The Worst Economy Of Our Lifetime

As we get closer and closer to the primaries and the general Presidential election voters will pay more and more attention to the presidential race. In addition, voters will start to make decisions based on issues that are important to them. While the Iraq war is sure to be one of those issues, the economy may become the stealth issue of the election. There are plenty of reasons for this. But the two most obvious reasons are the worse record of job creation in the last 30 years and stagnant median income.

First, a word about which time frame to use when describing this expansion. According to the National Bureau of Economic Analysis, the trough of the last recession occurred in November 2001. However, the Bush administration has repeatedly used the spring of 2003 as the starting point of the expansion for the simple reason this is when their second wave of tax cuts was implemented. The Republicans slavish devotion to the mantra of "tax cuts pay for themselves" requires them to move goalposts whenever it suits their political ends.

However, there are several reasons why using the Republican's measure is wrong. First, the Republicans completely forget they passed tax cuts in 2001 which failed to provide the panacea they promised. The bill started cutting tax rates in 2002 - not 2003 as many commenters have claimed. In fact, tax revenues decreased after the passage of this bill from $994.3 billion in 2001 to $793.7 billion in 2003.

In addition, the Republican argument that their tax cuts are completely responsible for post 2003 growth completely ignores the impact of interest rate policy in the national economy. As this chart shows:

The Fed started cutting the Fed Funds rate in 2001, lowering it near 0% by the end of 2001. Standard economic analysis gives interest rate cuts a lag time of 12-18 months. That means these cuts had their maximum impact in the Spring of 2003 when the economy started to really take-off.

But finally, let's look at the "explosion in tax revenue" the Republicans claim their tax cuts generate. Here is a chart from the St. Louis Federal Reserve which shows the year-over-year percent change in tax receipts. Notice that in the 1980s and 2000s there is no meaningful difference in the percentage change in tax receipts when compared to non - supply - side policy years. In other words, supply-side tax cuts don't provide a meaningful difference in tax receipts when compared to non-supply side years.

Now that I've spent far too much time debunking the latest Republican lies about the economy (on of the joys of living in a talk radio fact free world), let's move on to the reason this is the worst economy of a generation.

At the center of this issue is the incredibly weak job growth of this expansion. Here is a chart that breaks down job growth of the last 5 expansions into a per month figure. Notice that this expansion has the worst record by far.

Here are two other charts from the Big Picture which show the weakness of job growth.

This chart shows the percent growth of jobs for months 29-78 of the last four business expansions. This is the range of months where we are currently in the latest cycle.

This chart shows job growth in the last business cycles that lasted at least as long as the one we are in now.

The bottom line is clear - this expansion ranks last in job creation by a wide margin.

And weak job growth has lead to weak wage growth. Here is a chart from the Census Bureau that shows real median wage growth for the last 25 years. Notice that median income is down for this expansion.

Let's stop right here because at this point we have a lot of information that explains public concern about the economy. First, the economy just isn't creating that many jobs when compared to other expansions. That leads to factor number two - declining median family income. When you put those two factors together you get unhappy people. Jobs aren't as plentiful as they were in previous expansions and people aren't getting raises. That alone is enough to cause widespread discontent. This is why this "greatest story never told" (according to Larry Kudlow) polls so poorly with people. The Republicans are convinced they need better PR. But their PR doesn't stack up to what people are seeing on the ground around them and in their bank accounts. And no amount of PR is going to turn that situation around.

Comments

[RGT17]

Corporations do not pay their fair share of taxes any more. Forty years ago their rate was much higher, more akin to what every working person paid. However today they pay much less than individuals. Back then they claimed they needed less taxes to invest and create jobs, and improve their bottom line. Yeah they did all that...... overseas. It 's time Americans demand that Americans build these products even at higher wages and costs. In the long run it's better for all of us Americans and America. We don't need all the "toys" we got anyway, and I'd rather my fellow Americans were prospering.

