Shall We Call it a Depression Now?

Today’s employment report, showing that employers cut 533,000 jobs in November, 320,000 in October, and 403,000 in September — for a total of over 1.2 million over the last three months — begs the question of whether the meltdown we’re experiencing should be called a Depression.

We are falling off a cliff. To put these numbers into some perspective, the November losses alone are the worst in 34 years. A significant percentage of Americans are now jobless or underemployed — far higher than the official rate of 6.7 percent. Simply in order to keep up with population growth, employment needs to increase by 125,000 jobs per month.

Note also that the length of the typical workweek dropped to 33.5 hours. That’s the shortest number of hours since the Department of Labor began keeping records on hours worked, back in 1964. A significant number of people are working part-time who’d rather be working full time. Coupled with those who are too discouraged even to look for work, I’d estimate that the percentage of Americans who need work right now is approaching 11 percent of the workforce. And that percent is likely to raise.

When FDR took office in 1933, one out of four American workers was jobless. We’re not there yet, but we’re trending in that direction.

Consumers will tighten their belts even further. Even if they have a full-time job, they’re witnessing these job losses or hourly declines all around them and wondering if their job could be next on the chopping block. Their indebtedness is still high, by historic standards. And many are worried as well about their mortgage payments. So consumer spending is also falling off a cliff.

Two things are needed: First, the massive Treasury bailout of the financial industry must be redirected toward Main Street — loans to small businesses, distressed homeowners, and individuals who are still good credit risks. Second, a stimulus package must be enacted right away. It needs to be more than $600 billion — which is 4 percent of the national product. It should be focused on job creation in the United States — infrastructure projects as well as services. Construction jobs are critical but so are elder care, hospital, child care, welfare, and countless other services that are getting clobbered. Service businesses accounted for two-thirds of the job cuts in November, meaning that the weakness in labor markets has shifted from the goods-producing sector of the economy to the far larger services sector.


Originally published at Robert Reich’s blog and reproduced here with the author’s permission.

19 Responses to "Shall We Call it a Depression Now?"

  1. Ever the Cynic   December 6, 2008 at 1:12 pm

    To see the infamous D-word bandied about on this site is, well, depressing, and scary given the prescience of Roubini, et al. I’ve heard that we’ve learned lessons from the last D about how to avoid such a thing, but if that is the case, then how did we get in this situation?Your proposals make a lot of sense, which means they probably won’t be enacted. Having watched a number of congressional sessions, I don’t think our elected officials are collectively bright enough to handle the intricacies and difficulties of this task.

    • devils advocate   December 13, 2008 at 8:02 pm

      I suggest calling this not Great Depression II but the Great Collapse

  2. aerial view   December 6, 2008 at 1:38 pm

    I MAY BE WAY OUT THERE, BUT I CAN STILL SEE THE SOLUTIONS: 1)Continue bailing out every company that is too big to fail with one change: the employees now become the owners and decide on the executive compensation packages. 2)Move 90% of our military plus the National Guard to protect our borders and ports. 3)Create meaningful incentives to restore 75% of manufacturing back to the U.S. with a focus on energy independence 4)mandate full transparency, disclosure and honest regulation of all large corporations (>$1 billion annual sales), limit any leveraging to no more than 2:1 if approved), install equal pricing (all businesses selling hamburgers pay the same price as McDonald’s); this more than anything will give millions of small business owners the ability to compete and succeed resulting in a much fairer distribution of wealth and a tremendously more stable economic model for longterm growth.

    • Anonymous   December 6, 2008 at 3:34 pm

      Instituting a protectionist command-economy is not the way to fix this crisis.

      • Guest   December 6, 2008 at 3:40 pm

        You got a better idea? Guess not.

    • Guest   December 6, 2008 at 3:41 pm

      Good thoughts but how do you “install equal pricing”? This is a serious question.The idea of wiping out stockholders but giving employees equity (gov’t should retain most though) is interesting!

      • aerial view   December 6, 2008 at 8:38 pm

        DON’T DISMISS THE EQUAL PRICING CONCEPT!Equal pricing concept actually is similar to the following: govt negotiates the lowest possible price on drugs for it’s medicare/medicaid programs or any corporation with huge buying power (Walmart, McDonalds, Home Depot, etc) does the same. What’s the difference if along with the 30,000 McDonalds buying from the same vendors, all businesses buy from the same vendors with an even greater combined buying power and ultimately lower price? Is it fairer that McDonalds cost is 10 cents for the same ingredients to produce their burgers while other smaller restaurants have to pay 10 times more. Imagine how many more successful small businesses we could have in America which would increase compensation, creativity and stability and a feeling of real participation in our system!

  3. Guest   December 6, 2008 at 2:14 pm

    what is so frustrating is that the only alleged “stimulus” package I have heard of for Main Street is a absolute joke. It has been suggested that the stimulus would be a $1000 a person. What a joke, thats less than $20 a week. What am I supposed to do with that, buy fast food a couple of times a week? In the meantime, this BS bailout has indebted each American $60K a head. I agree with Peter Schiff who says its a horrendous waste of money and time. I would have much preferred being “stimulatd” with 60K to spend that a pittance of $1000! To hear Obama talk about it, you’s swear his Highness is deigning us a great favor. Meanwhile, his SHOES are probably worth more than that measly amount!to get to the point, its a no brainer: not only are we in a Depression, we are heading deeper into a depression, with no one but a legion of Paulson cronies, and Obamabot yes men who regurgitate FDR to bail out the unions, oops, I mean all of us. God help us all.

