This one may be destined for GD, but what are the implications of an economic recovery where the stock markets are on the rise, and GDP grows precipitously, but the dollar continues to lose value, and the jobless rate remains high? Is there a precedent for this situation, and is it sustainable?
If the dollar loses value, that’s inflation, not deflation. Deflation is when the costs of goods decreases. And the dollar is primarily losing value in respect to other currencies, which is inflationary on a global scale but not so much on a local scale. When interest rates spike that’s usually a sign of (local) inflation. When they decrease to near zero it’s a sign of deflation, although a better sign is probably when real estate and other commodities that make up a general basket of goods decrease.
I can’t think of a good GQ answer for the question in your OP, although I do have an opinion on it.
sorry about the mix up, and thanks for clearing it up.
Mod’s could I bother you to fix the title (from deflationary to inflationary) and move this thread to GD?
You pretty much already listed the implications. With american companies switching from american labor to cheap foreign labor, they will make more profits while we continue to lose jobs. As a whole, our country will continue to buy more imports and have less and less to export each year, increasing our balance of trade deficit, which will cause the dollar to fall and the price of gold to increase - that is why gold is now at $422, much higher than when bush took office.
There are lots of presedences of countries that spent/imported more than they made/produced and ended up with worthless currencies that no other country would accept.
It is not sustainable in the long run.
If it lasts long enough, the value of the dollar will fall so low, that if there are any americans left with jobs, they could not afford the imports anymore if they only held US dollars and no gold.
Furthermore, if the dollar falls low enough, other countries will stop accepting the dollar at all for payment, and will not buy US Treasuries anymore, which would force the US government to go bankrupt if it could not borrow any more money from foreigners.
Here are two articles that may interest you.
A recovery is a rise in GDP, which is goods produced in the U.S. This so-called jobless recovery has been from an increase in productivity, as opposed to additions of capital or labor, by some. That would mean that Americans are producing more stuff by being better at it rather than by using more labor. The unemployed are screwed for the time being, but those with work should be getting better wages because the are more valuable. Higher wages means more investing or spending, which means an upturn in the business cycle, yadda, yadda.
I would imagine that a jobless recovery would ultimately mean that job growth would be pushed back so that it would have a (longer) lag before picking up.
We’ll have to wait and see.
js_africanus,
Tsk , tsk, being from Michigan, you should know better than to believe that the official figures of amount of the “goods produced”, the sales, etc are not totally accurate on government reports.
When a ford or gm car is sold for $20,000, using japanese steel, chinese parts, mexican engines, canadian transmission, indonesian car seats, korean radio, etc, that nearly all of the $20,000 is still officially reported as “american goods produced” instead of only a small fraction that was actually made here.
It also makes our “productivity” look/appear to be artificially higher since so few american man hours were reportedly used in the production of all the parts and materials
- because they werent!
In any event, this recovery isn’t ‘jobless’ - estimates are that that the economy will create 1.5 million new jobs in the next 12 months.
The recovery was ‘jobless’ for a while for two reasons - job creation is a trailing indicator and always lags other aspects of recovery, and also because we came out of bubble that created a whole bunch of jobs that were not sustainable, and are therefore never coming back.
In the classic industrial recession, either demand for products falls, or inventories are too high, resulting in a scaling back of industrial output. The result is a whole bunch of people laid off. As the economy recovers, the people who were laid off get re-hired.
In this recession, a whole new industry (the dot-coms) sprung up and was insanely over-invested. This created a whole shwack of jobs in IT, consulting, and various support industries. Then it turned out that the whole thing was a big house of cards. The bubble popped, and all those people were out of work. Permanently, in that industry. So those people have to retrain and find new work.
As for the rest of the classic industrial base - it didn’t actually shrink all that much. The recession was extremely mild, and only lasted two quarters.
Note that the peak jobless rate only hit 6.4%, whereas it went over 10% in the recession of 1981-1982. 6.4% is only maybe a percent and a half above ‘full’ employment. And it’s already down to 5.9%, and is expected to hit 5.5% by the end of the year, which is well below the historical average unemployment rate.
There’s been an awful lot of hype, mostly by Democrats, about how terrible the job situation is. The fact is, it’s not that bad at all. The U.S. has one of the lowest unemployment rates in the world. Canada is sitting at over 8% right now, and France and Germany are in double digits. Most other nations would kill to the have the ‘problem’ of 5.9% unemployment.
In my neck of the woods (Michigan) the job situation is significantly worse than the national average. Michigan is a “rust belt” state with a manufacturing-based economy. Those manufacturing jobs are good, well-paid positions. (They’re skilled laborers, after all.)
In recent years, however, more and more of those jobs are getting shipped out to countries with cheaper labor and lower standards of living. Those jobs aren’t coming back in the forseeable future, and what jobs are being created around here are mostly jobs in the service sector that pay less and have worse benefits than the jobs that were lost.
Plus, we have the same glut of IT-type people that you find everywhere else these days.
The politicians that are talking about job loss and the bad economy have a very receptive audience in the Midwest right about now.
Please, please don’t send this to GD. We have debated this “outsourcing of jobs” in at least half a dozen thread in the last few months. Give it a rest for 6 months or so and see what the economy and the jobs situation is like.
It’s always dangerous to get economic predictions from history, but this “jobless recovery” actually looks a whole lot like the recovery from the last recession in 1992-93. Job creation also lagged the other indicators by more than expected. The hypothesis is that this is just the characteristic of a recovery in the modern world with advanced communication and technology giving more flexibility in how we increase production, at least in the short term. If the results look like the results of the last recovery, most people won’t complain.
Sorry.
If you don’t mind starting a new thread, I’d like to see that proven.
It’s jobless for me. Good news for Tata Consultancy Services, though. The company that laid me off is outsourcing to that Indian company.
Where will these “1.5 million new jobs” be? I was not employed by a “dot.com”, but by a large, successful IT company. Sure, I can retrain myself to say, “Would you like fries with that?”; but I’d much rather work in a position similar to the one I’ve spent 20 years doing.
(And yes, “Where will these new jobs be?” is a serious question.)
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Can’t help ya, man. Sorry.
Actually, GDP (national income) is calculated as consumption plus investment plus government spending plus exports minus imports, so a $20,000 car made in the U.S. with $12,000 worth of imported parts would add $8,000 to measured GDP.
If you lose 3 million manufacturing jobs at $12-$15 an hour and gain 1.5 million service jobs at $6-$9 an hour…what the hell are you gaining?
With respect to John Mace, may I suggest that “What are the economic arguments for free trade?” would be an appropriate GQ thread.
In the meantime, I’ll ask you to meditate on this question: Do you honestly belive that the U.S. would be better off if each individual state, or blocs of states, were allowed to impose restrictions, tariffs, and quotas on the flow of goods, investment, and people from any other U.S. state, or group of states?