  In other words, it’s predictable that we will learn.

Socially and economically, the arrival of wide-scale solar electricity generation is a good thing.  Solar electricity generation doesn’t create green house gases or other pollutants. It can be more effectively decentralized, relying less on huge power plants. The systems involved aren’t dependent on the kind of complex safety systems that make nuke power and coal dangerous. It doesn’t require a huge distribution and logistics network to mine/drill and transport a scarce natural resource like coal or gas.  And, solar installations can do double duty.  Unlike growing plants for bio-fuel or strip mining for coal, solar can be generated on top of existing buildings.   Critics often claim that solar is unreliable because “the sun doesn’t always shine”.  But solar system fit well with the demand for electricity.  Demand for electricity peaks in summer when the sun shines the most (think air conditioning). So the condition that creates peak demand for electricity is exactly the condition that generates solar power.  Further, newer solar systems are increasingly capable of generating electricity (albeit not as much) from just daylight even when bright sunlight is not present (does your solar-powered calculator stop indoors?).  Personally I’d rather trust the sun to rise each  day and provide daylight than to trust that engineers have perfect control of the safety of an inherently dangerous and polluting power plant (Fukushima anyone?).

The arrival of cost-effective solar power is also an object lesson in why government subsidies are often justified for new technologies.  Often, when new technologies are invented, the costs (“business case”) are too high to be practical or competitive with existing alternatives, despite the conceptual attractiveness.  We have a “new technology chicken-and-egg”.  Private investors and private firms won’t touch the new technology because it will take too long for costs to decline to a point where they can make the kind of high returns they want.  It’s too risky for them and too-long range.  Private investors and corporations really don’t think very long term.  But, until somebody actually begins producing the item we don’t gain the benefits of economies of scale or learning experience.  It’s at times like this that governments can play a great role.  Governments, by borrowing at the lowest interest rates, can take the long-run view.  They can invest because the benefits will be social and benefit the larger economy later.  Governments have, in fact, been key to creating new technologies and economic growth throughout the last several hundred years.  The telegraph, the telephone, electrical generation/distribution, canals, railroads, improved ocean navigation, computers, networks (including the Internet and World Wide Web that brings you this story), automobiles, aircraft and airlines — all these were dependent upon government early on and would not have happened had it not been for government.

That’s not to say government should always own, operate, and scale up the businesses that do it.  There’s a variety of mechanisms for government to seed and feed new technologies.  But that’s a different discussion.

U.S. Life Expectancy Falling In Some Parts

I learned long ago when working in applied economics that averages (means or median data) often hide as much information as they impart.  To really understand an issue, we need to look at the variation or distribution.  Therein always lies a tale.  Yves Smith at Naked Capitalism (also the author of Econned), brings our attention to one such disturbing long-run indicator: life expectancy.  Despite the overall average life expectancy in the U.S. having risen significantly over the last decades, this longer lifespan is not evenly distributed.  In some counties in the U.S., life expectancy has been declining – and that was before the Great Recession/Workers Depression/Financial Unpleasantness.  (italic emphasis is mine; bold is from original):

Life Expectancy Fell in Many Counties in the US BEFORE the Crisis

A rising tide did not lift all boats even when the economy looked a lot better than it does now. As Francois T, an MD and medical researcher, wrote:

If you need ONE Indicator of how a nation is doing, it ought to be female life expectancy at birth. It is a tell tale sign that a lot of good things, (or bad things) are happening in the nation under study. … people severely underestimate the real repercussions and total costs of a decrease in female life expectancy at birth.

He pointed to a just-released study, Falling behind: life expectancy in US counties from 2000 to 2007 in an international context. Some of its major findings:

Large swaths of the United States are showing decreasing or stagnating life expectancy even as the nation’s overall longevity trend has continued upwards, according to a county-by-county study of life expectancy over two decades.

In one-quarter of the country, girls born today may live shorter lives than their mothers, and the country as a whole is falling behind other industrialized nations in the march toward longer life…

Some US counties have a life expectancy today that nations with the best health outcomes had in 1957 … Five counties in Mississippi have the lowest life expectancies for women, all below 74.5 years, putting them behind nations such as Honduras, El Salvador, and Peru. Four of those counties, along with Humphreys County, MS, have the lowest life expectancies for men, all below 67 years, meaning they are behind Brazil, Latvia, and the Philippines.

And get a load of this:

Despite the fact that the US spends more per capita than any other nation on health, eight out of every 10 counties are not keeping pace in terms of health outcomes. That’s a staggering statistic.

Yet looking at this map (click to enlarge), …

And remember, the data in this study goes through 2007. It will take a few years to find out what impact the crisis has had on the health of America’s citizens.

Life expectancy is strongly correlated with real income and socio-economic status within society.   Yes, from a medical standpoint, it’s smoking, type 2 diabetes, obesity, and hypertension that are what limit life expectancy (once child mortality is defeated).  But the incidence of smoking, obesity, etc. is all highly correlated with real income, status, and quality of health care.   Rich people generally don’t smoke, can afford to eat high-quality nutritious food, and get quality health care.  Poor people tend to smoke, get high-fructose corn syrup instead of nutrition, and get lousy health care, if any.

The U.S. simply doesn’t get value for money for all the money it spends on healthcare.  It’s the healthcare system that’s broken.

We’ve Had Class Warfare Since 1980 – The Workers Lost

Whenever some politician, typically a progressive, begins to talk about redistribution of income,  the more conservative politicians, backed by “serious political pundits” counterattack by claiming “class warfare”.  It’s apparently one of the givens in Washington that any form of redistribution of income, be it by progressive taxes, measures to protect unions, help to the unemployed, or limits on the power of bank executives to pay themselves bonuses from bailout monies, is off-limits.  The problem with this self-censorship of the political debate is that it ignores reality. Class warfare was already launched 30 years ago in the early 1980’s.  The catch is that capital, that is the owners and managers of capital, declared the war and they’ve been winning.

As the graph shows, the share of non-farm income that goes to labor was relatively constant for the 30-some year “golden age” after World War II and until around 1980. It fluctuated significantly with the business cycle, but maintained a long-run relatively constant share. This was consistent with the institutional, cultural, and political economy arrangements of the period. There was essentially a social contract that said labor cooperated with capital to achieve productivity improvements with the understanding that gains would be shared: both workers and owners of capital would benefit. This is basis of the rising real median incomes that I’ve noted elsewhere for the period.

But starting in the 1980’s there was  a shift in American politics.  Initially it was with conservatives and Republicans, but it soon included Democrats. Capital came to be favored. Unions were disfavored. Income taxes were lowered on high incomes while payroll taxes (social security and Medicare) were raised on workers.  The result was a trend where workers found it difficult to keep pace.  In fact, their real incomes didn’t.  If workers were in the lower quintiles, their real incomes actually declined.  Starting in 2000 the trend accelerated.  Workers get less and less of the value of what’s produced.  Corporate profits and financiers get more and more.

Instead of false debates about debt ceilings based on provably false doctrines, I think this is the type of thing we should be debating in politics.  Is this good? I don’t think so. It feeds income inequality.  It’s part of what’s destroying the “American Dream” for hundreds of millions of Americans.