ABC News has an interesting piece on why the booming US economy doesn’t translate into a positive economic outlook for the average American. It is somewhat mysterious – unemployment is very low (4.7%), economic growth is high, and wage growth is steady. By all accounts, the average American worker is exceptionally well off – despite all the worries about outsourcing, 2.3 million jobs have been added to the US economy since August of 2003. Even tax revenues have gone sharply upward. So why is there such pessimism over the state of the economy?
Gas prices are certainly part of it, as they have the largest instant psychological impact. People don’t immediately see a fluctuation in GDP growth, but the second prices at the pump go up $0.05 everyone in the country notices. However, SUV sales are still strong, and people don’t seem to be cutting back on consumption, which suggests that filling up is nowhere near painful enough to warrant people changing their habits. It’s been estimated that $4/gal gas would have a significant impact on people’s habits, but $2.50-$3/gal doesn’t seem to be forcing people to take much action.
If jobs and gas aren’t the issue, what else is? The ABC article mentions debt as being one factor. High levels of credit card debt and home equity debt is altogether too common in this country – if you can fog a mirror, you can get a credit card these days. It’s exceptionally easy for someone to get in over their heads, and payday loan/car title loan shops prey on the financially weak. This would certainly put a squeeze on the average consumer, even if all they have is a few grand in credit card debt.
Of course, the media plays a role in all of this too. Remember in 2004 when Bush was responsible for “the worst economy since Hubert Hoover”? Either the US economy has made a miraculous recovery since then, meaning that Bush’s policies did more than the New Deal in a faster amount of time, or that whole line of argumentation was a crock. It doesn’t take a genius to figure out which scenario is the most likely. However, the media narrative of imminent doom never really went away – part of it is due to our natural sense of pessimism, part of it is because good news doesn’t garner good ratings, and undoubtedly part of it is due to the political biases of the media – any news which might give the Bush Administration credit isn’t likely to make it through the ideological blinders of the mainstream media.
The new Treasury Secretary Henry Paulson, formerly of Goldman Sachs has his work cut out for him – the US economy is doing very well, but we’ve also gone through one of the lengthier periods of economic growth in recent times – and what comes up must come down. Not only that, but Paulson is going to have to combat that sense of economic pessimism, which is a difficult job in itself. John Snow, Paulson’s predecessor at the Treasury was an able economic steward, but a very poor salesman. Paulson’s position as the former CEO of Goldman Sachs means that he’ll have much more influence over the markets than Snow did. Paulson’s not the showy type, but he is the sort of person who can make an effective Secretary of the Treasury.
The US economy is performing exceptionally well, and nearly every sign of growth and success bear that out – but because the Bush Administration hasn’t fought back against the pessimism of their critics in any real, that negative public perception is hurting Bush’s approval ratings. Paulson will have a difficult job in combating that perception, but at least the Bush Administration seems to be willing to combat the problem.
I have no credit card debt. I don’t believe in credit cards. But still I live paycheck to pay check, on a combination of retirement Social Security and SSI. I retired in December, 2005. I had worked for a Department of Labor job for about 3 years and never did get above minimum wage—-Is that good economy? This is also with the aid of Housing assistance, and food stamps, which don’t cover the whole month. The reason big shots don’t think the unemployment rate is high is because they only count the ones that are collecting unemployment. Also I don’t see any high wage jobs around here other than the professional people. My son-in-law makes about $9.50 an hour working 30-40 hours a week, has a disabled son who gets SSI and for a family of six they make can’t afford to pay more than $550.00 a month rent, they only get $30.00 a month in food stamps, and with that many kids it wouldn’t pay for them to hire day care so that my daughter could work and help out. Show me the good economy—I don’t believe anything that comes out of the current administration or most of the news.
“and wage growth is steady”
Only if you pretend inflation doesn’t exist. Thankfully for Republicans, pretending is what they do best.
“Either the US economy has made a miraculous recovery since then, meaning that Bush’s policies did more than the New Deal in a faster amount of time, or that whole line of argumentation was a crock.”
While factually correct, the Hoover analogy was certainly hyperbole. As I’ve stated repeatedly, statistical economic growth figures on corporate spreadsheets are not gonna be taken seriously when the average household recognizes that their own crushing level of personal debt is symbollic of the public and privately-held debt responsible for expanding this unsustainable bubble.
Furthermore, the paranoia of our race-to-the-bottom global economy is no longer limited to those smelly blue-collars on the other side of the tracks like most people convinced themselves back in 1993. Americans whose collars are blue, white, yellow, and brown now realize that it’s not a matter of if their job goes to China or India, but when. Most Americans realize it’s not a matter of if the hyperinflated costs of health care and higher education will be priced beyond their ability to pay for it, but when. And most Americans realize it’s not a matter of if their increasingly shaky financial standing will be insufficient to pay for basics such as housing, child care, and retirement, but when.
