Depression

By Antonio C. Abaya
Written on Feb. 04, 2009

The sky seems to be falling. Last year, 2.6 million Americans lost their jobs due to the financial meltdown. In one day alone last month, 75,000 were laid off from their jobs in the US and Europe. In the month of January, 200,000 were terminated jobs in Spain. Our own Department of Labor and Employment warns that 200,000 will be laid off from their jobs this year. In the next two years, some four million Americans are expected to have their homes foreclosed.

According to a report released last week by the International Labor Organization, as many as 51 million will lose their jobs by end of 2009, if the situation continues to deteriorate. This could raise the number of unemployed worldwide to as high as 230 million

Special attention is being focused on China where thousands of factories have been forced to close down due to the financial and economic meltdown, and tens of millions of workers have been laid off. The Chinese economy is expected to post a rise in GDP of “only” 8 percent in 2008, compared to 13 percent in 2007.

The fear (or hope, depending on one’s view of China) is that the sudden and massive job losses will ignite social tensions and cause political problems for the ruling Communist Party.

There is concern that massive job losses around the world will lead to protectionism as individual countries strive to save domestic jobs and domestic producers from foreign competition. This has been dramatically shown by wide-scale strikes in the United Kingdom last week by workers in the oil refinery and related industries protesting the importation of 300 Portuguese and Italian workers for the construction of a new refinery.

This has resonance for labor-exporting countries like the Philippines whose economy is largely dependent on the remittances of overseas contract workers. The fact that the Philippines did not develop exports and tourism to the same extent as our more successful neighbors did, has saved us from precipitous economic decline as suffered by, say, South Korea and China.

Our weakness has ironically become our strength, even if only temporarily. But if hundreds of thousands of Filipino workers abroad were suddenly rendered jobless and were forced to come back, then we join the rest of the world in a spiral into what could become a Depression.

While a recession is technically defined as a contraction of an economy for two consecutive quarters, there is no quantitative measurement of what a Depression is.

In its website, the New York Times defines a Depression as “a severe economic downturn that lasts several years. Fortunately, the US economy has not experienced a depression since The Great Depression of 1929, which lasted ten years. The GDP growth rates were of a magnitude not seen since: 1930 (-8.6%), 1931 (-6.4%), 1932 (-13%) and 1933 (-1.9%).

“During the Depression, unemployment was 25% and wages (for those still had jobs) fell 42%. Total US economic output fell from $103 to $55 billion, and world trade plummeted 65% as measured in US dollars……” (The current US and EU unemployment rate is 8%, expected to climb to 10% by end of 2009.)

“In 1932, Franklin Delano Roosevelt was elected President based on his promise to create federal government programs to end the Great Depression. Within 100 days, the ‘New Deal’ was signed into law. This created 42 new agencies to create jobs, allow unions and provide unemployment insurance….

“However the extent of the Great Depression was so great that government programs alone could not end it. Unemployment remained in double digits until 1941, when the US entry into World War II created defense-related jobs.

Could it happen again? “A Depression on the scale of 1929 could not happen exactly the way it did before. Central banks around the world, including the US Federal Reserve, are so much more aware of the importance of monetary policy (interest rates, money supply) in regulating the economy.

“However, there is only so much monetary policy can do to affect fiscal policy (government tax collection and spending)….”

Contrary to the monetary policy in 1929 when banks raised interest rates higher and higher, central banks in 2009 have lowered interest rates around the world, in some cases to almost zero percent.

But so far corporations are not borrowing to expand their businesses. They instead continue to shed workers and employees as demand for their products and services continue to decline. And consumers are not buying because they want to conserve their funds out of fear that they may lose their jobs. The vicious cycle rolls on and on. Where and when it stops, no one seems to know.

Except perhaps our very own President Gloria Macapagal-Arroyo who has chosen the World Economic Forum in Davos to lecture President Barack Obama: “What we want is for America to do something because the last thing we want is for America to do nothing. You may be vague on what should be done, but the worst thing is for it not to do anything.”

President Arroyo, who has been in power since January 2001 (or for about 2,920 days) and whose most noteworthy economic achievement has been to send ten percent of the Philippine population to work abroad, because they could not find jobs in her domestic economy, deigns to hurry up President Obama, who has been in power only since January 20 (or for about 15 days) to “do something about it.”

Yes, how about starting World War III with ten percent of the US population – or about 30 million Americans.- forced to “work abroad” with the US military? That should mop up all those who have lost their factory, store and office jobs, as an earlier war did in 1941. *****

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