[Sundialsvc4]

There are "lies, damn lies, and statistics." I don't think that we can really understand what is happening here just by looking at macro-economic statistics.

Let's look "micro." Let's look at the man on the street... who IS, by the way, "out on the street."

The factory that gave his village local employment has failed to turn itself into $250,000 condominiums. He used to drive a truck to pick-up goods at Los Angeles harbor to drive them to Wal-Mart, but with diesel fuel prices topping $3 a gallon it's cheaper to stay home and draw unemployment; which he does.

Inflation is rampant, even though the economists stopped actually using that word in the 1970's.

He's paying the highest interest rates he's ever seen, and banks raise his interest-rate to rates higher than the Mob charged during the Depression -- for no reason at all. Why? Because the banks are bankrupt.

It's not going to be a "quick fix" to solve this problem, yet we ARE talking about one of the largest countries on the planet and an industrial base -- although presently IDLE -- that could be mobilized again.

But "the things that make a well-placed person stupendous amounts of money" are not what puts a factory back into working-order, trains the local populace, and so on. No, that takes WORK.

[llozano]

I appreciate you insight into the issue of our present economy. The stuff we get as economic news is mostly just a reading of the days stock market's ups and downs. Rarely do we get an in depth look at how this is impacting the rest of us that don't invest in the market and are not reaping the rewards of ever higher market closings. Most of us as you state are more interested in day to day economics and stability, like is my job going to be hear next year?, will prices stay at a level where I can afford to feed and house my family? Will my children have a better life than I had? Will I end up in debt because of a catastrophic illness or a sudden crash in the market? I am happy that someone is making themselves rich, I don't hold it against anyone; I just worry that for many the American dream is just a dream.

[coloneblog]

If the unemployment rate is 4.7%, doesn't it mean that illegal immigrants working here have not had an impact; it would seem that even with 10's of thousands of illegals working here we are close to full employment. Or is our government cooking the numbers?

[SublimeRage]

You're right. Let's go back to those "better" days of the late 70's.

Oh wait, we had with double-digit unemployment, double-digit interest rates, and double-digit inflation back then.

Unless by "our lifetime" you mean anyone born after about 1982. Oh but hold on once again, the '92 recession still beats out today's in all three categories.

Hmmmm, I guess if you're were born after 1992, then yes: this is the worst economy of your lifetime. I hope all those hard-working middle and high school students just trying to put food on the table are coping.

[NicoleAnonymous]

I don't understand all the graphs but I agree with your point although unemployment is still very low.


I'm dreading the holidays. I wish we didn't think buying presents for ourselves was somehow an appropriate way to celebrate this holiday but you can't get around it because children will always remember you as the only relative who didn't send them a present.

[MEM71]

http://www.youtube.com/profile?user=wildfancylady

[mrcontinental]

Excellent post as always Bonddad. Some of us can handle the truth and appreciate your efforts in providing these charts for general consumption.

[ibsteve2u]

If you ask me, we should eliminate taxes for all Republicans - and strip them of their citizenship and kick them out of the country, since there ain't no free lunch.

[Mytigodess]

From where I am standing, I do not see the glass as half full. My husband and I have been making the same ballpark income for the past 7 years. This year when we filed taxes we made $3000 less even though we put in more hours to make it.

The US dollar is so weak that even the Canadian dollar is worth more. Canadians recently had to file a lawsuit on US car manufacturers who refused to sell them cars in the US. Big corporations trying to milk more money out of the consumer while ripping off Canadian consumers and stiffing the sales people who could make some money buying their products.

This economy has rules that only favor the rich. Everyone else can go to hell. The politicians don't care because they are taking money from the ones getting rich from the loopholes they make in the laws.