As Joanie eludes to, fewer people are feeling the effects of the “good economy” and more are living paycheck to paycheck than at any time in modern history. At country clubs across America, stuffed shirts are wringing their hands why the Republicans aren’t being lavished with praise for Bush’s economic stewardship. As I’ve said before, I really hope the Republicans run on the “economy has never been better” theme to show just how out-of-touch they are.
If a Democrat was in the Oval Office the economy would be lauded as the best in 50 years.
The MSM has a interest in a negative anti-Bush drumbeat that they will put-out 24-7.
And no, there aren’t black helicopters flying over my house. 😉
Except wages were also relatively flat throughout the 1990s – mainly because of non-wage compensation like insurance, stock options, etc. So don’t try to pin this all on Republicans, since it has nothing to do with any sort of government policy and everything to do with an economy in which prices fell while wages held steady – which is why you had Paul Krugman complaining about a deflationary spiral.
Furthermore, wage growth is at its highest level in 5 years this quarter to boot…
Except this isn’t on “corporate spreadsheets”, it’s on the overall economy. The numbers don’t lie.
And the argument that people are going into debt because the government is too? Ridiculous…
Unemployment is at 4.7% – probably below the natural rate. Outsourcing is an bugaboo, nothing more.
Which is utter bullshit. There is no evidence that money is a significant barrier to college attendance to most – the biggest barrier is the failed public education system that doesn’t prepare students for the real world – a system held in place by the liberal orthodoxy, I might add.
Again, wages are increasing faster than the rate of inflation. Prices for common consumer goods remain low compared to wages. Unemployment is at 4.7%. GDP growth is skyrocketing. The Fed is increasing interest rates to keep the economy from overheating.
Pure and utter bullshit. During the first Clinton term the poverty rate peaked at nearly 15% – yet more people are living “paycheck to paycheck” now? How stupid do you think people are? You honestly mean to argue that more people are living “paycheck to paycheck” now than in the early 1980s when inflation was near double digits? That doesn’t even begin to make the slightest bit of sense.
This is what separates real economists from dilettantes. Real economists look at facts and figures, not sob stories. No economy can prevent someone from having a personal disaster, and basing economic policies on a handful of anecdotes is idiotic.
“Except wages were also relatively flat throughout the 1990s – mainly because of non-wage compensation like insurance, stock options, etc. So don’t try to pin this all on Republicans, since it has nothing to do with any sort of government policy and everything to do with an economy in which prices fell while wages held steady”
Whatever you’re trying to spin here, the fact is that inflation ran just under 5% in 2005 while wage growth was 3.8%, a pesky little factoid that helped Barney Frank have a Perry Mason moment last month when former Treasury Secretary John Snow was trying to spin him.
“Furthermore, wage growth is at its highest level in 5 years this quarter to boot…”
Yet it’s still in negative territory in real dollars compared to 2000. Not exactly something to crow about.
“Except this isn’t on “corporate spreadsheetsâ€, it’s on the overall economy. The numbers don’t lie.”
But if 60% of Americans don’t believe the economy is good, you know, like they do right now, the numbers don’t matter. Simply repeating this argument doesn’t seem to be changing minds in an economy surrounded by anxiety. The “ownership society” is being rejected wholesale.
“Unemployment is at 4.7% – probably below the natural rate. Outsourcing is an bugaboo, nothing more.”
Again, I beg you–BEG you!– to convince Republicans to run on the great economy and how irrelevant outsourcing is.
“There is no evidence that money is a significant barrier to college attendance to most – the biggest barrier is the failed public education system that doesn’t prepare students for the real world – a system held in place by the liberal orthodoxy, I might add”
Right Jay. Tuition hikes of more than 100% in five years are not an obstruction for college-bound students, but teachers unions are. Good luck in selling that premise to college students facing another 30% tuition hike for 2006-07. Again, I BEG you guys to run on this theme in the campaign. “Money is not a barrier to college attendance”…..priceless elitist claptrap.
“Again, wages are increasing faster than the rate of inflation”
Only two weeks ago, John Snow got gobsmacked making that argument when the facts didn’t support it. He’s out of a job right now. Kind of an eerie precedent for those continuing to parrot the same falsehood….
“Pure and utter bullshit. During the first Clinton term the poverty rate peaked at nearly 15% – yet more people are living “paycheck to paycheck†now?”
