Most economic news today is, if not overly positive, at least optimistic. The national GDP is up. The unemployment rate has stopped ballooning. Small business seems strong and sure.
But William Dunkelberg, professor of economics at Temple University, doesn’t see much progress. Moreover, most people he talks to don’t see much progress. Three-and-a-half years after the bottom fell out of Wall Street, there are still thousands of people without jobs, government spending is out of control, and public confidence is still shaken. And even in sectors where the money is coming in (like manufacturing), there is still little happening that helps the population in general.
Dunkelberg will present “Post-Great Recession: Can We Emerge Stronger than Ever?” at the Princeton Chamber Business Before Business Breakfast on Wednesday, March 21, at 7:30 a.m. at the Nassau Club. Cost: $40. Call 609-924-1776 or visit www.princetonchamber.org.
Though the Great Recession officially ended in June, 2009, less than a year after it began, its effects have hung on like scars. Dunkelberg, along with fellow economist Jonathan Scott, publishes the Optimism index (at www.smallbus.org), which gauges how people feel about different aspects of the economy. The most recent reports show that small business owners do not quite share the optimism of the official story.
On top of that, Dunkelberg says, consumer confidence is still way down. It is showing signs of life, but it has yet to get anywhere near the comparatively giddy heights of the end of 2007, which was the last time everything still seemed OK.
The economic picture in the United States hinges almost completely on the services sector, Dunkelberg says. A full 70 percent of our economic health is based on service businesses, from hotels and retail outlets to small nail salons and law firms.
This is the sector dominated by small business. In fact, Dunkelberg says, half the working population in the U.S. is employed by small businesses. But these are the businesses that are struggling the most, he says, because people are not spending on them. Retail is still far below where it has been (and where it probably should be). And in this do-it-yourself society, where people do not need to hire professionals as much as they once did, fewer dollars are going to small businesses of all kinds.
What is deceptive about all this, Dunkelberg says, is that while the GDP is up, it is only up 1.9 percent since the end of 2008, and mostly because of government spending, which, he says, is on par with that which occurred at the close of World War II.
The difference between then and now, however, is that government spending then was to support the war effort, which means it put people to work and created industries. These days, Dunkelberg says, spending is going out in too many directions, and little of it is creating job growth.
Manufacturing is up. On the surface, things are looking great for American manufacturing, Dunkelberg says. Corporations such as GE and Caterpillar are getting massive equipment orders and turning profits that are the envy of every other industry in the country.
But what used to take 1,000 people to manufacture in 1950, in U.S. manufacturing’s golden days, now takes a mere 200. And as time moves on, that number will continue to decrease, Dunkelberg says. Like it did in the agriculture industry: In 1950 11 million people worked in agriculture. In 2010 that number dropped to 2 million — despite food output being exponentially bigger than it was then. “People are our most valuable resource, but we keep reassigning them,” he says.
By “reassigning,” Dunkelberg of course means layoffs. His own data show that in 2007 there were 850,000 new businesses started and 750,000 people laid off. But after the crash, those numbers inverted throughout 2009. Things have leveled off since 2010, he says, but are still not back to any levels that show small business is actually growing the economy or the ranks of workers. As a result, the GDP factors in 7 million fewer workers than it did four years ago, Dunkelberg says.
Housing. The bloated and badly regulated housing market is the obvious cause of the 2008 crash. At the end of 2007 1.6 million houses a year were going up in the U.S. Two years later there were barely a half-million new homes built. And the ones that were built were beyond many people’s means to live in them.
So for the moment, all around the country, there are empty houses waiting for people to move in. And eventually, Dunkelberg says, people will buy existing homes and then ask for new ones to be built.
Dunkelberg hails from Savannah, Georgia, and moved to Michigan with his brother and mother when he was in eighth grade. He attended the University of Michigan from 1960 to 1969, where he got his bachelor’s, master’s, and doctorate in economics. From there he taught at Stanford, then Purdue until 1987. That year he went to Temple to be the dean of the School of Business and Management until 1994. “I fired myself from that job,” Dunkelberg says. He got tired of arguing with a boss who was more interested in sports and went back to the teaching side.
Dunkelberg’s answer to what it will take for the country to get its economic legs back is that thing in shortest supply — patience. Consumers need to spend and government needs to cool it on the spending. And the excesses of housing and other goods will have to be used up before new demand is created.
It will happen, he says. “But it’ll take years.” And it will go through the inevitable bout of bad ideas from Congress, which will try all manner of things that will not work, he says. “Especially this year, because it’s an election year. But unless the Fed stops buying treasuries and starts buying these surplus houses and burning them down, there’s going to be excess. And any excess is not a good idea.’