When Will The Recovery Begin? Never.

Economic CrisisThe so-called “green shoots” of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed. On one side are the V-shapers who look back at prior recessions and conclude that the faster an economy drops, the faster it gets back on track. And because this economy fell off a cliff late last fall, they expect it to roar to life early next year. Hence the V shape.

Unfortunately, V-shapers are looking back at the wrong recessions. Focus on those that started with the bursting of a giant speculative bubble and you see slow recoveries. The reason is asset values at bottom are so low that investor confidence returns only gradually.

That’s where the more sober U-shapers come in. They predict a more gradual recovery, as investors slowly tiptoe back into the market.

Personally, I don’t buy into either camp. In a recession this deep, recovery doesn’t depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consudebtmers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.

Problem is, consumers won’t start spending until they have money in their pockets and feel reasonably secure. But they don’t have the money, and it’s hard to see where it will come from. They can’t borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water — owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can’t are hunkering down, as they must.

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can’t be built on replacements. Don’t expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don’t rely on exports. The global economy is contracting.

My prediction, then? Not a V, not a U. But an X. This economy can’t get back on track because the track we were on for years — featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere — simply cannot be sustained.

robert_reich.jpgThe X marks a brand new track — a new economy. What will it look like? Nobody knows. All we know is the current economy can’t “recover” because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come.

by Robert Reich

This article first appeared on Robert Reich’s Blog. Republished with permission


  1. Tony gates says

    Mr Reich is finding his groove. These last posts hit the economic and political heart of the matter.
    No one has a clue about how and when “the recovery” will deliver real sustained consumer confidence and investment. Only one thing matters now — basic value . Follow the consumer at every level, and be patient. Not the most politic of times for Obama.

  2. John Lorenz says

    Wait until Schwarzenegger and California’s budget bust and cuts work their way across the national economy. It is hard to see how the US will EVER recover from this. Credit has dried up. People are drowning in debt and they are still losing jobs at a tremendous rate. Now, enter Schwarzenegger as he takes apart California and puts California at the top of the nation’s unemployment rate. Where will new, high tech jobs come from? Any talk of a second stimulus is already being ridiculed. The first one was inadequate to do much of anything. We are in for at best a jobless recovery and if that is the case you can bet the Republicans are lining up to blame Obama for the failure even though it is not his fault, it is largely THEIRS.

  3. Steve Lamb says

    What we have had starting in 1980 and accelerating wildly in 2000 has not been an economy where people produce, have incomes and spend or save. Our situation has been like that of the prodagal son in the Bible who took his inheritance before his father died and then promptly wasted all the money on wine, women, and gas guzzling SUV’s. As the bible notes, the young man ended up sleeping in filth and starving. His only way back to anything resembling prosperity was to humble himself and re enter a productive, thrifty society where work was done for the benefit of the family i the present and in the FUTURE.

    In the wild insane years spent drunken on credit, we as a people have laughed at even thinking about the future, and now we are living in some of it. This humble pie does not taste good.

    The logical question is what kind of production? The answer should be in things like replanting our forests, restoring our topsoil, making long term infrastructure improvements like roads, mass transit systems and solar arrays among others.


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