Imagine you are aware of two companies that, over the past few years, have managed to record losses of more than $150 billion, with the potential for red ink flowing as far as the eye can see. Would you expect to see these companies continue to operate and shake down unsuspecting investors for more funds to stay afloat?
Five years and counting — that’s how long the U.S. housing crisis has been going on, and so far the country has little to show for it. Millions of people have lost (or are in the process of losing) their homes to foreclosure and average home prices have fallen by approximately one-third from their peak. The government has initiated a number of programs to help Americans deal with the crisis — such as the Home Affordable Modification Program — but the results have been quite disappointing.
While I don’t want to palm myself off as a political analyst, it looks as though the presidential showdown may see a face-off between Barack Obama and Mitt Romney. Perhaps given this likelihood, virtually every statement made by each man is being dissected in great detail to better understand what each might stand for over the next four years. In the past week or so, both men have said some things that are getting tremendous exposure; an exposure that, perhaps, is incorrectly dissecting what the candidates actually said. As such, it may be appropriate to examine their actual statements and realize they are perhaps being misinterpreted.
Late last week the Ohio Department of Job and Family Services released December 2011 employment/unemployment figures for the greater Columbus area, with the unemployment rate — not adjusted for seasonal variations — dropping to 6.4 percent. This rate was down from November’s 6.6 percent, and was far below the unemployment rate of 7.7 percent in December 2010. And the reaction at the Department of Job and Family Services? According to their spokesman, Benjamin Johnson, “It shows definite improvement … (i)t shows a strengthening economy and an improving job market.”
In the midst of the current Republican presidential nomination process (and no doubt later in the general election) much attention has been (and will be) given to the topic of the inequality of income and/or wealth. Some people firmly believe that it is in the best interests of a nation, and its competitive standing in the world, that markets be permitted to determine the optimum allocation of resources, which by its very nature is likely to mean an inequitable distribution of income/wealth. After all, people have different levels of education and experience in various fields of endeavor, which suggests the marketplace will provide some people an enhanced return (wages, profits, etc.) depending upon how those aptitudes are valued within a free market. For those holding this theoretical perspective, the proper role of government is to ensure an equal access to opportunity, but certainly not to actively promote an equality of outcomes (such as income generation).
What a difference a week makes. Last week as I described my 2012, economic outlook I undoubtedly came off as a pessimist rather than the “pragmatic optimistic” label I attached to myself. In my analysis, I indicated that other analysts might not be considering the full range of issues that could keep growth relatively modest throughout the year, including the influence of the EU sovereign debt crisis, the uncertainty regarding the state of consumer finances and the over-estimated strength of labor markets.
In last week’s column I began what some may view as an overly pessimistic analysis of the state of American consumer finances, as well as the depressing state of affairs in the European Union. Since that time, the Labor Department issued a final jobs report for 2011, with the new (net) payroll jobs expanding by 200,000 and the unemployment rate falling to 8.5 percent from a revised November figure of 8.7 percent. Ah, proof positive – some might say — that “pessimists” (such as myself) are simply a bunch of naysayers who are failing to appreciate the favorable growth path the U.S. is finally being to traverse.
Political gridlock, strained family budgets, financial crises throughout the euro-zone, mediocre U.S. employment and economic growth… all of these things and more that exemplified 2011 are likely to continue into 2012. And all of this despite the perception among many economists that 2011 ended on a strong note that may possibly continue into 2012.