Monday, August 10, 2015

The American Economic Decline Was Quite Predictable

Most Americans can feel it; even though the Great Recession has officially ended, things just aren’t getting better.

Household incomes are the same now as they were in 1995, after you adjust for inflation. That means that the typical American family isn’t any better off now than 20 years ago. This is likely why there’s so much interest in the minimum wage and income inequality issues right now.

Average hourly wages have been growing no faster than 2.2% a year — two-thirds as fast as usual. That’s hurting consumer demand, which drives 70% of our economy. Without adequate wages, people can’t spend enough to drive the economy to new heights.

Even falling gas prices haven’t encouraged more consumer spending, as had been predicted.

While unemployment may have fallen to 5.3%, over 6.5 million people work part-time jobs but want full-time jobs. That’s much higher than the roughly 4.5 million part-timers before the Great Recession began.

The official unemployment rate excludes 16.5 million people who are either too discouraged to look for work, or who can only find part-time jobs. The so-called U-6 unemployment rate, which does recognize these people, stands at 10.4%. That’s nearly twice the 5.3% U-3 rate the government and media typically reference.

Companies in the service sector (such as retail, health care and hospitality) account for about 80% of all US jobs. Unfortunately, most of them are low paying. That’s no way to build a thriving, middle-class economy. In fact, it’s why the middle class has been eviscerated.

Stagnant incomes have led to our economic decline.

The obliteration of the middle class has resulted in an economy that now just limps along, despite historically low interest rates and three rounds of quantitative easing by the Federal Reserve.

In other words, desperate measures don't really work anymore.

The US economy remains stuck at around 2% annual growth, well below our long term average of 3.3% annually. In fact, the US hasn’t topped the 3% mark in a decade — the longest such stretch in modern times.

America is not an export economy; we’ve long imported more than we export and have maintained a trade deficit since 1976, which is an albatross to our economy.

Instead, the US relies on domestic demand. Consumers must consume for the economy to grow at a healthy pace. But if consumers are squeezed financially (as US consumers have been for decades), consumption will weaken (as it has).

This is especially troubling for a nation with an $18 trillion national debt, that will not go away. Our debt is growing at a faster rate than the economy, meaning we cannot, and will not, grow our way out of debt.

That’s aside from the fact that economic growth is predicated on debt. No debt means no growth. It’s a nightmarish economic system.

Americans have grown quite pessimistic about our economic decline and about the future, particularly for their kids.

Most Americans say their kids will be worse off economically than they are.

The pessimism stems from high levels of student debt, the high cost of housing and the scarcity of well-paying jobs.

Sadly, social mobility has declined for the first time in generations.

In other words, the parents are right: their kids are worse off, except for the children of the wealthiest American families.

While corporate profits have reached all-time highs, wages have stagnated. This is greed of the highest magnitude, and it has only served the elite 1% who control our economy, and our politics.

There isn’t likely a happy ending to all of this until there is a very unhappy, turbulent ending to the current system.

Once there is a major crash — bigger than the last one, perhaps — then there will be an essential need to realign and begin again, with an economy that favors and builds the middle class, and one that provides ladders for the lower classes to join it.

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