Saturday, October 26, 2013

10 Reasons the US Economy Appears to be Stuck in Close to Neutral

us unemployment 
The following article appeared about 4 months ago in The Guardian but it is as relevant today as it was then. Obviously such a daunting list of issues is not easy to deal with. Comments that do not reflect a thorough reading of the article will not get credit for posting.
More than five years after the great recession hit, the US economy is still sputtering. The government revised GDP growth figures down last month to a meager 1.8% for the first quarter of this year. It doesn't take a PhD in economics to understand why: we have a demand problem. And we have a demand problem because the vast majority of consumers – aka workers – are not earning enough to pay for healthcare, education and retirement, let alone all the other stuff stores and service providers have to sell.
The reality is that we're hollowing out the middle class by wiping out well-paid jobs with benefits and replacing them with low-wage ones that often lack them. That's damaging not only to people who are living on smaller paychecks – or who are indeed unemployed – but also to the health and viability of the overall economy.
No matter what New York Times columnist Thomas Friedman and his followers say, we are not living in a "sharing economy". We are living in a zero-sum economy – in which a handful of investors and owners win at everyone else's expense.
But ultimately, it will catch up with investors, too. The US economy is engaged in a vicious cycle in which low-wage jobs and under-employment stimulate little demand, giving companies little reason to hire workers. Would-be workers then get discouraged and drop out of the workforce. They lack money to buy things, so consumer spending sags and companies don't hire or offer raises to workers they know they can keep. Repeat.
So, sorry Friedman et al: you can strain your brains for as many offbeat ideas and back-of-taxicab discoveries as you like, but the only way to break the cycle is to ensure everyone can work – and that those workers get more of the fruits of their labor. Until we address the following 10 problems head-on, the idea that the economy is truly recovering will remain a fantasy.

Problem 1: wages are falling

The recession caused a giant drop in consumer demand, but the culprit wasn't just a loss of housing wealth. Wages for most workers are either stagnating or declining. In fact, real median wages fell by about 2.8% between 2009 and 2012. That's bad for workers and bad for the economy. It's also insulting because the drop happened even as productivity increased 4.5%. So much for the sharing economy.
What's worse, lower-wage workers – who are already struggling to keep up – saw bigger declines than those in the middle and higher end. Those earning between $10.61 and $14.21 per hour saw real wages drop by 4.1% on average.
As Reuters' Felix Salmon points out in his crafty analysis of the data, hairstylists and cosmetologists earned $12 an hour on average in 2009. But by 2012, they earned just $10.91 an hour – a drop of more than 9%. Restaurant cooks lost 7.1% over the same period.

Problem 2: the middle class is losing ground and getting hollowed out

The most recent census data shows that while a small group of rich people are getting richer, the middle class is taking a serious beating. US median income fell to $50,054 in 2011, the most recent full year in which that data is available. That's down 8.1% since 2007, just before the great recession started. Overall, median income has fallen 8.9% from its peak in 1999. Meanwhile, the middle class is shrinking, as many Americans slide down the economic ladder – the very inverse of the American dream of economic mobility.

Problem 3: McJobs are taking over

The economy is shedding good jobs, which are increasingly replaced with low-wage, often part-time jobs. During the recovery, job gains have been concentrated in lower-wage occupations, which grew nearly three times as quickly as middle- and higher-wage occupations. State and federal governments, for example, have cut 835,000 jobs over the past four years – many of them middle-income positions.
Job growth projections show that this trend will continue. The healthcare, social assistance and retail sectors are among areas expected to add the most jobs by 2020 – all industries notorious for jobs with meager pay and poor working conditions. A lot of these positions will pay the federal minimum wage ($7.25 an hour) – the inflation-adjusted value of which has declined by more than 30% since the 1960s. That's not going to help the approximately 100 million Americans – one in three – either living in poverty or in "the fretful zone just above it", as the New York Times put it.

Problem 4: capital is hammering labor

Again, so much for the sharing economy. Workers' wages as a percentage of the economy just hit another all-time low. In other words, corporations are now paying employees less than they ever have done, as a share of GDP.
At least in the short term, less for workers means more for corporations: corporate profits as a percentage of GDP are now at an all-time high. Big companies are hoarding cash at historically high levels – not using it for investment, hiring, pay raises or even to reward shareholders. Last time I checked, hoarding is the opposite of sharing. Again, it's a zero-sum economy, and workers are losing. Badly.

Problem 5: unemployment is twice what they say

Our official 7.6% unemployment rate is bad enough, but the real number is actually about twice that. Buried in the monthly jobs report, you'll find what's called the U-6 figure, which includes the unemployed, plus those "marginally attached" to the labor force (that is, they want a job but have largely given up looking), plus those working part-time but who want a full-time job. The U-6 number for June 2013 was an astonishing 14.3%, up half a percentage point from May.

