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.