Sep
26
How bad can our economy get?
Filed Under Sunrise on KGMB9
Eric in Kailua is a bit frustrated. Recent coverage of the Wall Street crisis has led us away from the issue of what’s going to happen to the average person.
“While some are saying that if we act quickly we may be able to avoid a recession (which I thought we were already in) others seem to suggest that we are as close to a second Great Depression as we have ever been,” he writes. “What can the average non-millionaire family expect in the next few months?”
One reason you don’t hear more specific predictions, either for Hawaii or the nation, is that the Wall Street crisis is currently driven by loss of confidence by investors, and it is harder to measure nerves than such palpible stuff as supply and demand.
Economists can’t even agree on a definition of “recession,” though I can tell you what the government thinks a recession is. I’m not an economist but I do understand words. Recession is economic shrinkage. Hawaii’s tourism economy is in recession because it is shrinking. Hawaii’s overall economy is still growing, however, so Hawaii is not in recession.
How long does the economy have to shrink for the government to call it a recession? The U.S. Commerce Department says, two quarters. We have not yet had two straight quarters of economic shrinkage.
There is an old joke. If your neighbor loses his job, it’s a recession. If you lose your job, it’s a depression. Like many jokes, this one hints at a truth. For you personally, it’s all about what happens to you. And your own economic situation depends mostly on whether you have a job.
Eric independently arrived at the same perspective. “For most people who count on a regular old paycheck to keep their family’s economy going, their biggest fear is losing their job. How many jobs could be lost and in what sectors of the economy?”
Because Wall Street, meaning the financial services industry, pays so well, it is tempting to say, jobs will be lost in the affluent sectors of the economy, affecting affluent tourist destinations like a Hawaii, but otherwise the country will be okay. It’s not that simple, though.
At a time when oil was already expensive on soaring demand in other countries, Wall Streeters scared by the stock market pulled out the money they were managing and put it into commodities, creating immense demand for contracts for future delivery of crude oil. Oil prices soared, accelerating the shift of consumers away from the big gas-guzzling vehicles that had become the mainstay of American auto manufacturers. That industry has laid off tens of thousands of people on the mainland, with more to come.
So what lies ahead?
If the Wall Street bailout plan “works,” there will still be more job shrinkage on the mainland in companies that manage money or need petroleum. Many companies fit one description or the other. Farmers need fertilizer and the chemical process for making professional fertilizers uses petrochemicals.The worst may be over but the job loss won’t be over. Neiman Marcus just reported lower profits as the rich curb their shopping. Ripples continue.
Hawaii economists think we may escape recession altogether but our economic cooling will last another year, year and a half. Fifteen jobs are going away this weekend when Compadre’s closes. The school system may trim some positions if state tax revenues keep slowing. Military deployments are hurting shops in Wahiawa. Ripples continue.
Great Depression? No. Economists who say that are insulting people who really lived through the Great Depression. We’re very lucky by comparison.
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3 Responses to “How bad can our economy get?”
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yes we r not near a depression,, my mom said they had no shoes,, and had very little food. this went on for years,, people poached to put food on the table.. so yes that is a insult,, for we are very very lucky,, no matter what. we are not freezing,, we are not starving.. we will get through this and some day look back and laugh maybe..
Dana,
I take it you’re fairly young, meaning you and your children — perhaps their children — will be the ones paying for this bailout in the form of higher taxes (lower wages), decreased benefits (from your employer, your state and the federal government)… and you’ll probably be taking care of your mom as she’ll probably lose a big chunk of her retirement investments. If you can laugh through this, you’ve quite an accomplished sense of humor.
It seems to me that things will continue downward for a couple years and it actually could go as far as people “poaching” for food. The prices for everything is going up, people are losing their jobs, and middle class families like mine are in serious debt with no help because the government just “gave” $800billion away to large corporations that caused this screw-up. I guess America never learned their lesson after the first depression.