Why aren't Americans being told the truth about
the economy? We're heading in the direction of a double dip -- but you'd
never know it if you listened to the upbeat messages coming out of Wall
Street and Washington.
Consumers are 70-percent of the American economy, and consumer
confidence is plummeting. It's weaker today on average than at the
lowest point of the Great Recession.
The Reuters/University of Michigan survey shows a 10-point decline in
March -- the tenth largest drop on record. Part of that drop is
attributable to rising fuel and food prices. A separate Conference
Board's index of consumer confidence, just released, shows consumer
confidence at a five-month low -- and a large part is due to expectations
of fewer jobs and lower wages in the months ahead.
Pessimistic consumers buy less. And fewer sales spells economic trouble ahead.
What about the 192,000 jobs added in February? (We'll know more
Friday about how many jobs were added in March.) It's peanuts compared
to what's needed. Remember, 125,000 new jobs are necessary just to keep
up with a growing number of Americans eligible for employment. And the
nation has lost so many jobs over the last three years that even at a
rate of 200,000 a month we wouldn't get back to 6-percent unemployment
But isn't the economy growing again -- by an estimated 2.5- to 2.9-percent this year? Yes, but that's even less than peanuts. The deeper
the economic hole, the faster the growth needed to get back on track. By
this point in the so-called recovery we'd expect growth of 4- to 6-percent.
Consider that back in 1934, when it was emerging from the deepest
hole of the Great Depression, the economy grew 7. percent. The next
year it grew over 8-percent. In 1936 it grew a whopping 14.1-percent.
Add two other ominous signs: Real hourly wages continue to fall, and
housing prices continue to drop. Hourly wages are falling because with
unemployment so high, most people have no bargaining power and will take
whatever they can get. Housing is dropping because of the ever-larger
number of homes people have walked away from because they can't pay
their mortgages. But because homes are the biggest asset most Americans own,
as home prices drop most Americans feel even poorer.
There's no possibility government will make up for the coming
shortfall in consumer spending. To the contrary, government is worsening
the situation. State and local governments are slashing their budgets
by roughly $110-billion this year. The federal stimulus is ending, and
the federal government will end up cutting some $30-billion from this
In other words: Watch out. We may avoid a double dip but the economy
is slowing ominously, and the booster rockets are disappearing.
So why aren't we getting the truth about the economy? For one thing,
Wall Street is buoyant -- and most financial news you hear comes from the
Street. Wall Street profits soared to $426.5-billion last quarter,
according to the Commerce Department. (That gain more than offset a drop
in the profits of non-financial domestic companies.) Anyone who
believes the Dodd-Frank financial reform bill put a stop to the Street's
creativity hasn't been watching.
To the extent non-financial companies are doing well, they're making
most of their money abroad. Since 1992, for example, G.E.'s offshore
profits have risen $92-billion, from $15-billion (which is one reason it
pays no U.S. taxes). In fact, the only group that's optimistic about
the future are CEOs of big American companies. The Business Roundtable's
economic outlook index, which surveys 142 CEOs, is now at its highest
point since it began in 2002.
Washington, meanwhile, doesn't want to sound the economic alarm. The
White House and most Democrats want Americans to believe the economy is
on an upswing.
Republicans, for their part, worry that if they tell it like it is
Americans will want government to do more rather than less. They'd
rather not talk about jobs and wages, and put the focus instead on
deficit reduction (or spread the lie that by reducing the deficit we'll
get more jobs and higher wages).
I'm sorry to have to deliver the bad news, but it's better you know.