During the Clinton years, welfare rates were much higher, along with statistical poverty rates. Today, welfare rates are virtually non-existent, but the ranks of the working poor have exploded. Employment has often raised incomes above the poverty level, but when you factor in the costs of child care and transportation, people are often poorer after they rise just above the arbitrary poverty line than they were when they were welfare mamas.
“You honestly mean to argue that more people are living “paycheck to paycheck†now than in the early 1980s when inflation was near double digits? That doesn’t even begin to make the slightest bit of sense.”
Perhaps if you looked at the size of the average blue-collar paycheck in 1980 compared to today, you’d realize just how much ground they’ve lost. The main employer in my hometown paid the equivalent to $68,000 per year in 1983 before the industry meltdown. Today, the median wage in the same industry is approximately $22,000 a year, but the average wage in my hometown is $19,000 per year. This is an extreme example, but even compare the value of the minimum wage of the early 1980’s compared to the minimum wage of today. What would $3.35 per hour in 1983 dollars be worth in 2006? $9 an hour? If you ever stepped outside of your bubble of privilege and Republican spin, you might realize that things aren’t nearly as good as what’s reported at the country club.
Except that isn’t even close to true. The US rate of inflation in 2005 was 3.2%, not 5%.
Again, that’s simply false. Real wages as defined by the BLS increased 3.19% between 2001 and 2005. Total compensation minus health care increased 10.20%.
Which is why economists don’t measure the health of economies by popular acclaim – and the reason for all the pessimism is that people like you and the mainstream media keep lying about the state of the economy. What is that about repeating a lie so many times that people start accepting it as truth?
Even in a state like South Carolina, Jim DeMint ran as a free trader against a protectionist candidate and won. Kerry tried to make outsourcing an issue in 2004 and it didn’t stick. People aren’t stupid, and protectionism is a political loser.
Except for the part where it is true. Did you not read the article I linked to? There is absolutely no evidence that cost is a significant barrier to entry to college – nearly every student who is academically prepared for college entry gets in, and financial aid is painfully easy to get. The cost of tuition only matters if you’re paying for college directly, and almost no one does anymore.
This is another example of the difference between someone spouting bullshit and making an argument. So far you’ve yet to come up with one argument that can’t be easily refuted with 30 seconds and Google…
The facts do support it. Inflation was less than wage growth in the previous quarter. I assume you’re capable of doing basic subtraction.
Furthermore, Snow’s departure has nothing to do with that, it’s been forecasted he would leave for some time now.
Except the causes for that have very little to do with economics and everything to do with personal choices. 70% of those making minimum wage are teenagers. Study after study has shown that being part of “the working poor” is a transitory condition. Incomes for minimum-wage workers typically increase 30% after one year of employment. 38% of households in the bottom quintile in one year advance to a higher quintile in the next year.
The reality of the situation is that if you want to cure poverty, more taxes and more government spending are the absolute wrong solution. 60-80% of poverty is caused by three factors: not finishing high school, getting pregnant before wedlock, and drug abuse. Unless you want to force everyone to finish high school, forcibly sterilize people, and crack down on drugs in a truly unprecedented way, no government program will make much headway against poverty.
Let’s, shall we?
In April 1980, the unemployment rate was 6.9% compared to 4.7% today, which means that the average worker has a significantly higher chance of having a job today then they did 26 years ago.
In April of 1980, the inflation rate was 14.73%, meaning that prices were incredibly high and things like buying a home or auto were prohibitively expensive. 26 years later, the inflation rate is 3.55%.
Between April of 1980 and April of 2006, the gas price/income ratio fell 16% – meaning that the price of fuel compared to one’s income is 16% cheaper than it was back then. Furthermore, fuel economy has dramatically improved as well.
Let’s use that $19,000/year wage. Using the CPI as a measure, a person making $19,000/year today would have made about $8,284.64 in 1980 dollars. The cost of gas would have been 16% higher relative to one’s income in 1980 than it is today.
By any measure, purchasing power, per-capita GDP, disposable income, etc., people are massively better off today than they were in 1980.
Strange, as I don’t belong to a country club, so I wouldn’t know what’s reported at one. By some measures of what constitutes being a member of “the working poor”, I’m one of them. However, unlike people who whine and demand Uncle Sam give them things, I realize that I have a very small amount of disposable income because I choose to live in a large apartment, drive a new car, and have an amount of debt relative to income that’s probably too large – and I’m rather careful of how much I spend. Someone who doesn’t bother to watch their spending can quickly get in over their heads.
None of that has anything to do with macroeconomic policy. The argument that Republicans are to blame for people’s poor life choices doesn’t even remotely fly with me. Like most liberals, you don’t bother to think about the economy in a logical sense.