Problem 6: America is going part-time – and not for fun

In staggering numbers, more Americans are working part-time – but not because they want to. These involuntary part-timers now number more than 8.2 million – an increase of 322,000 workers from May and almost double the number this time five years ago. It's the highest it's been all year, and the trend line is going in the wrong direction.

Problem 7: workers aren't working

Here's another way of looking at under-employment: fewer working-age Americans are working than at any time in the past three decades. That is, the employment-to-population ratio has collapsed. In June, the ratio was 58.7% – a drop from 63% five years ago, before the recession hit. Of course, workers sitting on the sidelines aren't collecting paychecks, meaning they have much less to spend.

Problem 8: union wages are harder to come by. Much

There is power in a union. There's also a higher wage. In 2012, the median salary for a unionized worker was about $49,000, as opposed to about $39,000 for their non-union counterparts. But fewer and fewer workers are earning union salaries. Thirty years ago, one in five US workers were union members; now, it's about one in 10.

Problem 9: the cost of college is skyrocketing

Higher education in the US is becoming an unaffordable luxury. By conservative estimates, the cost of a college education is now 50% higher than it was 30 years ago. Public colleges and universities are cheaper, but not cheap enough. As states cut funding, the cost of attending a four-year public institution has risen by 5.2% each year of the last decade. Student loan debt in this country now exceeds $1tr.
Upon graduation, debt-saddled young people face a fierce job market; youth unemployment has hovered around 16% for the last year and a half. The conundrum is that, although college degrees are exorbitantly expensive, they're increasingly necessary to even get in the door for a decent job.

Problem 10: inequality is getting worse

It's well-known that the US ranks near the top of most unequal countries in the developed world – and that income inequality here has reached its highest levels since the great depression. A few statistics fill out the bleak picture: the top 1% of earners took 93% (pdf) of the income gains in the first full year of the recovery. The poorest 50% of Americans now collectively own just 2.5% of the nation's wealth.
What level of inequality is healthy for a society may be debatable, but an increasing number of economists and regulators – including those at the IMF and Federal Reserve – are recognizing that US-style inequality is bad for business, and the economy as a whole.
As these experts are starting to realize, the recovery will only come when workers get their due. Until then, American corporations are sowing the seeds of their own destruction – and taking the rest of us down with them.


Colby Stover said...

The issue of demand has led to a large economic crisis. People are no longer making enough money to be able to pay for things such as healthcare, education, and retirement. One of the current economic issues is that wages are falling. People are earning less money and are less willing to pay for good and services causing a problem in demand. Another problem is the fall of the middle class. The rich are getting richer causing a gap in the middle class. The middle class is only going to shrink as this continues. Also, the economy is shedding good jobs and replacing them with low-wage, part time jobs. Corporations are also paying workers less than ever. This too is harming the economy because people are making less and less money. This forces people to save more money and cause them to spend less on current goods and services, contributing to the problem of demand in America. Another major problem is the increase in the cost of college. College's are becoming more and more expensive which is harming the economy. More and more people are going to college now, making standards tougher than ever. This forces colleges to raise the price of tuition. By the time you get your diploma, you'll be in more debt than ever before. The other major issue is that there are no new jobs due to the rise of part time jobs. This makes it difficult to even obtain an average job, which may have been considered a "good" job 15 years ago.

Kenneth Reilly said...

This article addresses a problem that is very dangerous to the US. The growth of real GDP is currently at around 1.8% . This poor growth is not helping the economy as a whole and the income for middle class is currently dropping while the big companies are sucking in all of the income for themselves without distributing it to other parts of the companies. Workers who are in massive amounts of debt from a college education are now also struggling to find a decent paying job. This problem is only getting worse as the price for college is reportedly increasing by 5% each year. This all directly affects how much money consumers are willing to spend on goods. As income decreases, consumer expenditures are decreasing, making businesses less profitable, businesses are laying off workers because of the loss of profit. The income problem trickles down the entire economy and everyone is being negatively affected by it. This problem is leading to more minimum wage jobs because of the inability to find a job that they specialize in.

Matt Corrie said...

This article discusses a major problem with the United States economy today. The real GDP is growing at a rate of 1.8 percent. This is awful because people are no longer able to pay for things like healthcare, education and retirement. Goods and services are also not being sold at a high enough rate because people's income is falling making their demand for these products decrease. This is creating problems in our middle class system because the rich are getting richer and it is creating a bigger gap in the middle class. Big businesses are making all of the money without an even distribution throughout all parts of the companies. As income keeps decreasing the amount of expenditures and purchases the consumer makes will also decrease. This causes the economy to suffer and this is putting the united states into a bigger economic hole than it was already in.

Matt Corrie said...

