Why Economic Green Shoots May Be Greatly Exaggerated
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It’s spring, finally, and who doesn’t like to talk about green shoots? But happy reports to the contrary, it’s not quite time to look for a blossoming economy – unless you happen to be in the 1 percent. Several signs indicate that the hardships wrought by the Great Recession are far from over for the rest of us.
The economy added 227,000 jobs in February, making it the third month in a row that payrolls increased by more than 200,000. That’s got a lot of people doing a victory dance. But there’s also this: for first time in six months the overall unemployment rate didn't budge, remaining stuck at a lousy 8.3 percent.
As Nobel laureate Joseph Stiglitz put it recently in the Financial Times, Friday’s job report reveals that the U.S. labor market is "a shambles.”
The number of working-age Americans who have a job increased slightly to 58.6 percent, but Stiglitz pointed out that the much-touted uptick was only 0.1 percent -- nothing to jump up and down about. We’re still dealing with the crappiest number since the '80s downturn. Twenty-three million Americans still want a full-time job but are unable to land one. Meanwhile, black workers are saddled with 14.1 percent unemployment, and the rate for Hispanics is 10.7 percent. People with less than a high school diploma face 12.9 percent unemployment. For those between 16 and 19, the report shows a 23.8 percent jobless rate. And if you are young and black, the rate is a staggering 34.7 percent.
2. The Eurocrisis
In order to stablize their economy, the eurozone leaders have to get government revenues up. That ain’t gonna happen without a return to substantial growth in economic output. And you can’t get growth when you’re taking money out of the pockets of consumers through austerity measures.
The Greek economy contracted by 7.5 percent in 2011 and 2012 will mark the fifth year of what can safely be called a depression. As Marshall Auerback put it, “Things will get a lot worse before any inkling of growth will emerge out of the ashes.”
Auerback also explained to AlterNet that the great flow of interest payments on eurozone debt is not going away. The problem for eurozone countries is not the stock of debt outstanding but the tide of payments they have to cough up to service that debt. Auerback added that the Europeans stuck with the bill for economic problems caused by global elites are far from Happy Campers:
"Stay tuned for revolts in Ireland, Spain, Portugal and Italy as their populations demand to have their public debts wiped off in the same way as Greece, even though such a default does not solve the problem because they are all following austerity policies. The problem for the EMU nations is that they cannot exploit the exchange rate adjustment to trigger a revival in net exports and are instead attacking the remaining sources of growth – private spending capacity and the fiscal capacity of the national government. The austerity will undermine the capacity of the private sector to mount a revival in spending for years to come.”
Long and short: As economic output shrinks, tax revenue falls and welfare outlays rise. Things like unemployment benefits, which are necessary in a contraction, add to deficits, which, given the borrowing rules that governments have stuck themselves with, also push the public debt ratio up. Austerity programs not only destroy standards of living and social standards, they also typically fail to reduce public debt ratios and usually increase them.
Unless leaders can stand higher deficits, they aren’t going to get higher economic growth. That’s the paradox that endangers the eurozone, and its effects will be felt in the U.S. if the austerity hawks continue to have their way.
3. Housing Market
Consumer confidence in the housing market is still pretty weak. Home values are currently down by an average of a third from their 2006 peak, which, as Robert Reich noted, makes consumers feel poorer. When home prices drop, he recently explained, consumers can’t use their homes as collateral for new loans. And, despite low interest rates, people find it hard to refinance.
Rental prices are up, and some say this is a good sign for the economy. Others warn of a rental market bubble. Historically, rents aren’t supposed to rise as home values falling, but according to a forthcoming report from Zillow.com, that’s just what’s happening. In Chicago, rents were up 9 percent annually while home values were down 10 percent. This leads market watchers to wonder if the rental prices are going to suddenly take a dive.
And then there’s the mortgage settlement agreement, which, in addition to being a mere slap on the wrist to banks that conned consumers, will do little to stop foreclosures.
Bottom line: if the housing market can’t recover, the economy can’t recover. And there are some who say that the market has yet to even reach the bottom.
4. Economic Inequality
During the downturn, wages have not kept pace with inflation, which has made U.S. inequality worse. And beyond alarming income inequality, there is an inequality of wealth that increases the divide between the 1 percent and the 99 percent.
As Robert Reich warned: “Corporate profits are up but the money isn’t flowing to American workers. The ratio of profits to wages is the highest on record – since the government began keeping track in 1947. Not only has the median wage continued to drop, adjusted for inflation, but a far smaller share of working-age Americans is now employed (58.6 percent) than was employed five years ago (63.3 percent). Today’s employment-to-population ratio isn’t much higher than it was at its lowest point last summer, when it dropped to 58.2 percent.”
Basically, the wealth gap is continuing to grow. Reich believes that a surcharge of 2 percent on the super-wealthy (those owning more than $7.2 million in assets) is long overdue. But we certainly won’t be hearing any GOP candidates advocating this idea.
So what to make of it all? The truth is that the U.S. economy remains in a very precarious position. Rising oil prices have begun to further darken economic forecasts. The situation will only become more threatening if GOP budget-cutters are allowed to drain more money from the pockets of ordinary people while advocating ridiculously low tax rates for the wealthy and for big corporations. Fundamental changes in the way we approach our economy have yet to happen, and that keeps real prosperity out of reach for most.