We aren't undergoing an American recession as such: Instead we are experiencing what amounts to the front end of a restructuring of our American society.
When completed, this needed restructuring will make us a much different country than we've been the past several decades. It will necessarily and negatively impact public sector employment as well.
With respect to local communities, probable quasi-permanent higher levels of unemployment for manufacturing and construction workers are especially worrisome. Both manufacturing and construction jobs have been impacted negatively due to global manufacturing competition and the bursting of the U.S. housing bubble. The effects will likely be of a long term nature.
This restructuring is not good news for many of our American cities and counties. Sustained high unemployment levels, when coupled with reductions in state and federal aid, will create a big problem for local communities. When we add the resulting lower local property and sales tax receipts due to reduced economic activity, a big problem becomes an even bigger one.
Unfortunately, it's going to be even worse than that. Add to those incoming lower city and county tax receipts the ever escalating outgoing compensation expenses for pension and health-care promises for public employees, and we have an extraordinary financial challenge ahead of us.
And to repeat, we won't be able to look for money from the national government either. That's the straightforward result of the massive national debt burden we've accumulated over the years. The future distribution of federal dollars to cities, counties and states across the country will be quite limited.
Summing up, we are fast running out of "government" money to pass around. All things considered, local communities, being on the low rung of the government ladder, will suffer acutely.
Manufacturing as recently as the 1980s represented a much larger part of our economy than it does currently. Thus, manufacturing employment has been negatively impacted in a secular as opposed to a cyclical manner.
The story for a secular and quasi-permanent change in construction activity is similar due to the housing bubble bursting and its effect on local building as a whole.
Taken together, manufacturing and construction activity, including employment related thereto, represent a much smaller piece of our local communities than they did previously.
This negative triple whammy of more debt, higher unemployment, and reduced manufacturing and construction activity all suggest a 'new normal' for many of these communities. The southern locales will be particularly hard hit, since they were often the beneficiaries of a large in-migration from the north in recent decades. This in-migration occurred due to both the relocation of manufacturing firms from north to south and new construction associated therewith, both commercial and residential.
Sadly, many of the manufacturing jobs that moved from the northern localities to southern communities have now moved offshore.
Now let's take a look at some of the bigger headwinds many U.S. cities will be facing in the years ahead.
For Strapped Cities, A 'New Normal' details the impact of the weakened economy on our cities. The editorial argues that there is a 'new normal' on its way to our cities:
"U.S. cities could remain in bad financial shape for a while, as a weak economy lowers property-tax and sales-tax revenue and city managers cope by freezing hiring, laying off workers and delaying infrastructure projects.
City finance managers project that general-fund revenues will decline 2.3% this year, the fifth straight decline, according to a survey released Tuesday by the National League of Cities. Spending will decline 1.9% this year, a second straight drop.
"The effects of depressed real estate markets, low levels of consumer confidence and high levels of unemployment will continue to play out in cities through 2011, 2012 and beyond," the report found. "Lower property values and declining sales may portend something entirely new, a 'new normal.' "
Just how big of a negative is this loss of construction activity going to represent for cities?
Number of the Week: The Economy's Housing Albatross puts the lingering effects of the housing bust this way:
"In the second quarter, residential investment — money spent on building, adding to and maintaining homes — accounted for just 2.2% of GDP, according to the Commerce Department. That was the lowest level since 1945, when America was on a war footing. If residential investment were to rebound to its average share of the economy from 1950 to 2000 of 4.7%, GDP would be 2.5% higher than it is now. That’s about as much as it grows in an average year.
But that isn’t the end of the housing hit. Layer in the money people aren’t spending because they’re digging themselves out of housing debt, or trying to rebuild some of the wealth they lost when the values of their homes went south. Layer in the loans banks aren’t making because of their losses on busted mortgages.
It is hard to see the economy returning to health until housing gets better. And with a glut of foreclosed and distressed homes still on the market, it is hard to see that happening anytime soon."
We would better refer to this 'new normal' as a restructuring and not a recession, because the recent housing boom and subsequent bust will affect us all for years to come. It will take us a very long time to work off the accumulated debt, both individually and as a nation, so we shouldn't look for a resumption of strong economic growth anytime soon. And we can anticipate that unemployment will remain elevated for years to come, thereby aggravating the fiscal condition of our nation and its states, counties and cities as well.
Let's all hope that some common sense financial decision making comes from Washington and the rest of the world sometime soon. Until that happens, we can't begin to work through our many problems and emerge a stronger and restructured society.
If we continue to pretend, however, that we are in a simple recession, albeit a deep one, and that it's not necessary to embark upon an extended period of public sector austerity and a renewed emphasis on private sector growth, we will only postpone the return to a stable and prosperous economy.
So let's get resolve to get realistic about what's really happened and get serious about repairing all that is broken. That means the undertaking of a fundamental restructuring of America.
And that work has to begin with the government and the public sector.
Thanks. Bob.
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