Technical Recovery

Larry Summers made a very interesting statement in a speech he gave at Davos, as reported by Martin Wolf at FT (emphasis mine):

Lawrence Summers, Mr Obama’s principal economic adviser, also stressed that “what we are seeing in the US and perhaps in other places, is a statistical recovery and a human recession”. In his view, the combination of high unemployment with “mercantilist policies” in parts of the world makes it hard to defend liberal trade politically or perhaps even intellectually. Unless the recovery proves far stronger than expected, high unemployment will persist in western countries, with all the political dangers it brings.

Today, news came out stating unemployment numbers may have been under-counted by 824,000 (!) since December 2007.

"There's certainly a disconnect between economists like myself who say the recession ended in May or June and the person on the street who says the recession hasn't ended," said John Canally, economist LPL Financial. "This report is only going to widen that gap."

I had mentioned, early in this blog's history, my fears of a double-dip recession. Those fears were fueled by some actual economists, of course. Reports such as this only increase that fear. It's also very interesting to see economists as prominent as Summers acknowledge that, despite evidence of a "statistical recovery", the fact is that for the average person, conditions are still pretty bad. Interestingly, Krugman pointed this out last July. If persistently high unemployment leads to politically-driven moves that go against free trade and in the direction of protectionism, we could be in for a very interesting decade. Note that I'm not making any claims about what would be good for jobs, because I have no idea. I'm simply pointing out that winds are blowing against liberal trade policies and efficient market theories.

On a side note, NY Attorney General Andrew Cuomo is accusing Bank of America of fraud:

The lawsuit contends that the bank's management team understated the losses at Merrill in order to get shareholders to approve the deal, then subsequently overstated the firm's willingness to terminate the merger to regulators weeks later in order to get $20 billion of additional aid from the federal government.
"Bank of America and its officials defrauded the government and the taxpayers at a very difficult and sensitive time," Cuomo said at a press conference Thursday, joined by federal bailout cop Neil Barofsky, whose office aided in the investigation. "I believe that Bank of America officials exploited this fear."

Along similar lines, Italy is also going after BoA, amongst others, in a fraud probe.

Corporate privateering in partnership with the state has been a perennial problem in developing nations, especially in South America and the western Pacific. But the economic hitmen are ranging further and wider these days, in search of greater profits and new fields of plunder, and in developed nations. Iceland and Greece are one thing, but if a G7 nation like the UK falls prey to the banks, the reaction may be severe.
This theme of national sovereignty versus corporatism will gain more traction over the next five to ten years.