Double-Dip Recession? How Our Dysfunctional Political Class Has Made Another Grueling Collapse Far Likelier
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The single bright spot in this anemic “recovery” had been steadily rising stock prices. Although the market staged a modest rally on Tuesday, news of the debt ceiling deal was followed by a massive sell-off in stocks – the S&P 500 saw its biggest one-day drop in more than a year the day the deal was announced. After losing $14 trillion in household wealth in the crash, Americans' nest eggs had rebounded to some degree, but whether their 401(K)s and investment accounts hold their value in the coming months remains to be seen.
The outlook for the economy is extraordinarily bleak. But we've pulled ourselves out of deep recessions before. What's different now is the profound, Tea-Party stained dysfunction plaguing our political class. As I wrote recently, if the economy does end up contracting in the near future, it will be a recession driven by the “age of austerity” embraced by Washington – and the contractionary policies it has ushered in.
That scenario appears more likely today. Just a few short months ago, there were very few analysts who would predict that the American economy stood a decent chance of sliding into another period of grueling recession. The consensus held that while we were recovering far too slowly in light of the depth of the crash, we were nevertheless on the rebound. But that thinking has changed. Last week, former Treasury Secretary Larry Summers estimated there was a 33 percent chance of the economy once again falling into recession – the dreaded “double-dip.” Other economists put the likelihood a bit lower, but researchers at the Federal Reserve tell us that, since World War II, about half of the times the economy has grown as slowly as it has in the first half of this year, a recession has followed within 12 months.
For the majority of Americans, the official end of the last recession was merely an abstraction – it in no way reflected the profound economic pain tens of millions of working people continued to feel. Since 2009, when the wonks at the National Bureau of Economic Research (NBER) set the official end of the Great Recession, the unemployment rate has edged down, but most of that was due to people giving up and dropping out of the workforce. The share of the population that has a job today is about the same as it was in the early 1970s, before women entered the workforce en masse.
Housing prices bottomed in 2009, then had a brief and sputtering recovery, before hitting a new low early this year, well after the official end of the recession. Around one in four homeowners with a mortgage still owe more on their properties than they're worth, and the foreclosure crisis continues unabated. New business creation has ground to a halt, people are running up credit card debt to make ends meet and new grads aren't leaving home to start out on their own.
High oil prices have squeezed already strained household budgets -- consumer spending dropped in June and “consumer confidence” about the future plunged in July. The Japanese tsunami caused supply disruptions, the eurozone is a mess and China's economy is slowing. With our trading partners slumping, we certainly won't see an export-led boom anytime soon.
The slump in demand for companies' goods and services remains our core problem, and that problem will only be magnified as the last of the stimulus funds dry up, the temporary payroll tax break expires and extended unemployment benefit run out later this year. Without more help from Washington, states and municipalities are expected to shed 450,000 public sector jobs next year.