Another View of Economy Focuses on Points of Pain
For more than two years, mainstream economists have portrayed what has happened since the boom-time 1990s as “recession lite,” a sort of economic upset so evenly distributed among America’s income groups and regions that it barely has been felt.
But how does this picture square with the catastrophes of the tech and telecom industries, which have been every bit as painful as the massive declines that once swept steel, oil and autos? And how does it fit with the demolition of $6 trillion in paper wealth since the stock market peak?
The answer is it doesn’t.
The mismatch may throw light on some curious recent behavior of President Bush, who seems alternately casual about the economy -- as when he agreed to let federal extended unemployment benefits run out at Christmastime -- and so hyper-concerned that he replaced virtually his entire economic team.
Herewith, then, is an alternative account of what has happened to the U.S. economy in recent years, one that -- in the tradition of the Rust Belt recession of the early 1980s and the “bicoastal” recession of the early 1990s -- might be called the “points-of-pain” recession of the early 2000s.
“The conventional wisdom is that this downturn has been democratic; that it’s affected all parts of the country evenly, but that’s not what the numbers show,” said Northeastern University economist Paul Harrington, who co-authored a recent study of the recession with analyst Sean Toppel. “This thing has been highly concentrated.”
In essence, the economy has managed to deposit most of its troubles on a few, widely dispersed groups and places -- many of them high-tech and telecom centers -- leaving the rest of the nation relatively unscathed. Consider:
* Although unemployment nationally has been surprisingly benign -- with the jobless rate now at 6% -- unemployment at various points of pain most definitely has not.
Take San Jose, which has the dubious distinction of having suffered the biggest jump in joblessness of any metropolitan area in the nation during the last two years. There, the unemployment rate has climbed from an almost imperceptible 1.9% in October 2000 to nearly 8% in October this year.
“That puts us somewhere between the worst recession possible and a mild depression,” said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.
* The concentration of pain also shows up in the growing ranks of the long-term unemployed, who have been out of work for six months or more and who now account for one in every five jobless workers.
It appears that the low national unemployment rate is coming at the expense of those who get walloped so hard they can’t get up again.
* Although it has been widely assumed that stock owners are more or less distributed across the country so that the pain of the stock crash of the last two plus years has been evenly -- and comparatively easily -- handled, the numbers suggest otherwise.
Indeed, Internal Revenue Service data on capital gains -- the money people make from selling shares for more than they bought them -- show that in 2000 just three states (Massachusetts, Connecticut and California) accounted for more than one-quarter of all U.S. share ownership.
That means that residents of those states probably have borne a quarter, or more, of the multitrillion-dollar loss in share value since 2000.
“It was great to be at the forefront of stock ownership when the market was going up, but it’s been very tough since the market has been going down,” said California Treasurer Phil Angelides.
The state faces a budget deficit of nearly $35 billion over the next 18 months, a huge chunk of which is traceable to a free-fall in state capital gains tax collections.
The idea that the economy’s troubles have been highly concentrated rather than broadly dispersed -- that there have been points of pain instead of recession “lite” -- helps explain several big mysteries about the current period.
For starters, it sheds light on how American consumers have managed to keep buying in the face of economic travail -- and, in the process, have propped up the economy. The reason is that consumers in most places haven’t faced all that much travail. And they have been able to enjoy the Federal Reserve-administered, low interest rate medicine intended to help those who have.
As a result, interest-sensitive sectors such as housing have defied economic gravity.
“This is the first recession on record where housing hasn’t gone down steeply,” said Los Angeles economic consultant Donald Straszheim.
The points-of-pain account also helps explain the public’s recent tendency to fall into nervous funks that show up in declining consumer confidence. These mood swings infuriate mainstream analysts, who insist that the slumps in confidence are not justified by the mildness of the economy’s problems.
But the declines are considerably easier to understand if the problems that do exist are landing heavily on just a few people and places, leaving everyone else to wonder whether they might be next.
Think of it as a “Star Trek” episode in which the Enterprise encounters a society in which everything is perfect -- except for the fact authorities periodically vaporize one in every 20 citizens. No wonder people are nervous.
Finally, the points-of-pain account may help illuminate a recent political conundrum -- the Bush administration’s decision to let unemployment benefits for nearly 1 million jobless Americans expire in the middle of the Christmas holiday season, even as the president expresses such concern about the economy that he replaces his Treasury secretary and his top White House advisor on the subject.
The decision on unemployment benefits was especially surprising because Bush has worked diligently to avoid the political missteps of his father.
The first President Bush is widely thought to have damaged his 1992 reelection chances by vetoing two bills to extend jobless benefits in the wake of the early ‘90s recession.
The current president said last weekend that he supports Congress reviving the benefits when it returns in January, but he sidestepped the central issue: choosing between a narrow House measure and a more expansive, bipartisan Senate version. Bush’s studious avoidance could well leave the extended benefits as good as dead.
Analysts say the president’s action begins to make political sense if one looks at where the economy’s recent troubles have taken their greatest toll, and therefore where new benefits would most likely flow.
“For the most part, the places that would benefit most from an extension of unemployment compensation are places that did not vote for Bush in 2000 and are not likely to vote for him next time,” said Milken Institute regional economist Ross DeVol.
The president’s political advisors “must have determined they are not going to lose much” by letting the benefits lapse, DeVol said.
Maybe not, but the decision is likely to rub at what already are points of pain.
