Supposedly we are in a sustained economic recovery and have been since 2002.
Part of this is Bush hot air and the Republican Noise Machine, which the media quotes verbatim.
By a certain measure, however, it’s real.
The economy has grown. Corporate profits are at an all-time high. Average income is up. There’s lots of money around.
But the recovery has some really strange features. Oddities never before seen in a recovery.
Jobs: During Bush’s first term the US actually lost private-sector jobs. It finally improved in 2005, and now job creation is almost keeping pace with the increase in population. Still, over all, it’s the worst record since Hoover, the fellow who presided over the onset of the Great Depression.
How do you have a recovery without creating jobs?
Income: Yes, average income is up during the tenure of the current administration, but the joke about average income is: Bill Gates walks into a bar. The average income of every person in the room immediately goes up 10,000 percent.
But median income, the amount that people in the middle of the group earn, barely budges. So let’s look at that figure. Median income is down. The average person makes less now than when Bush came into office.
Not only that, the downward pressure on wages is no longer just a blue-collar issue, it’s moved up to white-collar workers, the educated classes, even doctors.
How do you have a recovery when people are making less than before the recovery?
Cost of living: Key factors of the cost of living are much higher than they were six years ago. In particular, fuel is up 100 percent, higher education costs are up about 44 percent, health care premiums are up 80 percent, and affordable housing is scarce.
Normally, when the cost of living goes up, we have inflation. But we’ve had low inflation during the Bush years.
How can the cost of living go up while the cost of money stays low?
Here’s the most peculiar statistic of all. You may have been hearing that the Dow Jones Index is at an all-time high. It’s true. However, it is only 16 percent higher than the day George Bush came into office. By comparison, when Clinton left office the Dow was 320 percent higher than when he came into office.
It’s a very rough measure of course, and there are many others. But by that measure, during the Clinton years investment in America’s leading business had grown more than three times over. Under Bush it’s only grown 16 percent in six years. Since the consumer price index is up 18 percent over the same period, when the new all-time high is adjusted for inflation, growth is effectively below zero.
How can there be a “recovery” in which not even businesses grow?
When a government wants an economy to grow, it throws money at it.
The administration did that with spending on pharmaceuticals, homeland security, and a couple of wars. But their most important weapon of choice was tax cuts for the rich, especially on unearned income (capital gains, inheritance, dividends, and interest).
This was sold, and accepted, on the myth that the rich—the investing class—are the most creative and daring members of our society. Just unleash them and they will march off into the wilderness—actual, urban, or cyber—with sacks of cash over their shoulders and they will build things!
Factories! Airlines! Housing! Toys! Computers! Undreamed wonders! Entire new civilizations! With jobs! jobs! jobs! Like an Ayn Rand novel!
But that’s not what happened.
Because a shortage of cash was not the problem. The country, the world, is awash with cash.
The good old version of capitalism, folks risking their money with a daring sea captain sailing off to the Indies, still exists. In recent years it’s given us FedEx, Wal-Mart, Apple, Microsoft, and Google.
But alongside it, over the last 50 years, the economy of credit has grown up.
In vastly oversimplified terms it works like this.
You own a house. It’s worth $100,000.
Someone buys the house, no money down. They borrow that money. Let’s say it’s a straight-line 8 percent, 30-year mortgage. Forget closing costs, points, and any other complications—that’s a $220,000 debt. It goes on the bank’s books as an asset.
Now you have $100,000. The bank has $220,000 (on paper). The buyer has a house worth $100,000. The bank has a lien on it, but the buyer will be gaining equity, plus he can get a second mortgage and home-improvement and other loans on it.
Again, this is a vast oversimplification, but that transaction has “created” something like $420,000 that is now “in play,” as part of the economy.
No “thing” has been created—no new business, no product, no jobs, no idea, no intellectual property, no entertainment.
But money has been created.
If you buy a dress on your Visa card or organize a consortium to buy a company, the same thing happens—debt creates money. In every transaction, there’s profit to be taken off the top.
The number one industry in America today is the money business—debt swapping. In a closed economy, that might have a positive effect, as people look for something to do with their money.
But there’s a hole in the bucket. The hole is called globalization.
I’m writing this on a Mac. When I bought it, the money went through American Express (which took a few points) to Apple’s headquarters in Cupertino, California, where Steve Jobs dipped in his ladle, then the rest poured out though the hole in the bottom to China, where it was actually made.
That’s the economy that the statistics describe.
Lots of money is moving. As it passes through the company, the company profits. The company isn’t going to build anything, so profits are spent on executive compensation. The actual work is outsourced (the money flows out), and no jobs are created. Nor does the actual business grow very much either, except as a middle man, taking American money and passing it on to foreign businesses (and oil producers).
At the same time, this creates downward pressure on normal working people.
Remember those old movies, with 200 men at the factory gate? A foreman inside with three jobs to give out, saying, “You. You. And you. The rest of you, go home.” Those three didn’t demand health insurance, pensions, or job security.
Now it’s India, Bangladesh, Malaysia, the Philippines, Mexico, Honduras, China, Korea, and many others at the gate. American companies tell their workers they have to be competitive. Not only do wages go down, but benefits begin to disappear.
This may be bad for America as a society, but it keeps inflation from wiping out the profits that are made from a debt-and-credit economy. The money people love it.
If we are to invest public funds—through government borrowing or spending—we have to be aware that rich people running around with bags of money won’t necessarily do what is good for the wealth of our nation. They may run us into bankruptcy, the way the smartest guys in the room ran Enron into bankruptcy.
