Today in the Fairfax press, economics writer Ross Gittins in an article entitled No good reason to feel depression claims that we should not be too worried about the looming recession because after all things aren’t likely to be that bad. Well from my perspective recessions are episodes that wreak havoc on the most disadvantaged citizens in our society and should never occur.
To justify his position, Gittins writes:
… while everyone’s busy working themselves into a funk, it’s worth reminding ourselves of a few home truths.
The first is that, although every recession is regarded a monumental failure of economic management, capitalist economies move in cycles of boom and bust. Always have; always will. So this isn’t the first recession we’ve had and it won’t be the last.That’s worth repeating because it’s a reminder of something we’re prone to forget in the depths of our gloom: this recession will pass, just as every other one has.
… The great majority of businesses, for instance, won’t go out backwards, even if many lay off staff. And consider this: were the rate of unemployment to more than double to 10 per cent, that would still mean 90 per cent of workers had kept their jobs. What’s more, the risk of unemployment is far from evenly spread across the workforce …
… It’s a good time to seek out generous discounts. And recessions are a time when the cashed-up and canny buy shares and real estate while they’re cheap, setting themselves up for the next boom.
Sure enough … all that is true.
First, it is not 10 per cent that are without sufficient work when the official unemployment rate reaches 10 per cent – more like 20 per cent if you add in the underemployed and hidden unemployed – possibly more.
Second, it is true that the impact is uneven throughout our society. The poor get poorer and the rich tend to be insulated. The low-skilled lose their jobs first while the high-skilled are more insulated and in many cases totally insulated.
Third, the asset transfers that occur always are to the detriment of the asset poor. Many people lose their homes when they lose their jobs while these assets are bought up by the wealthier segments of the society. In every recession huge redistributions of wealth occur – and reinforce an already highly skewed wealth distribution.
Fourth, and of great importance, recessions have long-lasting intergenerational effects. The longer the recession the more sustained and entrenched long-term unemployment becomes. Children of jobless households inherit the disadvantage and are scarred in future life as a result. Education patterns are interrupted which impinge on the career development of the children of the unemployed. So not only do jobless households face short-term poverty and asset loss but also the next generations of those families carry the burden into their adult life.
Fifth, also significant are the related costs of joblessness. Increased family breakdown, increased alcohol and substance abuse, increased criminal activity, increased mental health issues to name a few of the accompanying pathologies. The costs of these dysfunctions are huge, long-lasting and spread across the economy.
The thing that doesn’t appear often in the public debate is that recessions are totally avoidable through sensible use of fiscal policy. At present there should be a growing budget deficit driven by increased government spending … at least around 5-6 per cent of GDP. I would also introduce Job Guarantee to ensure that people always have access to work. If we can guarantee bank deposits we surely should be able to guarantee jobs.
Gittins is wrong in my view – there is every reason to worry about recession. Sure the dive in economic activity will end and growth sometime in the future will resume. Eventually there will be another boom and happy times … But the residual costs of the recession will be high and will continue to be borne by the most disadvantaged members of our society and their children. There is no justification for treating these costs and the human suffering that they represent as things we should get used to.
As a postcript, I read today that a man shot his wife and five children dead in LA overnight before killing himself after losing his job and being unable to cope with the resulting financial pressures. While this is an extreme reaction to unemployment, over the world family crises are being precipitated by job loss. We should ensure everyone has access to work at all times. This is a fundamental public sector responsibility and one that governments of today have relinquished to their eternal shame. I would consider leadership in government would be exemplified by the politicians recognising this is one of their primary responsibilities.