Professor: Signs Of Economic Life Still Exist

Friday's unemployment numbers were grim. Consumers are cutting back all across the country, which is muffling any signs of life in the business economy. There are pockets of growth, however. Economist Simon Johnson warns Jacki Lyden that we're in for an "L-shaped" recession," that could, if we're lucky, become a "bathtub-shaped" recession.

Copyright © 2009 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

JACKI LYDEN, host:

In Chicago, 20-year-old Doug Pearson(ph) is growing up.

Mr. DOUG PEARSON: I used to go out to 7/11 a lot and just do stuff like that. I used to make a lot of dumb purchases, like if I go to, like, a Best Buy or something, and I really don't need to do that. It was fun at the time, and I still do that, but I cut it down.

LYDEN: And in Northern Virginia, Steve Jones(ph) and Dianne Burns(ph) are singing the same tune.

Mr. STEVE JONES: Any kind of expenditure that can be put off is being put off.

Ms. DIANNE BURNS: I will be more careful about my spending, more careful about vacations, and probably limit them or not have them at all. I don't go out to eat as often. I eat at home, and then my husband and I might go to a movie as opposed to dinner and a movie.

LYDEN: Ditto for Jim Nusto(ph) in Albuquerque, New Mexico.

Mr. JIM NUSTO: You know, we don't go out as much. We try to look at where we're spending our money. It ends up being kind of a time when everyone needs to look carefully at what they're doing.

LYDEN: And these are the folks who are still employed. People are changing their behavior because of the dismal economic news and because of the sudden, life-altering developments that occurred in January. Six hundred thousand jobs lost in one month alone. So why have companies cut back so dramatically?

Dr. SIMON JOHNSON (Economics, MIT; Co-founder, BaselineScenario.com): Well, the fundamental problem is that people don't want to spend money.

LYDEN: That's Simon Johnson, professor at MIT and co-founder of BaselineScenario.com, a global economy Web site.

Dr. JOHNSON: We started with the credit problem in the fall, and the banks were in trouble. Everyone remembers that, and that is still with us to some important degree.

But even more important is the fact that consumers have - 70 percent of the U.S. economy is consumption, things that you and I go out and buy for ourselves, for our households, for our kids - people are cutting back and everybody, rich people, middle-income people, poor people are all cutting back because they're scared. They decided they need to rebuild their balance sheets. That means they want to save a bit more and have a bit less debt.

And if everyone decides to save, say 5 percent, just 5 percent on average, of their household income in the United States, that is a big shock, a big change, and that's going to be a big recession.

LYDEN: It's hard to spend when you've just been laid off, or you're afraid you're going to be laid off at any moment. An unemployment rate of 7.6 percent is sobering, but it's not the only number out there. The Wall Street Journal points out that when part-time and underemployed workers are added in, as well as those who've stopped looking for work, the number jumps up to 13.9 percent. You can't blame consumers for being nervous, but the consequences of that anxiety are grave.

Dr. JOHNSON: There are people out there, optimistic, official people who are saying it's a V-shape, so sharp recovery. There are other people saying it's a U-shape, so you come back up later in 2009, maybe 2010. And there are other people, I'm afraid, rather a bit more like me, who are saying it could be Japan in the 1990s, where it's L-shaped. You go down and you stay flat, and then you lose a decade because lots of people around the world want to save more; very few people or firms want to spend more; and very few governments are in a situation where they can spend more. Pretty much the only exceptions are the U.S. government and the Chinese government.

LYDEN: Now, Japan had deflation for a decade, but didn't it also have the benefit of a robust global economy, charged in part by the U.S.?

Dr. JOHNSON: That's right. The one bright spot of Japan throughout the 1990s was exports. The global economy was strong, the Japanese currency was weakened. And so, they always had some job creation there, and they had profits and so on. If the U.S. has this problem and the rest of the world is booming, we could be like Japan. If the entire world has - everyone is trying to save and not sufficient spending, we can't export to Mars to get out of this. We're all going to go down together.

LYDEN: Actually, the U.S. economy hasn't ground to a halt. Some hospitals and schools have hiring freezes, but the high points in this week's jobs report were education and health care, fields that added a total of 54,000 new jobs in January.

The darker the clouds, the brighter the bright spots. I asked Simon Johnson who else is hiring.

Dr. JOHNSON: There's a range of people out there like Apple, great technology story, Amazon is hiring, consulting firms like McKenzie are hiring, United Airlines is hiring. So there are companies within particular industries who are doing well, they've got a good business and who need people.

LYDEN: Like Dreyer's ice cream, opening up a new plant in Laurel, Maryland.

Ms. DORI BAILEY (Director of Consumer Communications, Dreyer's Grand Ice Cream): I'm Dori Bailey from Dreyer's Grand Ice Cream, known in the East Coast as Edy's. We're hiring about a hundred new employees. We're looking for ice cream makers, ice cream movers - those are people that work in our warehouse - and also maintenance folks to help us keep up our equipment because we have so many new products in 2009 that we're launching.

LYDEN: Bailey says sure, people are eating out less, which means they're buying more ice cream to take home. So in 2009, Dreyers has to expand to meet increased demand.

Ms. BAILEY: We'll have Haagen-Dazs ice cream in cups. We'll also have a new, Skinny Cow truffle bar, and that's a 100-calorie, low-fat ice cream bar drizzled with chocolate. It's really excellent.

LYDEN: Another growth area, outside the freezer, the vegetable garden. The CEO of Burpee Seeds, George Ball, says business is booming.

Mr. GEORGE BALL (CEO, Burpee Seed): Two years of 20 to 30 percent increase - this is, is astonishing growth, it's incredible.

LYDEN: The Lubbock, Texas fire department is opening up a new station. In Omaha, Nebraska, a home health-care company is recruiting new nurses' aides. Some biotech companies are growing by leaps and bounds. Google and State Farm Insurance continue to flex their muscles.

And the biggest hiring push right now could be the 2010 Census. They are planning to hire about 1.4 million people, all told. Recruiting assistant Marjorie Short(ph) in the Northern New England district is testing 5,000 people for 1,500 jobs. They'll be the first wave of people who knock on your door with a handheld computer to count you. And many of them are the face of this new economy.

Ms. MARJORIE SHORT (Recruiting Assistant, Northern New England District, 2010 Census): I'm seeing a very large uptick in very highly qualified people who are out of work and who need jobs, people with, you know, Ph.Ds and people who are attorneys and retired corporate executives and people with master's degree, teachers.

LYDEN: Pockets of growth, of course, do not a robust economy make. So we're back where we started. Can the stimulus package the Senate hammered out last night change the shape of this recession, the L shape that economist Simon Johnson warns about?

Dr. JOHNSON: Well, I think if you really got the package right - of course, everyone says this - enough stimulus and sort out the banking system, which is really very tough, and deal with housing, you could climb out of the L sooner. So, how long does the L last? Does it have your lost decade? No. Could it be a lost half decade? Certainly. Could we just have two or three pretty dismal years and then recover? Yes, as long the rest of the world doesn't completely disintegrate around us while we're having this little hiatus.

LYDEN: So, L becomes, maybe, a U?

(Soundbite of laughter)

Dr. JOHNSON: A bathtub-shaped recession is what one of my colleagues is calling it because the question is which way you're going in the bathtub - the long way or the short way, and how slippery are the sides when you try to get out.

LYDEN: As long as we don't go down the drain. We spoke to Simon Johnson, professor at MIT. And for more of his succinct analysis, go to npr.org, and subscribe to our Planet Money podcast.

Copyright © 2009 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.