A long recession

The National Bureau of Economic Research Business Cycle Dating Committee has just announced its judgement that the current US recession began in December 2007. A year old, and the decline is just beginning to accelerate. As these forecasters quoted in the NY Times say, the recession is virtually certain to be the longest since World War II (in fact, since the 1929-33 slump), and quite possibly the deepest as well.

The only silver lining I can see is that we might not hear any more silliness about the “technical definition” of a recession being two quarters of negative growth.

144 thoughts on “A long recession

  1. Daggett said;

    “Your resentment of supposedly ‘privileged’ people in the First World seems only directed at unemployed and the working poor who, it seems, just don’t appreciate just how good they have got it, whilst you have nothing to say about the rich.”

    I can see how someone in your position (bourgeoisie middle class) might view the “unemployed and the working poor” in Australia as hard done by. You might also view someone with 30 times your own income as “rich”.

    Can you contemplate how someone in a third world country living on the poverty line of close to a dollar a day, might view someone on 30 times that income (Australian dole bludger) as “rich”? Considering this Australian gets free health care and cheap 21st century accommodation with a lot of the mod cons thrown in, its a no brainer.

    In relative terms both are worse off, but someone on the poverty line in a third world country is much worse off than a dole bludger in Australia, in real terms.

    Of course I “have nothing to say about the rich”, because I, like ‘ALL AUSTRALIANS’ are rich relative to the bulk of humanity. In Australian terms I am “working poor”, but I do not begrudge anybody better off than myself. In life there are always many better off or worse off than yourself. (Although a large proportion of humanity is worse off than Australians)

    It is a slippery pole the ‘politics of envy’; labelling people and attacking them, because they are ‘perceived’ to have more, yet in this world it is very difficult to find many if any, willing to have less so others not so fortunate can have more.

  2. I see Ian, still firmly in denial then.

    Net exports are now negative, so that’s 3% off the growth number already. Then consider the collapse in real estate prices and the Chinese stockmarket and you’re looking at a growth number closer to 4% than 8%.

    Meanwhile Chinese electricity consumption actually fell last month, Chinese power companies are bleeding money, and according to this, its all because heavy industry has slowed down dramatically:

    “The current drop in electricity demand is almost entirely an industry story,” said Trevor Houser, a principal at the Rhodium Group in Washington. “It’s a poor indicator of macroeconomic performance.”

    Last month’s electricity production figures confirm that Chinese heavy industry is in deep trouble. But electricity consumption by households and services sector enterpises has hardly faltered.

    The big five energy-consuming industries – steel, chemical, cement, aluminium and paper – account for 40 per cent of total Chinese power consumption but only employ 1 per cent of the Chinese population. The good news is that China is merely undergoing a traumatic shift away from high-polluting, low-employment heavy industry rather than a collapse of the overall economy (complicated by slowing growth in Chinese exports).

    The bad news is that the fate of Australian mining companies and perhaps the Australian economy is tied to Chinese heavy industry

  3. Alan Kohler is not in denial about China: China cracks

    It is the final shoe to drop for global recession and spells the end of the super-cycle. There must now be serious doubt about whether the crash in commodity prices since July is a short-term correction.

    For Australia this is an unmitigated disaster. It virtually ensures that we will spend much of next year in recession.

    Oh, and Chinese electricity consumption dropped 7% YOY in November:

    An official of the China Electricity Council revealed last Friday that output of those power plants under the administration of the central government slumped 7% year on year in November, and that the power industry is doomed to losses this year.

    Still in denial?

  4. Tony G.,

    Your attempt to further fan the flames of resentment at supposedly privileged ‘dole bludgers’ whilst claiming not to begrudge those more wealthy than yourself is instructive.

    So what is your definition of ‘working poor’ whose mantle you now want to don?

    Are you telling us that you work as a cleaner? a delivery driver? a construction project traffic controller who has to stand in the sun breathing toxic petrol and diesel fumes for at least 8 hours of every working day?

    The true politics of envy are from the elites who resented having to share any of this country’s wealth with this county’s workers and the middle classes. That is why white collar jobs have been off-shored to slave wage economy and training opportunities that used to be available to working class kids to gain skilled occupations with paid apprenticeships working for Telstra or other Government utilities have been taken away.

