The news that only 14. 5 million Americans are out of work is “a sign that we are making progress,” Christina Romer, a White House economic advisor, said. At this rate, it should take only six more months before the number of people going back to work exceeds the number losing their jobs.
If you are planning on going back to work in the auto industry, however, you are returning to a business that is selling 9 million cars a year, not the 16 million of a few years ago. If you are in financial services, your business is now even more regulated (if not owned) by the government. If you are in real estate . . . well, you know the story. You probably are already back at work and still not selling any houses.
Road graders and bridge builders have a bright future ahead, if your idea of a bright future is grading roads and building bridges. With $787 billion available in federal stimulus money, rebuilding America’s infrastructure is a top priority of the Obama administration. Unfortunately, it’s pretty hard to get excited about infrastructure. Break out the champagne. We’re celebrating the completion of a new 18” sewer line down Division Street next week.
On the streets of Chicago, I find it hard to see the same glimmers of hope economists in Washington see. The excesses of the last decade were so great, the slide in economic activity so precipitous, and the government response so monumental, there is no easy path back to what used to be called normal.
In academia, economists can debate whether the recovery, when it comes, will look like a “V” or a “W”? Will it dip and rebound; or will it dip, bounce back, dip again and then rebound? What if it turns out to be more like an “L”?
When this crisis began, there were identifiable villains. Subprime mortgages, unregulated Wall Street financiers concocting arcane financial instruments to sell them, overpaid auto executives flying in private planes to Washington to ask Congress to bail out their bad decisions. But the cancer has spread, in no small way because we took the loans, bought the houses, threw our money into the stock market, and ran up credit cards and second mortgages to buy all kinds of things we didn’t really need.
Watching the stock market became a national obsession. I have friends who used to go online every other week to re-balance their 401(k) portfolio. A few more emerging market funds here, a little less reliance on the mid-cap value funds there. And the smug satisfaction that their nest egg was growing every month even without any new contributions from them. No more. Nobody even wants to look at 401(k) statements. Sure the stock market is up 35 percent since March, and my 401(k) is only down 15 percent from where I was two years ago. But that’s my retirement fund, I remind myself. Not that it’s going to let me retire anytime soon.
The best gauge of the economy today is state and local tax revenue, both plummeting. They’re an instant guide to who’s working and who’s spending; and there are a lot fewer people in both categories. California will collect $24 billion less this year than it spends. Illinois has an $11.6 billion shortfall. The city of Chicago has adjusted its income projections twice this year to account for dwindling revenues from sales, property and other municipal taxes on entertainment, cigarettes, and liquor sales. All but the liquor taxes are yielding less revenue than projected.
To make up for a projected $300 million deficit, Chicago is asking city employees to take 16 days off without pay in the second half of this year. Project that out over 2010 and it amounts to a 13 percent pay cut. The furlough program is being billed as a stopgap measure until tax revenues bounce back to their pre-recession levels. Does anybody really believe that’s going to happen soon?
The layoff/furlough scenario is widespread. It runs across almost all industries. Families have responded, as they typically do in recessions, by cutting back on vacations, entertainment, dining out and other non-essential purchases. Maybe they put off buying a new car for a year. Or pass on new mulch for the old garden.
This time around, that may not be enough. In this trough of economic activity, some unpleasant truths are emerging that will force us to adjust our expectations:
• Retirement at 65 is not a right, or even an option. With life expectancy rates showing the average American will live to age 77 (80 plus for women), retirement patterns set in the 1940’s no longer apply. The decline in company pension plans, and particularly the economic stress aging baby boomers put on the social security system, will force workers to work longer.
• Higher education will become increasingly unaffordable for many students. Applications to community colleges and public institutions are up because private college tuition (now hovering around $50,000 a year) has grown beyond the combined resources of parents’ savings and college loans.
• The American health care system will change dramatically. The escalating costs of health care and growing number of people who are priced out of health insurance will force a shift in how health care is provided. Merely extending government insurance programs to the uninsured won’t resolve the problem. The rise in health care costs will need to be reined in. This will mean greater government control, fewer options for patients and, in all likelihood, lower salaries for doctors, nurses and health care professionals.
• Wages will not keep pace with consumer costs. The Federal Reserve so far has finagled a massive infusion of low-cost money into the financial system without triggering an inflationary spiral. Companies that have cut or maintained prices to keep market share, however, are chomping at the bit to get back to profitability. Any jump in commodity prices (oil, for instance, which is back on the rise) could set off a wave of price hikes. Meanwhile, there’s no real incentive in times of high unemployment to pay more for labor costs.
• Taxes will rise. You thought the government could do all these bailouts and run up huge deficits without somebody paying the piper? Think again.
There will be optimists out there – there always are – who say this just means we have to learn how to do more with less. The truth is we have to learn how to do less with less. Because there is less to go around.