A nation at risk of Bipolar Economic Disorder (Part 2)

Last week I wrote of the pos­si­bil­ity of an area suf­fer­ing from “bipo­lar eco­nomic dis­or­der (BED),” where some coun­tries pros­per (a “manic” behav­ior rep­re­sent­ing exu­ber­ant eco­nomic growth) while oth­ers deal with a far bleaker eco­nomic real­ity (a “depres­sive” state of eco­nomic affairs). The euro-zone is an unfor­tu­nate exam­ple of this phe­nom­e­non, with some coun­tries such as Greece exhibit­ing the down­side of BED, while oth­ers, includ­ing Ger­many, see pos­i­tive GDP growth and offer cit­i­zens an improv­ing stan­dard of living.

While the tri­als and tribu­la­tions of the euro-zone may seem a mil­lion miles away from the U.S., this bipo­lar eco­nomic dis­or­der is already lap­ping at our shores in a cou­ple of ways.

First, while the U.S. does not have inde­pen­dent nations within its bor­ders (as in the euro-zone), our nation does have a wide diver­gence of eco­nomic prospects among states. Some, such as Ohio, have a much more vibrant econ­omy, cre­at­ing jobs more quickly than the over­all nation. To be sure, this is not to say that all is sweetness-and-light in Ohio, but the cur­rent state of the econ­omy and the out­look are much bet­ter than the alter­na­tive. And what is an exam­ple of the alter­na­tive? That would be Cal­i­for­nia. Accord­ing to the lat­est unem­ploy­ment fig­ures, in July the unem­ploy­ment rate in Cal­i­for­nia was still at 10.7 per­cent, while the U.S. rate stood at 8.3 per­cent, and Ohio’s unem­ploy­ment rate was 7.2 per­cent. As well, in Cal­i­for­nia each new month seems to bring another upward revi­sion in the state’s bud­get deficit, with a seem­ingly never-ending series of pro­posed spend­ing cuts and tax increases. Of course, with higher taxes, busi­nesses become more hes­i­tant to oper­ate within California’s bor­ders. In many respects, the Golden State seems to be just as tar­nished here in the U.S. as is Greece in the euro-zone.

But the BED-tendencies of the U.S. do not end there. In the same way that indi­vid­ual nations in the euro-zone or states in the U.S. can be at risk while oth­ers pros­per, the same is also true for indi­vid­ual cit­i­zens here in the U.S. And it is impor­tant to real­ize, if my analy­sis seems rea­son­able, that this diver­gence of eco­nomic for­tunes does not nec­es­sar­ily have any­thing to do with dif­fer­ences such as skilled ver­sus unskilled labor­ers, pru­dent ver­sus impru­dent investors, or iden­ti­fy­ing the proper tim­ing (or not) for form­ing a new house­hold. Some­times it may seem to boil down to an economy’s struc­ture which rewards or pun­ishes the “haves” ver­sus the “have-nots,” but in real­ity where one falls may be as much a mat­ter of good/bad luck as good/bad planning.

Con­sider, for exam­ple, the lat­est national employment/unemployment report and some of its impli­ca­tions. Accord­ing to the August data, a mod­est 96,000 jobs were cre­ated accord­ing to the pay­roll sur­vey, while the house­hold sur­vey indi­cates the unem­ploy­ment rate fell to 8.1. Upon closer inspec­tion, how­ever, the drop in the unem­ploy­ment rate was actu­ally quite atro­cious. Dur­ing that month, the num­ber of jobs avail­able fell by 119,000 and the num­ber of unem­ployed dropped by one-quarter of a mil­lion peo­ple (a total of 368,000). Per­versely, this com­bi­na­tion allowed the unem­ploy­ment rate to fall.

Of all unem­ployed, 40 per­cent (the “long-term” unem­ployed) have been with­out jobs for more than 26 weeks. Many of these folks lost their jobs due to com­pa­nies down­siz­ing job lev­els, and these indi­vid­u­als may well have been highly skilled as they were laid off; just as skilled as those for­tu­nate enough to keep their posi­tions. As time pro­gresses, how­ever, their skills become less viable and new job prospects dim. And all of this occurs through no fault of their own.

Or con­sider some of those indi­vid­u­als in the house­hold sur­vey who walked away from the labor force. The major­ity of the peo­ple rep­re­sented by this huge num­ber were between the ages of 16 and 19; account­ing for 209,000 of that 368,000 labor force loss. Did these young peo­ple have any­thing to do with when they were born and when they found them­selves being old enough to (hope­fully) enter the labor force for the first time?

While many more exam­ples of this bipo­lar eco­nomic dis­or­der could be cited (such as the tim­ing of one’s home pur­chase rel­a­tive to the burst­ing of the hous­ing bub­ble), a com­mon theme might be extracted. Any one of us, through no fault of our own, might find our­selves in one of these hor­ren­dous sit­u­a­tions. As a nation, what lessons/solutions might be extracted from this?

That’s next week’s column.

Dr. James New­ton serves as chief eco­nomic advi­sor to Com­merce National Bank and is an aux­il­iary fac­ulty mem­ber in eco­nom­ics and sta­tis­tics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not nec­es­sar­ily reflect those of Com­merce National Bank or OSU-Marion/Newark.

Posted by Jim Newton on Sep 18 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.