Saturday, February 20, 2010

Bad economies in states to worsen: governors | Reuters

Bad economies in states to worsen: governors | Reuters: "The situation is fairly poor for a lot of states around the country. In fact, most states,' Vermont Governor Jim Douglas, who is chairman of the association, said at a press conference at its annual meeting.

'What we're finding out from a fiscal standpoint is that the worst is yet to come,' Douglas said.

In a survey conducted last week of 45 of the 50 states, the group found that states have $18.8 billion of budget gaps yet to be closed in fiscal 2010. This comes after they have already imposed measures to eliminate budget imbalances totaling $87 billion in the fiscal year, which for most started last summer.

In the budgets they are drafting for fiscal 2011, states foresee shortfalls of $53.6 billion and for fiscal 2012 $61.6 billion."

And there is more of this "lagging indicator" stuff. This one's different, folks. This isn't cyclical. It's structural.


Fred Pilot said...

If I recall correctly, during the early 1990s downturn similar characterizations were made that it was "structural" "different" "permanent" etc. Economic downturns involve a wringing out of excess value and debt so in that sense they are a restructuring. But the pattern is the same.

Plus our perspectives are way too limited to credibly claim a "permanent" shift in the economy. We can't even remember the previous downturn during a boom, leading once again to excess speculation and leverage, setting the stage for another downturn. If there's anything permanent at work here, it's our collective amnesia that makes us forget the pain and privation of sharp economic contractions such as this one, dooming us to repeat the suffering.

DBX said...

What's different now from the early 1990s? Several things. We have a huge balance of payments deficit, from years of open trade policies and excessive tax deductibility of foreign taxes and expenses. We have massively increased foreign debt. We have huge and unprecedented levels of consumer and corporate indebtedness. We've had 20 years of an economic policy that blindly repeats "a rising tide raises all boats" without realizing that how that tide is apportioned among nation states is very critical to whether individual ones are still even viable.

The US can't recover like it did from previous recessions without addressing this massive burden of debt. As bad as the public sector looks right now, its problems are modest when set next to the private sector (though if the private sector does not recover quickly it will drag the public sector down with it). The past 20 years in the private sector were spent borrowing in lieu of real growth, against the backdrop of increasingly deregulated financial markets that pursued increasingly ludicrous "investments" in pursuit of profit. Seventy percent of the US economy has typically come from consumption. Where is that consumption going to come from now? We need to retool as a producer nation, or we're sunk.

I think it's worth looking at historic unemployment figures to get another angle on this. In each of the country's previous periods of "growth", long-term unemployment dropped well below one percent. But in the W. Bush growth period, it never went much below two percent. The rot in the economy has been continuing for several years, and it is getting worse.

Here's another astonishing jobs stat. Manufacturing employment, from the late 1970s to 1999, remained stable at around the 19 million mark, despite massively increasing automation and mechanization. Since 1999, we have lost 5.6 million manufacturing jobs -- a third of our total. No country loses a third of its manufacturing job base, the core of stable blue collar employment, without serious long-term consequences unless those jobs are replaced with comparable jobs. In our case, they have not been. Now, look at Germany; no significant job loss in manufacturing; public finances in no worse shape than the US; low private and corporate indebtedness, a stable tax base. Whose prospects are structurally better? Whose have changed? Whose have not?

Now throw on top of this the calamity of the Iraq war and the trillions in extra public borrowing for it.

Now consider also the differences compared to the 1930s. We were an exporter then. No foreign debt to speak of. A serious consumer debt crisis admittedly, but we were in a position to produce our way out of trouble, which we did with things like the continued growth of the car industry in the 1930s and then the Second World War. We don't have the way out that we did in the 1930s -- not without a serious change in tax and industrial and trade policy that Washington seems utterly unwilling to contemplate.

This is not a short-term problem. This is different from previous recessions. This is structural.

Anonymous said...

Seems to me that HOAs are the perfect example of forced consumption. Consumption by the HOA and forced consumption imposed on the homeowners even against the desires of the individual homeowners who are forced to consume (often from HOA board specified vendors) under threat of fine and foreclosure on their home.

The HOA also has free reign to spend and virtually no real impediment to stop. The homeowners' homes are on the hook for whatever borrowing and consumption the HOA board engages in. The individual homeowners are powerless to say "no" and because of the HOA's present legal ability to foreclose, the HOA has zero incentive to avoid running up debt at everyone else's expense and the homeowner can't stop the HOA from doing so.