This article discusses a major problem with the United States economy today. The real GDP is growing at a rate of 1.8 percent. This is awful because people are no longer able to pay for things like healthcare, education and retirement. Goods and services are also not being sold at a high enough rate because people's income is falling making their demand for these products decrease. This is creating problems in our middle class system because the rich are getting richer and it is creating a bigger gap in the middle class. Big businesses are making all of the money without an even distribution throughout all parts of the companies. As income keeps decreasing the amount of expenditures and purchases the consumer makes will also decrease. This causes the economy to suffer and this is putting the united states into a bigger economic hole than it was already in.

Anthony Rocco said...

This article discusses how the economy and the GDP are not getting better, but in reality they are actually falling. The 10 problems listed in the article give a in-dept prospective of what is actually going on in the economy and not what people are covering it up to be. Some key points of the article is that a majority of the working force today is only working part-time. That is not good at all because it wont allow the workers who actually want to work have a solid living. When people work part time they are barley or not getting enough money to live. Another key point is how the unemployment rate really isn't the 7% that the government says, but it is actually around 14% when you take in account the people who wanted to look for jobs but just completely stopped because they had no luck looking for them. Another point is the "Mcjobs" that are around. So many of the jobs today are very low income jobs like Mcdonalds and other restaurants and jobs like that, that the people working have a lot of trouble making a living, which is just making the middle class smaller and smaller. Since the recession the middle class has dropped dramatically, which is not good for the economy at all. Even though there are still some rich people getting richer, the ratio of people making money to people struggling is immense in todays day. Thomas Friedman is trying to say that the economy is a "sharing economy". This statement is completely false because the gap between the rich and the poor is immense, with the rich having about 70% of the income in the country, and mind you that the rich is the smallest of the 3 social classes. When you have big corporations hoarding money and not using it to pay workers and create new jobs is definitely not a "sharing economy". This problem needs to stop and the economy needs to get back up on its feet before the nation crumbles to pieces.

Ashleen Ulysse said...

I found this article about some reasons for the fall of the economy and its GDP. I found it really interesting how all economists are saying that the GDP is at about 7% when in reality it is actually about double that at 14%. Also another issue discussed in the article is the issue of a lot of Americas working part time by force rather than by choice. And the problem with that is their income limits them form spending money which benefits our economy. I found it weird how Thomas Freidman is trying to present an idea of our economy being a "sharing economy" but its far from the truth. Just like in one of the articles on this blog we saw the huge and the continuing growth in the gap between rich and poor and the lack of empathy for the growing poor community. We see that this rich hold 70% of the wealth. We see that the higher up corporations are hoarding money that benefits them in every way while the lower class is still suffering. And another thing I can definitely relate too is the extremely high cost of a college education.

Nicholas Beato said...

Based on the article it seems that the problem for why many consumers cant afford healthcare, education and retirement is because as a country, we have a serious demand problem. I agree however with what the New York Times Columnist Thomas Friedman states in the article in which the economy is a Zero-Sum economy. Its true that there are a selected few that win at the expense of others. Due to the recent recession the salaries of consumers are dropping. While the wages are being deceased, the consumers demand seems to also be decreasing. The middle class seems to be shrinking while the rich are getting richer. The economy is cutting down on good jobs. The article stated that the state and federal government have cut over 850,000 jobs which is a crazy amount of jobs. The U-6 unemployment rate is at 14.3% which is actually twice what they say it is. I feel that the government needs to make jobs for people or the unemployment rate will continue to increase in an astonishing way. More and more people are working part-time, almost 322,000 workers since May. Jobs don't seem to want to pay it employees full time. Workers that are involved with unions make almost $10,000 more then non-union workers. The fact that the United States higher education is 50% higher then it was 30 years go which makes paying off college loans even more difficult for kids that have parents not being adequately compensated. Although colleges are a huge expense its necessary to get your foot in the door and a degree will help tremendously. Based on the article the U.S. is ranked near the top in the developed world in income inequalities. I believe the economy will turn around when workers start getting the pay that they deserve so they can put it back into the economy.

Mary O'Shea said...

This article discusses the major problems with GDP today. The reason it took, and is taking is so long to pull out of the great recession is because we have a demand problem. We have this demand problem because consumers are bearly making ends meet, let alone having extra money for anything else except for essentials. I agree with Thomas Friedman's opinion, that we are not living in a "sharing economy." Just as we read about in the previous article, there is very little empathy given from the upper class. Investors and owners win, as they make 70% of the wealth, while the other people struggle to make ends meet. I strongly believe that the only way to change the cycle is with what the article states - everyone must be employed. This would stop the falling wages, the middle class losing ground and getting hollowed out, etc. What really struck me while reading this article was that the majority of workers only work part time. Not only this, but we have been lead to believe that the unemployment rate was 7% when in reality, it is 14%! If we do not fix this viscous cycle of unemployment and demand shock, our economy will only inevitably slump into another great recession.

