May 25

Written by: Russ Henke
5/25/2009 7:25 AM 

The economic recession plaguing the world has been a frequent topic of discussion in this blog space. Closer to home, the US recession that began in December 2007 has naturally received special attention. The last blog entry on the latter appeared here on April 3, 2009, cleverly entitled, “Economic News…circa April 3, 2009”.

Even on April 3rd, we were searching for any news that might indicate that the country’s economy “just maybe could be bottoming out.” However, the US jobs report for March 2009, released by the Labor Department that very day, did not indicate a bottoming out at all, as the nation's unemployment rate in March jumped to 8.5%, the highest since late 1983, as a wide range of employers eliminated a net total reported at first as 663,000 jobs. (Worse, this figure was revised upward a month later to 699.000 jobs lost in March).

Finally, the “sign” of bottoming out could arguably have appeared in the numbers indicated by the Labor Department’s May 08, 2009 report. While another 539,000 jobs disappeared from the US economy in April, and the unemployment rate jumped to 8.9%, this deterioration was in fact slightly milder than expected, prompting encouraging talk that President Obama's stimulus package just might be starting to work.

Regional effects…

Of course, some states and locales are doing worse economically than others. Here in California, “things economical” are not going well at all. CA unemployment in March was 11.2% or 2.7 points worse than the US overall figure for March.

Even the New York Times is worried about California, as a May 24, 2009 editorial emphasized. “California’s (budget shortfall) is the worst (of all states) in sheer dollar terms. To close the gap, most states have cut spending and many have raised taxes, or are seriously considering tax increases.”

“Like other states, California is suffering from a collapse in tax revenues brought on by the recession. Unlike other states, it suffers from severely dysfunctional politics, including gridlock-inducing budget procedures and a deeply anti-tax strain that plays itself out in endless voter referenda, dating back to the Proposition 13 property tax cap from the 1970s.”

The NYT might have added that the Republicans in the CA Legislature refuse to increase taxes, stubbornly preferring to cut services deep into the state’s bone marrow. Moreover, by law it takes a 2/3 majority vote to raise CA taxes, a majority which the Democrats do not have.

So even the announcement on May 22, 2009 that California’s April unemployment rate fell (slightly) to 11.0%, there is still no reason for economic optimism here.

Some have asserted that California has had a higher jobless rate than the nation during this recession because of greater exposure to the US housing bubble, forgetting why the housing bubble existed in the first place and why it burst. For an economy as intrinsically great as that of California (or even the entire US economy) cannot forever withstand the years of extraordinary unchecked greed on Wall Street, rampant national deregulation (hedge funds, credit default swaps, derivatives, Ponzi schemes, ...), continued outsourcing of the US manufacturing base, two wars, and deep US government deficits that we have endured. It's just that those seeds sown so widely over the last eight years in the United States are now reaping their most devastating negative results in 2008-09.

Back to the near-term: To ameliorate California’s current financial problems, a Federal Bailout of California might be necessary. Unfortunately, that would be (a) terribly expensive, and (b) set expectations high for federal bailouts in the other 49 states.

No, our overall US economic woes have not yet bottomed out.