There are signs that this economy is recovering from the worst economic collapse since the Great Depression of the 1930s - recovering, but ever so slowly.
Home prices have partially recovered since the collapse of prices. Housing starts have risen. The number of people employed has risen, and the unemployment rate has fallen - slightly. Labor productivity has risen. And stock markets have risen dramatically.
With the rise of home prices, there are far fewer mortgages "under water." Rising home prices improves the asset side of household balance sheets, increasing household net worth. That's all good.
Rising employment is good for obvious reasons. And rising labor productivity creates the opportunity for greater profits and rising wages, obviously all to the good.
Rising stock markets increase the net worth of stockholders, creating a "wealth effect," again, all to the good.
So, with this good stuff happening, why is the economy recovering so frustratingly slowly? And why are people so pessimistic?
There are good reasons for pessimism - for employers reluctant to hire and for consumers to be cautious. And these reasons have little or nothing to do with federal deficits and taxes, the whipping boys usually conjured up by myopic critics.
There are caveats to each of the above positive signs. Let's take a look at them.
The recovering housing market
Even though housing prices have partially recovered, the effects vary by region. And there still are many mortgages still "under water," making it difficult for owners to sell, move to another location, and/or upgrade their housing. And even with low interest rates, many would-be buyers find it hard to qualify for a mortgage. Lending standards have justifiably become stricter than during the era when anyone with a heartbeat could qualify. And even those who are in the market sometimes have to compete with cash-rich syndicates that are buying up housing on the cheap, with the motive of selling higher later.
Rising employment
Even though more people are being hired, many of these jobs are either part-time or low-wage jobs without benefits. Many of our previous manufacturing jobs have been sent off shore and outsourced. Although some manufacturing is coming back to the U.S., many of our previous manufacturing jobs, the lifeblood of much of the middle class, have been lost forever.
Rising labor productivity
Increases in labor productivity are necessary for increased returns to labor - a necessary but not sufficient condition. This nation has enjoyed rising labor productivity for decades. But the fruits of this have for the last several decades accrued to top management and stockholders, not wage earners. Real incomes, that is, adjusted for inflation, for most workers have remained essentially flat for at least three decades. If median incomes had kept up with our growing economy, middle class incomes would be far higher than they are today. Higher incomes would have resulted in higher spending, creating market demand and incentive for firms to employ more workers.
Rising stock markets
Higher stock prices mean greater wealth for stockholders. This creates what economists call a "wealth effect," encouraging greater willingness to spend. However, most Americans do not hold a significant share of their assets in stocks. Only about 52 percent of adult Americans own any stock at all, including in retirement funds. About 35 percent of stocks are held by only 1 percent of Americans. The top 10 percent of wealthy Americans hold 80 percent of the nation's stocks. In other words, most Americans watch the increase in stock prices from the sidelines.
So, although there are signs of recovery, justified pessimism remains. In a nutshell, the reason for the slow recovery is that during the past several decades, the American middle class has been decimated, and the working poor left out in the cold. While incomes of the vast majority of Americans have stagnated or even declined, incomes of the upper 1 percent, and especially the upper one-tenth of 1 percent have skyrocketed.
The American economy has always done better when the middle and working classes have shared in the gains from economic progress. Even many Democratic politicians have been slow to raise issues of income distribution as a major factor in the economic health of the nation. But they are light years ahead of Republican politicians who still are in total denial on this issue.
Economists, journalists and politicians who raise issues of income distribution are often accused of waging "class warfare." And apologists for the existing system rail against "taking from the rich and successful and giving to the sloths." That is a totally disingenuous way of framing the issue.
The entire economy improves when labor shares in improvements in labor productivity. Currently, the system is rigged. The deck is stacked - from a political system that is driven by money to an economic system that rewards corporations for off-shoring and outsourcing manufacturing jobs, and awards the largest tax breaks to our richest citizens.
Apologists cite the tremendous responsibility of CEOs for managing a fortune 500 corporation. Yes, it must a stressful job. But the American post-WWII economy and its corporations did very well when the ratio of the CEO pay to the guy on the shop floor was about 70 to one - as opposed to the current ratio of three or four hundred to one.
When CEOs get consistent annual double-digit percentage increases on top of multimillion dollar salaries while the working stiff gets a 1- or 2-percent increase on a $40,000 income, well, what's wrong with this picture?
Just as a disease must be properly diagnosed in order to cure it, the reasons for this anemic economy must be recognized if rational discussion and correct prescription is to occur.
It's no mystery. The increasingly lopsided distribution of income is a major reason for the anemic recovery of this economy.
