99ers Are the Tip of an Iceberg

By John Ballard

I remember that moment in 2008 when the stock market fell. I was on a live-in assignment at the time taking care of a man with a broken ankle and had plenty of time to watch television. Few distractions kept me from C-SPAN and the news channels and as the year came to an end it was clear that the global economy was more seriously threatened than ever before.

The election of Barack Obama corresponded with global economic events that were so serious that even Republicans could see the world speeding toward an economic cliff. What we now call Bailouts was a hastily cobbled together bipartisan attempt to piss on a raging fire. We were living through the economic equivalent of a tsunami and there were no rescues in sight.

I had never heard of Nouriel Roubini until he appeared on Washington Journal one morning. Several callers thanked him for having given them the sound advice a year before to liquidate their investments and put all assets into cash. That small group had dodged the bullet. Roubini sat there with a Mona Lisa smile and underscored in his thick East European monotone that "unfortunately for the last eight years the ideology in Washington has been one of total laissez-faire Wild West capitalism without any even prudential regulation provision. They kept on saying that these institutions are gonna self-regulate themselves. That's nonsense. Self-regulation means no regulation..."

Etc. etc...

So we find ourselves now two years later not at the end of economic problems but in the deepest financial hole in living memory. Let no one say there were no warnings.

While we're at it, make a note that the Congressional efforts at what is euphemistically being called "reform" have been diluted to the point that most of the underlying reasons the world is in bad shape have not changed importantly. The disease calls for science-backed prescription-strength medicine and all we have seen are alternative approaches to sickness not much better than homeopathy.

My recollections this morning were prompted by a piece from England looking at unemployment in America. It talks about the 99ers, the formerly employed group of beneficiaries of unemployment compensation about to hit the 100-week mark of not being able to find a job.

It is a moniker that no one wants. It refers to the 99 weeks of benefits that the jobless can qualify for in America. Government cash helps those laid off keep a tenuous grip on a normal life. It keeps a roof over their heads, pays a phone bill, puts food on a table and petrol in a car. But once the 99 weeks are up the payments stop � as is happening now for millions of people � and they are 99ers.

Well-dressed public figures, along with journalists and talking heads on television, all of whom have jobs, refer to this group generically with the same sincere tones they might use for endangered wildlife species or victims of a natural disaster. But the unpleasant truth is that this is not an endangered group in the sense that their numbers are shrinking or victims of a tragedy that has finally passed. This group is both large and swelling as the disease of unemployment spreads across the world like a pandemic. Despite a few bright spots the big picture is not a pretty sight.

Just how badly the great recession has struck... was recently spelled out [in Camden, New Jersey]. In happier times � whatever that might mean for a city as destitute as Camden � local businesses on Haddon Avenue could at least rely on a bit of trade from those who made their money on the street.

Young men bought flashy clothes and got sharp haircuts and always paid in cash. But no longer. The economy is now so bad in Camden that even the criminals are struggling and going short. "Even the guys who got money from illegal means really don't want to spend it..."

Such a development, though, is just a snapshot of the deep problems still hitting the wider American economy. Growth rates are stuttering and a recovery is struggling to take hold. It may even now be showing signs of going backwards again, as countries such as Germany start to power forward. Joblessness has taken hold in America, with the numbers of long-term unemployed reaching levels not seen since the Depression of the 1930s. The figures are frightening and illustrate a society that remains in deep trouble.

Unemployment in America is at a historic high. And what I am about to write next seems cold-blooded. But the US is a place so flush with wealth that the word poverty has an entirely different meaning than in much of the world. Obesity and being forced to sleep in one's car are not problems associated with poverty in the undeveloped world. Most of the world no longer lives in agricultural economies in which poverty, as in our own Great Depression, need not mean starvation.  Poverty, then, is obviously related to unemployment.

...most countries fail to distinguish between the unemployment rate and the greater economic picture of their economies. Even the CIA World Factbook, which is easily the most widely referenced source for country information, often does not discriminate between unemployment as reported by countries and the total number of unemployed as represented by the International Labour Organization statistics. The number of unemployed over 14 is as much as 50% greater than the reported unemployment rate.

Unemployment rates as a standard for economic analysis are more complicated when considering the circumstances of each nation. War-torn regions with high displacement, areas with class inequities, gender discrimination, prevalence of disease or disability, inaccurate reporting or deliberately misleading information released as propaganda -- these factors can lead to inaccurate unemployment rates...

Last week I heard about "the new normal," a phrase new to me but apparently now becoming widespread. It is a clumsy way of alluding to a rediscovery of thrift in personal money management.

The �new normal,� as it has come to be called on Wall Street, academia and CNBC, envisions an economy in which growth is too slow to bring down the unemployment rate, while the government is forced to intervene ever more forcefully in a struggling private sector. Stocks and bonds yield paltry returns, with better opportunities available for investors overseas.

If that sounds like the last three years, it should. Bill Gross and Mohamed El-Erian, who run the world�s largest bond fund, Pimco, and coined the phrase in this context, think the new normal has already begun and will last at least another three to five years.

The new normal challenges the optimism that�s been at the root of American success for decades, if not centuries. And if it is here, the new normal could force Democrats and Republicans to rethink their traditional approach to unemployment and other social problems.

Those of us living in the industrialized world, even many who are unemployed, are having a hard time.But in much of the world unemployment does not mean sleeping is a car. It means sleeping on the ground. Poverty in many place is not connected with obesity but starvation. Places like Central America, the Caribbean, Africa and South Asia -- where many families no longer receive remittances from members working abroad, not only in the US but Europe, the Middle East and other places where migrants seek employment -- are more deeply impacted by unemployment than we.

The notion of 99ers is a luxurious fantasy for millions who live at the fringe of the global economy. For them minety-nine weeks of unemployment assistance, no matter now meager, is unthinkable. Let's hope that the "new normal" finds a safety net for those at the global bottom who are literally starving and dying. 

This week I came across a wake-up piece about India, describing how that country, the world's largest democracy and pillar of what I am beginning to understand is a new global economy, is finally noticing that millions at the bottom of their social ladder are literally dying from starvation.

...India�s eight poorest states have more people in poverty � an estimated 421 million � than Africa�s 26 poorest nations, one study recently reported.

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...Many economists and market advocates within the Congress Party agree that the poor need better tools to receive their benefits but believe existing delivering system needs to be dismantled, not expanded; they argue that handing out vouchers equivalent to the bag of grain would liberate the poor from an unwieldy government apparatus and let them buy what they please, where they please.

�The question is whether there is a role for the market in the delivery of social programs,� said Bharat Ramaswami, a rural economist at the Indian Statistical Institute. �This is a big issue: Can you harness the market?�

India�s ability, or inability, in coming decades to improve the lives of the poor will very likely determine if it becomes a global economic power, and a regional rival to China, or if it continues to be compared with Africa in poverty surveys....

My purpose here is not to suggest a remedy for India's problems but to point out that starving people in India are not simply India's problem. After centuries of poverty leading to starvation, India now has the luxury and responsibility of addressing the problem.

That puts the US at a differential disadvantage to India in today's world because we have yet to grasp how much we still stand to lose. I want to offer some solution to the problems we face, but I have none.

The best I can suggest is that everyone in this new normal move to a cash economy as soon as possible and look clearly at the difference between spending and investing. Spending is cash for today's needs and investing is putting cash aside for the future. (Notice how borrowing and credit do not appear in the formula. Income can only be divided two ways. And every dime used for credit and borrowing is by definition a dime subtracted from spending.)

Have a good Sunday.