[RetMsgt]

Every, and I mean every business has the obligation to maximize profits and keep costs at a minimum. Without this principal, businesses simply fail. In this analysis, where is the cause of such business principals such as lean manufacturing, total quality management and technological advancements? Also, to point at the 60s-80s is folly as prior to this time, there were serious shortages of skilled labor in the marketplace. With women flooding the labor market and doing jobs that only men previously did, the numbers of jobs created skyrocketed.
If you're going to criticize, at least give some semblance of a solution. Don't just point your finger and scream REPUBLICANS! The key to real job growth and economic expansion is smaller government, entrepenural encouragement and extensive education of the masses in subjects like math and science.
This Congress is the worst in this nations history. And I'm not just talking about Dems. Republicans had 12 years to give us real tax reform, Social Security reform and other meaningful legislation. Instead they didn't have the guts to strike down Democrats continuous blocking of legislation by changing the rules back to a simple majority instead of 2/3. Dems first act as the majority? Change the rules back to a simple majority vote.

[Truthortradition]

I'm dumbfounded to hear people in America still state that our economy is strong, despite all the evidence to the contrary.
I remember Bush and his republican oil barons bragging for several years about how great our economy is and the proof of that lie was, "More Americans own homes than any other time in our History." Bush would say that over and over and then grin---and it made me want to vomit.
I knew then it was all based on a house of faulty cards. The fact is, our economy is bust the same way the real estate industy is bust, yet, people still don't get it. Chalk another one up to Carl Rove. The American oil barons who fund the Republican party are a hard enemy to defeat, no matter how many times they screw us.

[Kajur]

This article is to some extent misleading! It doesn"t take into account that 12 to 15 million jobs went to illegals. That our economy is losing up to 50 billion a year transferred abroad.
That family income is dropping down every year for last 40 years, in spite that number of working women went from 17% to 75%. Most important, mean value of some of these statistics is even worse. Take 3% off from top and the bottom, and picture is much bleaker. What"s missing, is a steady decrease of real pay per work hour for average worker. Missing also is average value of wages of those new jobs, specially in last 30 years.
That would show better than anything THE WORST ECONOMY OF OUR TIME!

[Troubledgoodangel]

American economy today is like "the old lady that has fallen and cannot rise"! Had this been wartime, many economists, Allen Greenspan included, might have been condemned to a firing squad for endangering the Nation's life! Why is America waiting to produce electric cars and atomic plants? I had proposed years ago that the car batteries could be charged with the wind displaced by the cars! No response from neither Ford, nor GM! Or take the wind power. Why don't we triple the wind energy generators? Even Argentina, despite being petroleum self-sufficient, has more wind power than ourselves, in Patagonia. And what about destilleries? Can't we learn something from the Thirld World countries or from the "banana republics"? Just look how beautifully they manage their energy! Argentina destiles it's own oil in Lujan de Cuyo at a model plant. Her electric energy comes from atomic plants. All this myopia of our leaders and planners, beginning with the econonists, is mindboggling! We killed 23.000.000 million unborn, after Roe v. Wade, and we are now complaining that we do not have manpower! We refused to drill at ANWAR, apparently to please the Saudi King, so he could sell more! We disbanded the Iraqi army, driving it underground! We then spend half trillion to dislodge them from their hideouts! Shame on the people who run our business and our Nation! We need more action and more resolve! China is awash with our money, and our purses are empty! Americans in Europe sleep in third rate hostels where the Europeans refuse to live!I have no home and no money for gasoline. I have not a penney saved, and arrive at the end of each month with a few cents of a dollar!In the meantime, I hear that the Chinese have built their own Eifel Tower, just because they do not know what more to do with our dollars! Should not Americans like myself come first? Let the American People have their say! Let the poor raise up!

[DanielJP]

Why are we in debt? Why is their a trade defict? Why is the dollar worth less amd less? Because we have nothing to trade. All our factories are closed and gone to either Mexico and now China. When was the last time You or any of us actually bought a TV, Microwave, Coffee maker, clothing,a computer MADE IN THE USA? We need to rebuild, retool, reopen our factories and remake the products once again. And reemploy not downsize everytime a company needs to show a profit.We foget the lesson if the depression. We are basing our ecconnomy on the stock market. A house of cards. We need a house of bricks.

