Goldman Sachs may be a vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money, but as macroeconomic analysts they’re usually pretty solid. Which makes sense, because macroeconomics smells a lot like money. But if you look retrospectively at their forecasts, they generally get things right. Which is why everyone should be pretty frightened by their most recent analysis:
We have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%.
Even excluding any further changes we now expect the unemployment rate to come down only modestly to 8.75% at the end of 2012.
High-frequency information on overall economic activity has continued to fall substantially short of our expectations. Some of this weakness is undoubtedly related to temporary factors, namely supply chain disruptions and (the temporary part of) the oil shock. But the slowdown of recent months goes well beyond this.
Goldman even goes so far as to say there’s a possibility of a second recession.
If you’re a political reporter, particularly a right-leaning one like Jim Pethokoukis, you chuckle and marvel at what good news this is for Republicans. If you have an ounce of actual humanity, you see this as an unmitigated catastrophe. By the end of 2012, we will be five years on from the start of the Great Recession. And unemployment will still be at the unacceptably high level of 8.75%, according to this forecast.
Thirty years ago, this was a hair on fire moment for policymakers, a time to try any and every policy available to get Americans back to work. But Republicans see this forecast as their greatest wish realized, mindful of how they can use a crappy economy to take down a President. Democrats who might want to do something about this no longer have the numbers to do so. And the President thinks this time is a unique opportunity to start cutting the deficit, at variance with all economic theory. So the policies on offer in reaction to a truly historic level of unemployment are fiscal and monetary contraction. Krugman writes:
I know the arguments — fear of invisible bond vigilantes, fear that 70s-style stagflation is just around the corner despite the absence of any evidence to that effect. But why do such arguments have so much traction, while everything economists have spent the last three generations learning is brushed aside?
“a wide refocusing of the mechanisms of our society towards the crucial obsession of oligarchs: wealth and income defense.”
That has to be right. It doesn’t necessarily take the form of pure cynicism; it’s more a matter of the wealthy gravitating toward views of economic policy that make immediate sense in terms of their own interests, and politicians believing that only these views count as Serious because they’re the views of wealthy people.
But the upshot is terrible: more and more, this really does look like the Lesser Depression, a prolonged era of disastrous economic performance. And it’s entirely gratuitous.
An op-ed from Charles Blow resonates pretty well here. He went out and talked to working people. And he found that “No one mentioned the asinine argument about the debt ceiling. No one. Life is pressing down on them so hard that they can barely breathe.”
Their voices aren’t as loud as the moneyed class. And that’s all it comes down to.
Digby has more.