'Green Shoots' of Recovery? Don't Fall for the Media's Economic Triumphalism

Amid the most painful period of economic turbulence in generations, a narrative has emerged that a handful of less-than-catastrophic economic reports represent the first "green shoots" of a healthy return to growth. 

When a slew of absolutely depressing economic data were released in late May, economist Dean Baker, co-director of the Center for Economic and Policy Research, wrote:  "these reports might have led to gloomy news stories, but... the media have obviously abandoned economic reporting and instead have adopted the role of cheerleader, touting whatever good news it can find and inventing good news when none can be found."  

In other words, the green shoots narrative should be met with healthy skepticism. New York University economist Nouriel Roubini -- who earned the moniker "Doctor Doom" for correctly anticipating the crash -- says that rather than "green shoots," we're seeing some "yellow weeds" emerging from the cracks of our shattered system, and argues that there's every likelihood that a "recovery" will mean several years of sluggish, below-average growth for the industrialized economies.

Most economists do agree that extraordinarily aggressive interventions by our government and those of other key countries -- whatever criticism one may have of their specifics -- have averted, for the moment, the worst-case scenario: a deflationary "death spiral" in which people don't spend, firms lay off workers and state revenues dry up just when they're needed the most, causing yet more austerity and more downsizing.  

But as New York Times' columnist Paul Krugman noted, those moves "make the conventionally minded uncomfortable, and they keep pushing for a return to normalcy." And there are a variety of stakeholders that have a vested interest in creating a perception that we're "returning to normalcy." Wall Street is trying to repay the government (but without letting the taxpayers off the hook for future losses) in order to escape limits on executive pay and other watery "conditions" attached to the public's largesse (Goldman Sachs' research department has been out front in shaping the green shoots narrative). The Obama administration is fending off conservative charges that his stimulus package -- of which only a small fraction has actually been spent in the four short months since Congress approved it -- is a failure. The Fed and other institutions are anxious about foreign investors' perceptions of the U.S. economy's overall health, and economic reporters and pundits are loath to admit that they've been sleeping with the fetid corpse of a dead economic paradigm known as Reaganomics.   

Moreover, much of the business establishment has an interest in heading off any attempt to fundamentally transform the economy. After all, when things go south in the 21st century, the big fish are protected -- they get a bailout.   

So we need to ask not only if a recovery is really over the horizon, but also what it might look like.   

Structural Imbalances Remain 

Consumer spending in the U.S. accounts for not only about 70 percent of American economic activity, but also about a sixth of the planet's. Gallup notes that consumer confidence is edging up -- thanks in part, no doubt, to all the talk of green shoots -- but (self-reported) consumer spending has plummeted by a whopping 41 percent compared to the same time last year.   

This is the culmination of a long-term problem. Most people's wages have not been stagnant in recent years-- it's worse than that. For more than three decades the real incomes of all but those in the top 10 percent of the economic pile have actually declined.