    Tony G wrote:

    “Can you contemplate how someone in a third world country living on the poverty line of close to a dollar a day, might view someone on 30 times that income (Australian dole bludger) as ‘rich’?”

    I can see what I posted above about the World Bank’s idiotic measure of wealth in the world has gone completely over your head.

    I will quote from it again:

    “… according to the common understanding of what can be bought in the US for $1 a day, the people that fall under this definition ought all to be dead. …”

    Only an economist with no capacity to understand the physical word would accept that the unemployed in Australia are 30 times more wealthy than those in the Third World.

    If you literally cut the incomes of the unemployed by 30, how many would be left alive after two days or a week?

    Simple commonsense would show that statistic to be nonsense, but it’s a convenient lie to peddle so that the greedy elites that you worship and serve can continue steal more of the wealth of the rest of the community for themselves.

    Obviously most Third World are significantly worse off than even Australia’s unemployed and working poor and that should be of great concern to all of us, but the difference is nowhere near what you would have people think it is.

  5. Daggett,

    It looks like we are finding some common ground;

    “Obviously most Third World are significantly worse off than even Australia’s unemployed and working poor and that should be of great concern to all of us, but the difference is nowhere near what you would have people think it is.”

    From experience I can tell you the income line between the working poor and a dole bludger is very thin and in some cases non existent. (EMTR debate is something best left for another day) I can quite adequately survive at that income level, although I choose to work as opposed to receiving it non-gratis.

    Dr Sachs quote above alludes to “extreme poverty means that house holds cannot meet basic needs”.

    IMHO, in Australia basic needs in the bulk of cases are met, in the third world there are a lot of needs not being met.

    “The true politics of envy are from the elites who resented having to share any of this country’s wealth”

    I concur with you that it is “elites who resented having to share any of this country’s wealth”, but unfortunately it is a case of the ‘elites’ (residents) in the first world exploiting the “workers” in the third world. Also, by hoarding the worlds wealth within their countries and not sharing it with their underprivileged third world cousins, they are compounding the problem and exploiting them further.

  6. “Only an economist with no capacity to understand the physical word would accept that the unemployed in Australia are 30 times more wealthy than those in the Third World.

    If you literally cut the incomes of the unemployed by 30, how many would be left alive after two days or a week?”

    They’d be alive – sleeping rough and eatign out of rubbish bins as their counterparts do ion the developed world.

    Only a smug arrogant pampered westerner with no idea of how tough people have it in the developing world would write such shameful nonsense.

    I’ve lived on the dollar, I have friends who do so right this minute.

    I can assure you that while it’s unpleasant and humiliating it’s far, far better than being one of the one billion people on the planet in imminent danger of starvation.

    Poor people in Australia worry about giving their kids nutritious meals and presents for Christmas. Poor people in Africa worry about whether, if they eat the last of the porridge, their child will die of starvation – but on the other hand if they give it to the child they may be too weak to walk into town tomorrow to look for work.

  7. “Still in denial?”

    Still dancing with glee as the glorious day of revolution approaches?

    Breathlessly posting every link you can find which appears to support your position – seemingly without reading much less comprehending them – is not a substitute for a reasoned argument.

  8. Breathlessly posting every link you can find which appears to support your position

    Appears?! What planet are you on?

    Ok, here we go again: FT: Prudent Asia is unlikely to bail out the west

    Yet, if you were to conclude that Asian consumers, flush with government handouts, are about to spend the world out of trouble, you are in for a disappointment. For a start, outside Japan, Asian economies simply lack the scale to act as global locomotive. Stephen Roach of Morgan Stanley shows a bar chart in which Chinese and Indian consumption are barely visible alongside the towering demand of the US and Europe.

  9. Carbonsink, I’m disinclined to be further abused by you so I’ll restrict my comments for the moment to one of your semi-random spray of links.

