The Associated Press produced what in the South they would call an interesting story this week asserting that this abysmal recovery is really a good thing because it will produce a more “durable” economy. As the economic thinker Samuel L. Jackson says in Pulp Fiction, “Well, allow me to retort.” (With seven charts).
• “Fewer people are piling up credit card debt or taking on risky mortgages. This should make growth more sustainable and avoid a cycle of extreme booms and busts.”
This is a classic of using selective statistics. In fact, total consumer debt is higher than ever:
• “Banks are more profitable and holding additional cash to help protect against a repeat of the 2008 market meltdown.”
Yes, but the Too Big to Fail Banks are now bigger than when they helped drive us to the edge of a second Great Depression. And were rescued by the taxpayers. Note the increase after the 1999 repeal of Glass-Steagall:
Not only that, but they are back to most of their derivative gambling having used their massive political clout to water down Dodd-Frank. Profits and executive compensation remain tied to excessive risk-taking. The largely unregulated shadow banking system, including hedge funds and private equity, is more powerful and dangerous than ever. So it takes a leap of faith to believe we are protected against a repeat of 2008.
• “More workers hold advanced degrees. Education typically leads to higher wages and greater job security, reducing the likelihood of unemployment.”
Unfortunately, given continued high unemployment, a college degree doesn’t guarantee the return it once did. It’s still better than no degree. But the entry wages for new graduates are horrible, making it difficult for them to ever catch up. Meanwhile, student loan debt, mostly financed by the federal government, is at a record $1.2 trillion and almost 7 million Americans are in default.
• “Inflation is under control. Runaway price increases would be destructive. Low inflation can lay a foundation for growth.” Hmmm. Let’s parse this. “Inflation is under control.” This is because the economy narrowly escaped a deflationary spiral and still remains mired in a liquidity trap where even short-term interest rates of zero can’t achieve full employment.
“Runaway price increases would be destructive.” Sure, but it’s not the 1970s. The inflation hawks have been proved wrong again and again. Our danger is being like Japan over two decades (without the universal health care and high-speed trains). Relatively stable prices for consumers don’t matter when most wages are stagnant or even falling.
“Low inflation can lay a foundation for growth.” Yes, but not when so much demand was destroyed in the Great Recession and has never been recovered.One can argue over whether this is “secular stagnation” or not. But it is a distressing new development in the U.S. and any assessment must take it seriously.
Federal “austerity” has made things much worse. Note below how increased federal spending helped cushion the severe recession of 1981-82. Not now. With cheap interest rates, it’s been an ideal time to invest in infrastructure, research and advanced technologies that would more than repay their costs. Instead, D.C. has done nothing, setting the table for future decline in American innovation and productivity. As bad are House GOP threats to shut down the government and even default on U.S. debt, which would trigger a global depression.
• “Millions who have reached retirement age are staying on the job. This lessens the economic drag from retiring baby boomers and helps sustain consumer spending.” Many are staying on the job because they lost so much savings in the corrupt busts of 2001 and 2008. But with job growth historically weak — two job seekers are after every open position five years into recovery — the boomers who should have been able to retire are arguably keeping out other job entrants.
The big picture is even worse. Partly because of boomer retirements, but also because of the very weak labor market, labor force participation is lower than it has been in almost 35 years:
This is only one piece of a larger problem. Most jobs created in the recovery have been low paying. Large numbers are among the long-term unemployed — most will never make up the income they lost. Part-time employment has risen to record highs. Job creation has not kept up with population growth. When even an outfit like Wal-Mart is struggling with earnings growth consumer spending is stagnant at best:
Finally, the story never mentions the worst inequality since the Gilded Age. The chart below shows the Gini coefficient of income distribution and how it has risen since 1970. The higher the ratio, the greater the inequality. The Gini index for western Europe, Canada, Australia, New Zealand is much lower.
Nor does it deal with historic levels of industry consolidation, which hurt job creation and communities. Nor does it address the economic and societal costs of rent seeking by the 1 percent.
This is not the foundation for a durable economy. It is a toxic combination that will make a healthy, widespread recovery more difficult and the next downswing even more destructive.