News Briefs

Recession a self-inflicted wound

Mar 27, 2008 3:33 PM

The oncoming recession was avoidable, economists Jared Bernstein and Nancy Cleeland of the labor-union backed Economic Policy Institute say.

This one wasn’t brought on by some external shock, like a spike in energy prices. Instead, they trace it to “the careless policies and practices that fostered the housing bubble, putting people in homes they couldn’t afford and allowing financial wizards to mask the risk by slicing and dicing loans to the point that they could no longer keep track of them.

And where were the federal regulators, including the Federal Reserve Board, who should have thrown cold water on hyperventilated “innovative” lending schemes?

True, increased joblessness isn’t showing in the government’s data yet. While the official unemployment rate even ticked down slightly, from 4.9 percent to 4.8 percent, the drop was due to “labor force withdrawal” — where workers exhaust unemployment benefits and are no longer statistically considered part of the work force. Employment in the more volatile “household” survey fell by some 250,000. In February, the nation lost 63,000 jobs, the most in five years.

Now, real wages are falling again, and more families are without health insurance. More are working part-time even as the number of part-time jobs sinks. Pensions erode and people tap into their 401(k) plans. Housing debt burdens have climbed to the point that for the first time since 1945, Americans’ percentage of equity in their homes is exceeded by their debt.

So what’s the answer? These labor economists favor a return to a Keynesian-New Deal model of extending and boosting unemployment insurance, funding needed public works projects — including school construction — expanding the food stamp program and forcing government to serve a useful role in mediating the economy.

Huffington Report, March 7