Monday, October 10, 2011

NYT, Recession Officially Over but Welcome to Stagflation

Economist are boosting that we are officially out of a recession. However, they are neglecting to report that the economic tide has shifted from a recession to a stagflation.

Stagflation is an economy in which the inflation rate is high and the economic growth rate is low. It is a result when economic productivity is reduced by an unfavorable supply shock, such as an increase in the price of oil or the high cost of food.

Occurring at the same time, stagnation and inflation can result from the central banks permitting an increase money supply to the markets, which weakens our dollar. Also, government intervention can cause stagflation by excessive business regulation of goods markets and labor markets. By weakening the dollar and restrict productivity will cause stagflation. This is a good example of what occurred in the 1970's with the global stagflation. It began with a huge rise in oil prices. As central banks used excessively stimulative monetary policy to counteract the resulting recession, it caused a runaway wage-price spiral.

Under Obama, Americans are experiencing the Jimmy Carter's stagflation of the 1970's.

(NYT) WASHINGTON - In a grim sign of the enduring nature of the economic slump, household income declined more in the two years after the recession ended than it did during the recession itself, new research has found.

Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession - from December 2007 to June 2009 - household income fell 3.2 percent.

The finding helps explain why Americans' attitudes toward the economy, the country's direction and its political leaders have continued to sour even as the economy has been growing. Unhappiness and anger have come to dominate the political scene, including the early stages of the 2012 presidential campaign.

Two main forces appear to have held down pay: the number of people outside the labor force - neither working nor looking for work - has risen; and the hourly pay of employed people has failed to keep pace with inflation, as the prices of oil products and many foods have jumped.

One reason pay has stagnated is that many people who lost their jobs in the recession - and remained out of work for months - have taken pay cuts in order to be hired again. In a separate study, Henry S. Farber, an economics professor at Princeton, found that people who lost jobs in the recession and later found work again made an average of 17.5 percent less than they had in their old jobs.

"As a labor economist, I do not think the recession has ended," Mr. Farber said. "Job losers are having more trouble than ever before finding full-time jobs."

Mr. Green and Mr. Coder said the persistently high rate of unemployment and the long duration of unemployment helped explain the decline in income during the recovery.

In the recession, the average length of time a person who lost a job was unemployed increased to 24.1 weeks in June 2009, from 16.6 weeks in December 2007, according to the federal Bureau of Labor Statistics. Since the end of the recession, that figure has continued to increase, reaching 40.5 weeks in September, the longest in more than 60 years.

A committee of academic economists at the National Bureau of Economic Research, a private group widely considered the arbiter of the business cycle, judged that the most recent recession began in December 2007. The bureau defines a recession as a significant, broad-based decline in economic activity.

The economists said the recession ended in June 2009. In every quarter since then, the economy has grown.

Some economists see signs that the United States may be in or about to enter another recession, though the evidence is mixed.