Did you know there is an “official arbiter of when recessions begin”?
It’s called the National Bureau of Economic Research (NBER). It’s a “private, non-profit, non-partisan” organization. It boasts that 16 of the 31 American Nobel Prize winners in economics have been researchers there.
The president of NBER announced on March 15 that we are now officially in recession. He also mentioned that “it will last longer and be deeper than the last two recessions, which lasted only eight months from peak to trough. It could well be longer and deeper than the recession in the early 1980s that lasted 16 months.”
The reality—for ordinary people—is that the economy has actually been in recession since 2001. It began with an official recession. Which officially lasted but eight months. Then there was a “recovery.”
But it was a very peculiar recovery. It was a “jobless recovery.” The first ever. Somehow the economy had recovered, but the US continued to lose jobs in the private sector. Employment increased in the public sector, and people in the National Guard called up to service in the War on Terror were counted as employed. But even with that added in, there was actual job loss for several years.
In Bush’s second term there was some job growth, but not enough to keep pace with the increase in population.
Yet, according to the media—the New York Times, the Wall Street Journal, CNN, CBS, MSNBC—the recovery was “robust.” Unemployment was low. Growth was high. And they sang this refrain at least through the end of 2007. Not only were jobs being lost, jobs were paying less. Median income was declining. Nor did it ever turn around. From 2001 to 2007, annual average family income went down by over $1,000.
“This has never happened before, at least not for as long as the government has been keeping records. In every other expansion since World War II, the buying power of most American families grew while the economy did.” (“Economic Scene: For Many, a Boom That Wasn’t” by David Leonhardt, the New York Times, April 9, 2008)
There was another peculiarity, almost entirely unnoticed. The cost of living was going up. Medical care, higher education, gas, heating fuel, housing, and local taxes, all inescapable costs were going up. But the cost of living, as reported by economists, was going up a lot less, and, it was reported, inflation was low.
We’ve had two economies. There’s the one ordinary people live in. With declining wages, higher prices, and lowered expectations. The other was a boom in which the rich got much, much richer. How was that possible?
The administration determined to goose the economy by giving rich people more money by cutting their taxes without cutting the costs of government, indeed, while expanding government. The idea—and there are a lot of people who truly believe this—is that if you give rich people money, they will invest it in productive ways, expanding businesses or financing new ones, thereby creating more wealth and new and better jobs—all of which will generate new taxable wealth and so, in the end, more than pay for the deficits that are created.
The rich people, however, did not invest in new and exciting enterprises. They skipped that part. They simply sold the money, which was a lot simpler. That is, they put it in the “financial sector.”
Suddenly, the financial sector—banks, investment companies, brokerages, insurance companies, real estate funds, hedge funds, and the like—had an influx of money. So they went out and sold it aggressively. That is, they made it easy to borrow. The government was hand in glove with them, keeping interest rates low and deregulating and ignoring regulations. They sold debt.
There was a real estate bubble. That should have been a warning sign. Real estate is a passive investment. It is a signal that there is a lot of money around with no productive place to go. No businesses expanding. No hot new industries. No genuine growth. The real estate bubble is now routinely described as the root of our current economic problems. That’s not true. It’s a symptom.
Here’s the root of the problem. The Bush boom was created by borrowing against our personal wealth and our nation’s wealth:
• The national debt in 2001: $5.7 trillion
• The national debt in January 2008: $9.2 trillion
• Total consumer credit debt in 2001: $7.65 trillion
• Total consumer credit debt in 2008: $12.8 trillion
• Amount more Americans earned than spent in 2001: +2.3 percent
• Amount less Americans are earning than spending in 2008: -0.5 percent
• US budget surplus in 2000: +$236 billion
• US budget deficit in 2007: -$354 billion
• US trade deficit in 2000: $380 billion
• US trade deficit in 2007: $759 billion
—“State of the Union 2008: By the Numbers,” Reuters, 1/28/2008
The US economy “grew” by about 37 percent in the Bush years, about four trillion dollars.
Our national debt increased by three and a half trillion dollars. Our consumer debt increased by over five trillion dollars. In short, and in sum, it costs us at least eight and a half trillion dollars to “grow” the economy by four trillion.
Worse, that growth does not consist of new businesses, manufacturing jobs, improved infrastructure, better education, more opportunity, environmental improvements, alternative energy, or more consistent and affordable health care. The entire increase is a bubble, one that consists entirely of debt.
What’s really strange about this, as with so much that has happened in the Bush years, is that it has happened invisibly. Even now, the mainstream economists, the mainstream media, and our mainstream politicians seem completely oblivious.
Without some serious changes to the very fundamentals of how we handle our economy, it seems that some sort of serious crash is likely, perhaps inevitable.
Can the American theology of a pseudo free market magically change before that happens? Can reality enter the dialogue through an intellectual process? Or will reality have to kick us in the teeth before anyone wakes up?