Talk of recession.
We might or might not be in one. If we’re not in one, one might or might not be coming. But we are officially talking about it.
Most of the talk is warm and reassuring. Which is a good trick, considering the subject. According to NPR, the Wall Street Journal, the Washington Post, and the New York Times, the economy is just fine and dandy, it just needs a few twitches and tweaks. Monetary policy! That’s the answer! The Fed will cut the interest rate. George Bush will come in with a new stimulus package (tax cuts, tax cuts, make my tax cuts permanent!) and Nancy Pelosi (the Queen of Effective Politics) will come out with her version (tax cuts, tax cuts!). And it will be fixed.
The general public is much more concerned. We were concerned even before this talk of recession.
Why do regular folks feel different than the pros?
Because they live in different economies.
The politicians, the pundits, and the economists live in, or serve the people who live in, a world that’s awash with money. Trillions of dollars are floating around, growing and growing.
But the average person makes about $75 dollars less a week than back in 1973 (source: Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense [and Stick You With the Bill] by David Cay Johnston). The price of gas and heating oil has doubled in the Bush years, medical costs have gone up about 80 percent, education costs more, local taxes are up, pensions have disappeared, Social Security is threatened, and, worst of all, we don’t expect our children to do better than we have done.
The Bush Administration inherited an incredibly wealthy country with a very sound economy.
They looked upon it with the mentality of oil men. They saw a great big puddle of money that could be pumped into the pockets of themselves, their friends, and their contributors.
They dressed their policies in the clothing of free-market ideology so that it would look respectable—sensible and even idealistic—when it went on TV.
They needed to change that wealth into cash.
They could not, for the most part, literally sell off our assets. Besides, that’s old fashioned. What they did instead, was borrow against them.
Taxes were cut, primarily for the wealthy and in ways that favored unearned income (dividends, capital gains, inherited money) over earned income, that stuff you have to work for.
Meanwhile, they spent lavishly. Insofar as possible, spending was directed to favored businesses: pharmaceuticals, insurance, banking and financial services, and, of course, big oil, for whom they spent a trillion dollars to take over an oil-rich nation.
While this made certain people very rich, it also created a huge debt. The debt is owed by other people. The nation as a whole. Us.
The theory under which these policies were sold is that the rich are the investor class. (Conservative columnist Bob Novak calls them “the most creative class.”) The more money they have, the more they will invest in new businesses. That creates wealth and new, better jobs. Everyone prospers and the nation grows stronger.
That’s not what happened.
The economy, as measured by the GDP (gross domestic product, the sum of all transactions) did “grow” by 35 percent. That’s what the White House and the tame media all talk about.
Corporate profits hit record highs.
If the economy grew and profits were high, we would expect that the value of America’s businesses would have grown. One way to get a picture of that is to look at the stock market, which displays the market value of the country’s top, publicly traded companies. For example, in the Clinton years, the Dow Jones Average increased by 325 percent. That’s wall-to-wall, after the dot-com bubble burst.
After seven years of Bush, the Dow Jones is up a mere 10 percent. Adjusted for inflation, that’s flat, or even a loss.
Median income (what the average person earns), is down.
Job creation in the private sector has barely kept pace with population growth.
If the “growth” in the economy didn’t create more value in our businesses, did not raise our incomes, did not create new jobs—where is it?
There is a magic number called the M3.
The M3 money supply measures all the money in circulation. The M3, already growing fast, took off like a rocket. Conspiracy theorists will be delighted that the Fed stopped publishing the M3 in 2006. But if the trajectory is followed, it is clear that it accounts for the growth in the US economy.
Probably all of it. Or damn near.
The only thing that grew was the amount of money.
The moral of the story is that throwing more money to rich people—especially when there’s already lots around—does not improve the economy.
The rich don’t know what to do with it. They just put it in real estate. The most passive, unproductive investment imaginable.
Can it be fixed?
If we regard the economy as a social institution and a source of America’s strength, then the answer is yes. It requires raising taxes, especially on the wealthy and on corporations, balancing the budget, getting rid of excess privatization, creating energy independence, and investing in both physical and social infrastructure.
To do that we have to switch—in the upper echelons of politics, punditry, media, and economists—from blind worship of the mythical free markets to the practicalities of socially conscious regulation. Or the people have to rise up with a great cry of “This is ridiculous, do something sensible.” The last time that happened, it took a market crash and the Great Depression to get us there.
Back when Clinton the Husband ran against Bush the Elder, he had a sign over his desk to remind him what the campaign had to concentrate on. It said, “It’s the economy, stupid.”
The Republican candidates all think the economy is hunky-dory and promise more of the same. But at least one of the Democrats should stop being a corporate whore in search of campaign donations long enough to get hold of a crayon and piece of cardboard and remake Bill’s old sign. But none have yet.
“It’s the economy, stupid.”