    So let’s take a look at Chinese energy demand:

    1. Demand in late 2007 was unusually high because of construction work associated with the Beijing Olympics.

    2. Large parts of Chinese industry shut down in the lead-up to the Chinese New Year. It’s essentially the only extended holiday in the Chinese calendar and millions of Chinese take leave to travel to their home villages. As a lunar festival, the date of Chinese New Year shifts about from year to year. The 2009 Chinese New Year falls unusually early.

    3. China’s weather was unseasonally hot in November, cutting power demand.

    But all that’s nonsense, the Capitalist Dragon is slain and the dawn of socialism is at hand.

    You’ll be liquidating Kulaks in no time.

  10. ‘”…If you literally cut the incomes of the unemployed by 30, how many would be left alive after two days or a week?” They’d be alive – sleeping rough and eatign out of rubbish bins as their counterparts do ion the developed world’.

    Oh, no, they wouldn’t, at any rate not many of them for very long. Thinking they would is a fallacy of composition.

  11. I will confess that prior to your use of the term I was unfamiliar with the term “fallacy of composition”.

    Having familiarised myself with its meaning, its relevance to the discussion remains unclear to me.

  12. Ian Gould @ 135:

    Yeah right mate, its the weather, and the Chinese New Year. It couldn’t possibly be that all of China’s export markets have simultaneously entered the steepest downturn in 50 years.

    I am no anti-capitalist, so I don’t know where that came from. The Chinese form of capitalism, of saving and investing in productive capacity, is in many ways preferable to the (recent) US form of capitalism. i.e. Debt fueled consumerism, an oversized financial sector, and investment in unproductive assets.

  13. The Beijing Olympics only affected Beijing and the construction activity would have been offset by industry shut down pre Olypmics. Nationally electricity has been down for 2 months and is matched by a fall in exports.

  14. Careful rog, according to Mr Gould, if you think the Chinese economy is slowing, you’re an anti-capitalist…

    WSJ: Slowdown In China Gets Worse, Increasing Global Woes

    China’s economy is slowing particularly sharply because the export decline is combining with slackening domestic demand. Housing sales have dropped and prices are declining in most major cities. New construction has dried up, which saps demand for steel, cement and copper.

    Consumers are holding off on other big purchases: Car sales dropped 10.3% from a year earlier in November, the third monthly decline this year

    The Chinese are behaving like everybody else is in tough times. They’re cutting back spending, saving more and paying down debt. Its the Asian way.

  15. IG, if they all had their incomes reduced thirty-fold, they couldn’t all survive in the manner you describe. Your observation would only be correct if they all still had the access to dumpster diving etc. after they all started that an individual would if he alone were faced with that.

  16. One thing we do know for sure is the Rudd Govt are now crystal clear about where our economy is heading with the following move-

    Businesses with an annual turnover under $2 million will be allowed to postpone 20 per cent of their next Pay As You Go (PAYG) tax instalment – due in January and February – until they make their annual return.

    The measure – to be announced by the Government today – aims to offset tax liabilities, incurred during a time of higher growth, but paid when small business turnover is in decline because of the economic slowdown.

  17. Michael Stutchbury is not in denial: Our China crisis

    This China crash challenges the national conceit that, while the global financial crisis is producing the deepest worldwide economic downturn since the 1930s, Australia will be spared the worst of it. Sure our banks are holding up, in part because Australia’s resources boom meant they didn’t have to get exotic to turn big profits over the past half decade. But now our blessed strength in mineral resources is turning into a Lucky Country curse. For Australia, the transmission of the US-sourced global financial crisis is being amplified via China through a sharp fall in commodity export prices, the exchange rate and national income.

    “We have gone from the phase where China was protecting us to the phase where China is dragging us down,” says Access Economics director Chris Richardson.

    In time, Australia’s China crash will force some needed national soul searching. What is Australia left with after half a decade of the mother of all commodity export booms? How much of this temporary bonanza have we invested in the future? How much have we put aside for a rainy day? What should we do if the China growth machine picks up again? What if it doesn’t?

    The answers won’t be pretty. In the meantime, two successive quarters of declining output of goods and services won’t be the worst of it. “We do forecast a recession for Australia,” Richardson says.

    “It is now inevitable.”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s