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As Long as We Remember...

April 11, 2012

An Odd New Economic Cycle Driven by…

Kevin E. Dayhoff

As the economy staggers in the third year of a very odd economic recovery, last Monday the stock market fell sharply in the first day of trading since the Labor Department released a disappointing jobs report for March.


The last three years of supposed economic recovery looks like a strange trip, indeed, and the next economic cycle is looking to be even stranger.


Meanwhile, according to various media reports late Monday, including, “all three major indexes ended sharply lower in trading as investors digested weaker than expected jobs report for the month of March. According to figures released by the Labor Department last Friday, the U.S. economy added only 120,000 jobs last month, well short of economists’ forecast.”


David Frum, a CNN contributor, editor at Newsweek and The Daily Beast and a special assistant for President George W. Bush from 2001-2002, wrote Monday what has been in the back of the mind of a number of economists: “Friday's weak jobs report is more than a disappointing blip. It is a glimpse ahead of our disappointing future.


Furthermore, as many economists continue to understand the current cycle as a ‘jobless recovery,’ Mr. Frum reports that “nearly three years from the beginning of the economic recovery in the summer of 2009, the U.S. economy has replaced not even half the jobs lost in the slump of 2007-2009. At the current pace of job creation, it will take until 2017 to replace all the jobs lost.”


Indeed, increasingly it feels like we are really no longer in an economic recover but rather we are in the uncharted territory of a new economic cycle the likes of which we have never experienced before – a ‘new normal,’ if you will.


In an understatement, Mr. Frum may have said it best: “Recessions reshape economies.” And as a result of the 2007-2009 recession “most Americans are seeing their economic future changed for the worse…”


If history does not always repeat itself, it often rhymes. And as an aside; while political hacks jockey for analogies which will attract the most political gain, to really truly understand the future ramifications of the current economic malaise from an academic point of view one must go back to the Panic of 1837.


To wit, the History News Network recently carried a review by Jim Cullen of a new book on the subject, America's First Great Depression: Economic Crisis and Political Disorder After the Crisis of 1837 (Cornell, 2012,) by Alasdair Roberts.


For example, Mr. Cullen observes, “… And the financial crisis in question erupted not in 2007, but in 1837. Welcome to what he calls the First Great Depression…


“But Roberts shows the reverberations of the crisis went far beyond economic policy. Economic hard times corroded trust in political institutions, creating government gridlock. The Whig Party swept to power in 1840 by riding a wave of exasperation with Martin Van Buren's Democrats, only to find themselves similarly hobbled and tossed in subsequent congressional and presidential elections. Fiscal difficulties also constrained the nation's military…


“Finally, Roberts describes the depression as a crisis of civic order… in the context of an outdated colonial constitution finally breaking down in the face of economic pressures… The situation in Philadelphia, where riots broke out in 1844, was perhaps more a function of labor politics in the blast furnace of industrial capitalism. But it too derived directly from populist grievances with financial elites…”


Sounds familiar, does it not?


However, getting back to 2012, all indications are that the metrics by which the economy has been measured in the past are simply not going to work in analyzing the ‘new normal’ economic cycle.


Certainly the new economic cycle is not measurable by the odd and arcane political methodology in which the nation’s gross national product is measured.


For certain, this is not going to be a Wall Street-driven economic cycle. For one thing, most Americans and many money managers, investors and captains of industry have come to distrust Wall Street – the large financial institutions and especially big government.


Harkening back to the horrific economic cycle that began with the collapse of the financial systems in 1837, the “economic hard times (of our recent economic malaise has) corroded trust in political institutions, creating government gridlock.”


To wit, many have come to believe that the new economic cycle will come as a result of pent-up demand in the industrial sector and essentially develop in spite of – and not as a result of – the economic policies of either political party – or the government.


Much of the growth of the industrial sector will come in spite of the federal government’s truly dysfunctionate, inept, and impotent national energy policy.


That is, while the government has been pre-occupied with destroying our nation’s oil industry in a pathological fit of self-loathing and self-destruction, the natural gas industry has slipped by to become a driver for a renewed industrial base in the country.


The current cost of natural gas in our country translates to roughly the equivalent of $20 per barrel of oil, giving the United States a profound advantage it has not truly enjoyed for decades.


This, in spite of the fact that the United States now has the most punitive corporate tax rate in the galaxy since Japan lowered its corporate tax rate in March. According to multiple accounts, including, “in March, Japan reduced its corporate tax rate to 38.01%, making the U.S. rate of 39.2% the highest…”


Nevertheless, in an odd sort of a way, the current election politics of the 2012 presidential selection is paradoxically helping the economy as the natural laws of finance are allowed to work while both political parties argue over stuff that has nothing to do with what will truly fuel a new economic structure.


… I’m just saying…


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