    • Guest   December 6, 2008 at 2:25 pm

      How did the blame shift from Bush to Obama? One’s been in office eight painful years; the other hasn’t even been sworn in.

      • Guest   December 6, 2008 at 3:38 pm

        Things don’t look good with the Geithner appointment, seems he is on board with the Bernanke strategy of using the US economy to bail out the banks. That is massively unfair to everyone except bank stakeholders (I don’t mean depositors, who are protected by FDIC, or those who owe money to banks.)Obama may be better than that. I can only hope for change, change I can believe in.

    • Central Alabama   December 6, 2008 at 7:31 pm

      As for now the American public has confidence in the banking system however the tide will turn as the economic numbers from all points will become increasingly ominous. When the confidence turns the runs on financial institutions will destroy any rescue package in the works. The rescue package has to be deadly accurate with the highest caliber round available any mistakes with this kill shot will result in financial Armageddon.

  4. What, Me Worry?   December 6, 2008 at 4:22 pm

    Roubini thinks a necessary step to kick-start the consumer engine is to reduce the face value of mortgages, which he says will reduce foreclosures. Although, you could extend that idea into all loans, such as auto, student, credit cards, etc. My question is how would that be possible without distorting lender’s balance sheets?I’m just guessing here, but does he want us to, let’s say, find a defaulting homeowner who owes $200,000, for example, and just wack off a chunk from the base value? Then the homeowner might owe only $150,000 and all mortgage payments would drop accordingly, fewer owners would be underwater, and personal balance sheets would get a boost to stimulate spending. The same idea could be used for all other loans in theory.Don’t know if the above description is correct, but if it is, how can the government force private lenders to simply erase a major portion of their listed assets? Many balance sheets would get wiped out and I assume a lot of lenders could then be declared insolvent, and in effect – underwater themselves. In that case, they still won’t be able to lend and the downward spiral continues, but from a different cause.

  5. Anonymous   December 6, 2008 at 6:17 pm

    The basic problem hasn’t been addreessed.What is to prevent this from happening again?The current system seems to have inherit bubbles and busts. Do we just put up with it or do we change things so that at least they are much milder?How should things be different?That MUST be decided FIRST before we run off doing just anything to ‘fix it’. We have to decide what ‘fixed’ lokks like.

    • Guest   December 6, 2008 at 7:37 pm

      We have to move from a service based economy to a manufacturing based economy. We will not need bubbles any longer, making something is better than cleaning something.

  6. ex VRWC   December 6, 2008 at 6:25 pm

    First, the massive Treasury bailout of the financial industry must be redirected toward Main Street — loans to small businesses, distressed homeowners, and individuals who are still good credit risks.There seems to ne no small lack of foresight on the governments part about this particular area. They are directing all their ammunition at the current financial transmission mechanism to accomplish this (buying assets, recapitalizing existing banks, etc). None of this is actually transferring essential credit to the ones that need it. They need to think outside the box, like some kind of national bank of last resort, where a business can get a loan to avoid an otherwise unnecessary collapse. Buying commercial was one step for the big corporations, but it does not reach Main St at the author says is necessary.Not that I think trying to reinflate the credit bubble is some great panacea, but we are talking here about credit as lifeblood of the economy. Bernanke, Paulson, et al just cannot seem to think outside the box on how to get it to those who need it.

  7. Rycoka   December 7, 2008 at 5:40 am

    The world has a derivatives market of $600T (notional value) and growing (STILL GROWING – as everything else is crashing). This should be the entire focus of our attention. This market is extremely complex and poorly governed, and is brought to us by the same people that gave us the dot com boom (with companies with business models that a preschooler would laugh at). There is no conspiracy, no economic disaster, just an enormous and irrational market whose by-products (excessive unearned profits) are hurting everyone. The derivatives market should be treated as the scene of a terrible accident. The government should rope it off and send in the investigators.

    • HFT   December 12, 2008 at 8:58 am

      Thank you Rycoka. Finally someone is talking about this. You’re right. This is what caused the bubble to burst in the first place. I didn’t realize it was still growing and where are the new regulations? Why is nobody concerned about the hundreds of billions in financial instruments being trading?

  8. Gimana Sih   December 12, 2008 at 9:17 am

    I don’t understand why the simplest and surest solution is never–or rarely–discussed by economists:Simply pay each taxpayer an even proportion of what remains of the 700 billion bailout and let us spend it and save it. Had our glorious leaders done that before bailing out the bank executives and stockholders, each American taxpayer would have received approximately 270,000 USD– after paying nearly as much in taxes back to the government — to spend as necessary, or not. Imagine, mortgages would again be paid, credit card debts paid off, and money might even have been saved.What’s wrong with that solution? Is it because the government would actually have to print up all that cash instead of shooting it around in digitally, where it shows up only on spread sheets?I’d really like to know why this isn’t a solution.Thank you.

  9. Anonymous   February 23, 2009 at 4:53 pm

    If the bailout is 700 billion and there are roughly 138,000,000 taxpayers then each taxpayer would only receive $5072. This is an extremely rough estimate calculated from online data which claims there are 138,000,000 taxpayers in America.