- John Waelti's column appears every Friday in the Times. He can be reached at jjwaelti1@tds.net.
Home prices have partially recovered since the collapse of prices. Housing starts have risen. The number of people employed has risen, and the unemployment rate has fallen - slightly. Labor productivity has risen. And stock markets have risen dramatically.
With the rise of home prices, there are far fewer mortgages "under water." Rising home prices improves the asset side of household balance sheets, increasing household net worth. That's all good.
Rising employment is good for obvious reasons. And rising labor productivity creates the opportunity for greater profits and rising wages, obviously all to the good.
Rising stock markets increase the net worth of stockholders, creating a "wealth effect," again, all to the good.
So, with this good stuff happening, why is the economy recovering so frustratingly slowly? And why are people so pessimistic?
There are good reasons for pessimism - for employers reluctant to hire and for consumers to be cautious. And these reasons have little or nothing to do with federal deficits and taxes, the whipping boys usually conjured up by myopic critics.
There are caveats to each of the above positive signs. Let's take a look at them.
The recovering housing market
Even though housing prices have partially recovered, the effects vary by region. And there still are many mortgages still "under water," making it difficult for owners to sell, move to another location, and/or upgrade their housing. And even with low interest rates, many would-be buyers find it hard to qualify for a mortgage. Lending standards have justifiably become stricter than during the era when anyone with a heartbeat could qualify. And even those who are in the market sometimes have to compete with cash-rich syndicates that are buying up housing on the cheap, with the motive of selling higher later.
Rising employment
Even though more people are being hired, many of these jobs are either part-time or low-wage jobs without benefits. Many of our previous manufacturing jobs have been sent off shore and outsourced. Although some manufacturing is coming back to the U.S., many of our previous manufacturing jobs, the lifeblood of much of the middle class, have been lost forever.
Rising labor productivity
Increases in labor productivity are necessary for increased returns to labor - a necessary but not sufficient condition. This nation has enjoyed rising labor productivity for decades. But the fruits of this have for the last several decades accrued to top management and stockholders, not wage earners. Real incomes, that is, adjusted for inflation, for most workers have remained essentially flat for at least three decades. If median incomes had kept up with our growing economy, middle class incomes would be far higher than they are today. Higher incomes would have resulted in higher spending, creating market demand and incentive for firms to employ more workers.
Rising stock markets
Higher stock prices mean greater wealth for stockholders. This creates what economists call a "wealth effect," encouraging greater willingness to spend. However, most Americans do not hold a significant share of their assets in stocks. Only about 52 percent of adult Americans own any stock at all, including in retirement funds. About 35 percent of stocks are held by only 1 percent of Americans. The top 10 percent of wealthy Americans hold 80 percent of the nation's stocks. In other words, most Americans watch the increase in stock prices from the sidelines.
So, although there are signs of recovery, justified pessimism remains. In a nutshell, the reason for the slow recovery is that during the past several decades, the American middle class has been decimated, and the working poor left out in the cold. While incomes of the vast majority of Americans have stagnated or even declined, incomes of the upper 1 percent, and especially the upper one-tenth of 1 percent have skyrocketed.
The American economy has always done better when the middle and working classes have shared in the gains from economic progress. Even many Democratic politicians have been slow to raise issues of income distribution as a major factor in the economic health of the nation. But they are light years ahead of Republican politicians who still are in total denial on this issue.
Economists, journalists and politicians who raise issues of income distribution are often accused of waging "class warfare." And apologists for the existing system rail against "taking from the rich and successful and giving to the sloths." That is a totally disingenuous way of framing the issue.
The entire economy improves when labor shares in improvements in labor productivity. Currently, the system is rigged. The deck is stacked - from a political system that is driven by money to an economic system that rewards corporations for off-shoring and outsourcing manufacturing jobs, and awards the largest tax breaks to our richest citizens.
Apologists cite the tremendous responsibility of CEOs for managing a fortune 500 corporation. Yes, it must a stressful job. But the American post-WWII economy and its corporations did very well when the ratio of the CEO pay to the guy on the shop floor was about 70 to one - as opposed to the current ratio of three or four hundred to one.
When CEOs get consistent annual double-digit percentage increases on top of multimillion dollar salaries while the working stiff gets a 1- or 2-percent increase on a $40,000 income, well, what's wrong with this picture?
Just as a disease must be properly diagnosed in order to cure it, the reasons for this anemic economy must be recognized if rational discussion and correct prescription is to occur.
It's no mystery. The increasingly lopsided distribution of income is a major reason for the anemic recovery of this economy.
- John Waelti's column appears every Friday in the Times. He can be reached at jjwaelti1@tds.net.