Anthony Caronia said...

All working members of my immediate family fall into the two demographics outlined by problem one. We experienced a decrease in wages, as well as a decrease in median income (problem 2). As for problem 3, I work in retail. The more minimum wage jobs that are added, the less my wages could potentially become. It isn't in our nation's best interest to keep fabricating minimum wage jobs with which no one can pay for anything. This is one of many causes of the imbalance between demand and income.

Dominic Gomez said...

The facts given in this article are very worrying. For starters, the already-high unemployment rate does not include the people who dropped out of the work force,, so the amount of people who want a job, but do not have one is higher then the unemployment rate suggest. What I found even more worrisome and even appalling, is the growing gap between the rich and the poor. I do not understand why the government does not increase the minimum wage to at least $15 an hour? doing that will not only help the people at the bottom, but it will also increase demand, because people have more money, which will, in turn, create more jobs. It could also lessen the magnitude of income equality since raising the minimum wage will mean that business owners will have to give more money to their employers. In my opinion, it is little changes like these that the government could make that could get us out of this recession.

Matthew Ramos said...

This article makes ten very thorough arguments on why our economy has slipped into what is called a “Zero-Sum Economy”. Real Income has been decreasing as the quality of jobs plummet and full-time positions seem as if they are being replaced with part-time positions. While this is happening, housing has increased, along with food, college tuition and many other products. It seems that the middle class is losing from both ends, the real income is decreasing and everything else is becoming even more expensive. I believe this is a huge reason why many workers have become discouraged, therefore dropping out of the labor force. In Economics we are taught that the business cycles are periods of sustained economic growth, and periods of recessions. In these periods of Economic growth I think that the unemployment rate will stay the same even though more and better jobs will be created. In a period of economic growth of course more jobs will be created, but as the demand for workers increases, so will the amount of unemployed individuals due to the people that re-enter the labor force, and the percentage of unemployment will stay the same. It seems that the “Zero-Sum Economy” is a vicious cycle that is going to be a challenge to turn around in the future.

Kenneth Belle said...

All ten arguments are very valid. But there is one more main argument that hasn't been revealed, which is the fact the government is basing their decisions off of personal gain rather than what is best for the economy. This relates to the last argument that inequality is getting worse, it states that the U.S. is becoming one of the most unequal countries out there. And one of the reasons why is because of the greed from other people. Basing their objectives off of the "which would help them more in the long run.

Kristoff Kolodko said...

This article makes ten good points on why the United States economy appears to be stuck in this close to neutral position. With wages falling recently at 2.8% it is getting a lot harder to pay for things like college if you want to try and improve your your education to find a better job. But, with the unemployment rate at 7.2% it is still hard to find a job. This rate isn't even 7.2 but it is supposed to be doubled because it does not taking account for people who want a job but have largely given up looking. To try and fix all of this companies need to stop hoarding cash and invest it back into the economy. Big companies have billions of dollars that they could use to increase wages to help out people who earn that median income so that our middle class doesn't completely disappear.

Maria Biondi said...

This article talks about the U.S economy and the problem with it. If we can ensure that everyone has a job then the viscous cycle. Also, the pay of jobs from 2009 to 2012 has decreased quite significantly. Another problem is the middle class has dropped by over 8%. The reason for this is the economy is losing many jobs and replacing them with part time jobs or minimum waged jobs. As time goes on things are becoming more expensive and the job pay is gradually decreasing. This is a problem for the U.S because it looks like it will be a continuing trend. The only way for the economy to repair its self is for larger corporations and businesses to share the wealth and for their to be more job availability and higher wages for the middle class.

Christina Sassone said...

This article discussed a major problem in the US economy. The author explained how the economic gap between different social classes is increases due to wages. Since wages are decreasing, people are less willing to pay for goods and services. This is causing a decease in the demand for healthcare, education and retirement funds. It was very shocking to me to find out that economists say the GDP is 7% but in reality it is 14%. OUr economy is decreasing every minute, and it is the consumers that are suffering. As the wages drop the consumers have to sacrifice more and more of there goods and services.

Rich Gordon said...

Since the beginning of the Great Recession, people have lost their jobs or their wages have decreased greatly. This is a horrible thing for the U.S economy. The United States has a demand problem. People are afraid to go out and spend money because mostly they do not make enough. The gap between the rich and the poor is growing out of control and this is detrimental to our economy as a whole. Our countries workforce is now leaning on part time work. This is not good. Part time work does not put the food on the table for most families. A lot of people that had great jobs now work part time making 7.25 an hour. How is someone going to support themselves and maybe a family with this? Hopefully in the future more jobs are created with much better pay. This is the only way to spring our economy back to the power house.