TEXT OF COMMENTARY
Tess Vigeland: It’s the first day of a new quarter today. We can only hope that the springtime green shoots we saw in the economy continue to flower through the summer. But will the recovery, when it comes, be V-shaped or U-shaped? That’s the hot debate among pointy-heads who think we’re near bottom right now. But today’s commentary from Robert Reich is brought to you by another letter…X.
ROBERT REICH: The V-shapers are the optimists who look back at prior recessions and conclude that the faster an economy drops, the faster it gets back on track. And because this economy fell off a cliff late last fall, they expect it to roar to life early next year. Hence the V shape.
Unfortunately, the V-shapers are looking back at the wrong recessions. Focus on those that started with the bursting of a giant speculative bubble, and you see slow recoveries because asset values at bottom are so low, investor confidence returns only gradually. That’s where the more sober U-shapers come in.
Personally, I don’t buy into either camp because in a recession this deep, recovery doesn’t depend on investors. It depends on consumers who, after all, are 70 percent of the economy. And this time they got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.
Problem is, they won’t start spending until they have money in their pockets and feel reasonably secure. But they don’t have the money, and it’s hard to see where it will come from. They can’t borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. Unemployment continues to rise, and number of hours at work, to drop. Those who can are saving. Those who can’t are hunkering down, as they should.
Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can’t be built on replacements. Don’t expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don’t rely on exports. The global economy is contracting.
My prediction, then? Not a V, not a U. But an X. This economy can’t get back on track because the track we were on for years, featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere, simply cannot be sustained.
The X marks a brand new track. A new economy. What will it look like? Right now, we just don’t know.
VIGELAND: Robert Reich teaches public policy at the University of California, Berkeley.
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