Why We Are Still In Recession

Who cares about double-dip. We never left. Why? because you can't get out of a recession without consumers/labor income growth. While productivity has grown over the last few years, labor's share of national income continues to plummet. This implies that others (capitalists / profit-makers) are 'out of their recession' but consumers and laborers are not.

The BLS has a nice publication here.

Ordinarily a low cyclical labor share isn't necessarily a problem because firms can use profits to invest in new business ventures and eventually lower the unemployment rate and provide more compensation in a recovery. The problem here of course is that firms are too busy paying off past debts from poor decisions made a decade ago, or too skittish to do anything substantial with their profits at the moment. So that, in combination with the low labor share of income is like a double-whammy for consumers and laborers who see the haves continue to have and the have-nots continuing to have nothing.

My Take On the Fed Announcement That Sent Stocks Down

The Dow was up about 200 points before the Fed announcement, and then promptly moved negative. The Fed announced it would hold interest rates (at least to the degree it thinks they can control them) at historic lows through mid-2013. The Fed was hoping this concreteness might reduce some jitters about uncertainty, but here is my take on what Wall Street heard:

"The economy is even crappier than we thought, and crappier than many private economists think. So, we are going to continue to do the same impotent thing we've been doing for the past 3 years in hopes that somehow it will magically improve the next 2."

UPDATE:
I post this in then the Dow bounces back up 200 points.... Maybe it's not just the Fed doesn't know what to do.... ;)

Love this post

If you haven't, please head over and check out Daniel MacDonald's blog.

I particularly am loving this post.

Sad Sad World

It's a sad sad world, in economics circles at least, when one of the so-called leaders in economic education encourages (or at least implies) it's ok to keep your nose buried in your differential equations (and HIS textbooks I'm sure) as opposed to occasionally peeking up at the real world.

I'd just like to say, the whole concept of economic bubbles (one of the major causes of our most recent crisis) was not learned from a textbook Dr. Mankiw.

BTW, the most 'influential' research is the same as saying, most 'popular' which is code for "mainstream of mainstream economics." And as we all know, mainstream economics often ignores reality. How about all the fringe research in behavioral and pluralist economics. Oh that's right, it's been ignored for decades....