Seven things about the economy that should worry everyone

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UPS CEO Scott Davis may be confident the recession is over (CEOs tend to mean the recession is over for “the right players” when they make statements like that,) but for the rest of America, the road to recovery will be a long, arduous journey — if it happens at all.

Dan Froomkin, citing a series of articles that appeared on Harvard’s Nieman Watchdog website, and featuring interviews with some seriously prophetic economics, details seven things about the economy that should worry everyone. This series explores several failures on the government and media’s parts, including:

The people who committed the fraud that led to the collapse aren’t going to jail, the press is ignoring this fact, and that’s a bad thing.

The wars in Afghanistan and Iraq are severely weakening the economy.

The U.S. has the greatest income inequality, highest per capita prison population and worst health conditions of all high-income countries, and yet the poor remain politically invisible domestically, and abroad.

And while Obama plans a budget freeze, economists are saying a second stimulus and increased entitlements are badly needed, which requires government understanding that deficits — in the short run — are a good thing.

The entire series is good stuff, and should be required reading for all government officials and media (especially Geithner and the editorial board of Wapost.)

While Obama and Co. appear determined to treat the recession as a cyclical force of nature (something we’ll “come out of” eventually,) Froomkin argues that the tanking of the economy indicates major structural problems. These problems need to be addressed immediately, or the US may never fully recover.

Froomkin’s entire “Stuff that should scare the shit out of us” list can be found here, but highlights include:

1. The middle class may never be the same again.

While 401(k)s have somewhat bounced back, about one in four homeowners now actually have negative equity — are “underwater”. A recent study by Barry P. Bosworth and Rosanna Smart for Brookings finds that American households lost $13 trillion in wealth between mid-2007 and March 2009, or about 15 percent in all. That decline badly hit baby boomers just as they’re headed into retirement. And middle-income families whose head is age 50 or younger actually have smaller net incomes today than in 1983.

2. If recovery happens, it could take a really long time.

Most notably, unemployment is widely expected to be astronomically high for at least another year or two — remaining around 10 percent through 2010.

And the recovery, such as it is, has been largely fueled by government money — not just the stimulus, but also the bailouts, targeted programs such as the homebuyers tax credit and “cash for clunkers,” and emergency spending on such things as extended unemployment insurance. What happens, however, when those stop? And none are designed to go on forever.

3. The recovery could be temporary

For the past decade or so, the growth of the U.S. economy was primarily fueled by the credit and housing bubbles — which now turn out to have been illusory. So what will spur growth this time? Especially with so many Americans out of work? Where’s the demand going to come from?

Citing, among other things, the likelihood that the U.S. savings rate could go markedly higher in the coming years, Nobel laureate economist Joseph Stiglitz warns that “we are not seeing a recovery of sustained consumption,”and says there is a “significant chance” of a double-dip recesssion for that reason.

The list should be ready in its entirety, but other highlights include how the government now lacks the tools to get us out of another recession (the Fed can’t lower interest rates past zero,) the “very serious people” in Washington won’t stop talking about the deficit, the Dow rise could be yet another bubble,  and meanwhile, there is still little regulation and monitoring of the financial sector. All of which is a recipe for disaster.

And then there’s Neil Barofsky, the special inspector general for TARP, who recently said the problems that led to the last crisis have not yet been addressed, and in some cases have grown worse. In a new report, Barofsky writes

“Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.”

He also warned the government’s growing role in the housing market has increased the risk of another housing bubble. Yet the media continues to obsess over the horse race aspects of the economy (Obama versus the Deficit Hawks). There are no mainstream muckraking journalists exposing the big players in the fraud which led to financial ruin. There are no CEOs on trial.

If there are no consequences for illegal behavior (that makes the right players a shitload of money,) then no one should be surprised when another bubble pops and America plunged into another recession. As Larry Summers so articulately explained, unregulated Capitalism causes a financial disaster around once every three years, and since the subprime mortgage meltdown got into full swing in 2007, we should be due another catastrophe any year now. See you guys at the next Recession Party!