It's the fundamentals of the economy, stupid...

Today's NYT Business section has Leonhardt offering his prognostication for the economy over the next couple months (while he will be away on paternity leave, good man). Leonhardt discusses unemployment, oil prices, education and home prices in a cogent analysis concluding with the idea that there are some fundamental problems underlying the current American (almost?)-recession.

Regarding unemployment, Leonhardt proposes viewing this issue not through an anti-globalization lens, but by noting what he (and the authors mentioned below) term the innovation deficit.

If you want to understand the causes of the innovation deficit, I’d recommend adding one serious book to your summer reading list: “The Race Between Education and Technology,” by Claudia Goldin and Lawrence Katz, two labor economists.

They argue that the American prosperity of the 20th century sprang largely from the country’s longtime lead in educational attainment, a lead that has all but vanished. Future prosperity won’t be based on saving yesterday’s high-wage jobs, as Mr. Katz told me. It has to start with smarter, more strategic investments in education, physical infrastructure and other things that can create the high-wage jobs of tomorrow.

I am a firm believer in the fact that rolling back globalization is not the answer to our problems, and that the appropriate solution to maintaining the accepted American standard of living is to increase our educational attainment levels. The continual chasing of jobs that, in the words of THE BOSS "are going boys, and they ain't coming back," is a reactionary approach to a problem that requires proactive investment in our greatest asset, our people.

Leonhardt goes on to discuss how oil prices are inflated, not by speculators as many politicians would lead you to believe, but by fundamental forces of supply and demand. The world is consuming ever more vast amounts of oil and supply is growing at a much lower rate. Anyone with a basic understanding of economics will tell you that this means an increase in price. Additionally, Leonhardt postulates that the housing values in America will continue to decline over the rest of this year and likely into next year. I know that in comparing prices relative to incomes or rents here in Madison yields a housing market that is still significantly above the historical (and sustainable?) levels.

For the first time on record, an economic expansion seems to have just ended without most families having received a raise. For the first time on record, the typical home price nationwide is falling. The inflation-adjusted value of the Standard & Poor’s 500-stock index has dropped 20 percent in the last year — and 30 percent since its peak in 2000.

I think the public has called this issue exactly right: the American economy has some real problems. Even if this summer’s downturn turns out to be mild, those problems aren’t mild — or simple — and they aren’t going away anytime soon. It’s going to take some real work.

So, as we ride out this economic downtown, let us hope that our business and political leaders recognize that this is not simply a "short and shallow" recession, but should be an economic wake up call to all of us. Our current levels of consumption relative to production will be difficult to sustain over the long term, our desire for lower oil prices won't make it a reality and a lot of people will lose significant amounts of equity in our homes (which is directly related to the inability to sustain current consumer spending, given that so much of it is reliant on home equity lines of credit). So, here's to a good summer and to hope that we are able to both individually and collectively reevaluate our consumption, spending and economic actions.