[Truthortradition]

If the Demcrats want to get the elderly vote, they need to stress over and over and over and over again that this year, recipients of Social Security got the smallest cost of living increase in history. That is clear writing on the wall that says if you leave it up to the Republicans to call all the shots, you will be screwed. The Republican oil barons will leave retired folks on the street to starve to death, just like they left people in that stadium in New Orleans. It's a given.

[ScottGregory]

This analysis is based on government stats - Look at the real stats, http://shadowstats.com, the economic statistics recalculated without the political massaging of the past 25 years or so. the data is much much. Inflation is running at annualized 10.4%. Unemployment is 12%. The GDP is actually contracting when the true inflation figure of 10.4 % is used rather than the "spin" job of CPI-U.
This country is going into a hyperinfaltionary depression fixable only with FDR type command mechanisms and a return to the regulated market economy we had prior to 1981. And steeply progressive taxes on large personal incomes.

[smokinlu]

You can pull out 1000 charts, but everyone out there with eyes open sees the economy is strong. Of course there are problems, but live in Germany or France for a year and then talk to me about the dire straits of our economy.

[hellinabucket]

"voters will start to make decisions based on issues that are important to them" Unfortunately there are still 30%+- (morons that vote) who rate Bush favorably. Their pastor & talk radio told them to vote for Bush. And considering that only 40%+- make it out to vote & the electoral college we may be totally f*cked (again).

[JohnCitizen]

THE SUPPLY-SIDE SCAM

The George Bush $3 trillion dollar tax giveaway to the rich over the past 6 years has been a disaster for average Americans. Supply-side (trickle-down) economics is a bogus theory promoted by those who benefit from it. In a mature capitalist system, supply side never rules, it is always the demand side of the equation that governs growth and well-being. Think about the 1930s Depression, General Motors had plenty of supply, but demand evaporated.

Previous U.S. economic downturns have been cured with only $200 billion in tax cuts targeted to the middle class, because the consumer (the great middle class and 2/3rds of the economy) spends that tax cut and primes the economic pump. But George Bush has raised the debt that our children and grandchildren will have to pay from almost $6 trillion to over $9 trillion for current economic growth (i.e. we all get trickled on, as the rich spend some small fraction of their gains). Unfortunately, this supply-side growth has been largely and uniquely without wage gains, and so has shrunk the middle class that makes America strong and great. Also, this growth has already ended ($3 trillion flushed down the toilet and gone!), as the FED has had to cut interest rates because recession looms.

Corporations (the supply side) are now loaded with cash, but there is no place to spend it because they do not see any demand. So many corporations are using that cash to buy back their stock - WOW, supply side is wonderful in how it fulfills our needs (NOT)?? Meanwhile, no demand indicates that the middle class is slowly being tapped out, as home values (most of their net worth and the credit card of last resort) are stagnant or falling in price, and a considerable number of homeowners are heading for foreclosure. With the rich-poor divide increasing, we are headed toward previous shining examples of trickle-down economics: South America of the recent past and feudalism in the Middle Ages (South America and feudalism also had no wage gains!).

[BennyFactor]

Why do we act as if the economy is separated from the society? Our leaders are leaders of the the military, the economy and, most importantly (my opinion) the American society. We criticize compartmentalization in personal relations but worship it in our economy and I don't know why.
We need to start measuring economic success, not merely on how high the watermark is, but on how many of our country's boats are floating and how many are sinking. Whether we liked his behavior or not, president Clinton (the great compartmentalizer) was steward to an economy that not only broke the ceiling on the stock exchange, but floated many, many more boats than either of his Bush bookends.
Today the stock market is booming and about 5 people are benefitting, while 300 million are sinking like stones. This is not good for American society and it weakens us in the world.

[montemalone]

You forgot to mention that the jobs that are being created (to replace those that have been offshored or downsized) are at lower wages.
A new job that pays less than the job it replaces is not good.

[PerryWhite]

When considering family income, you are ignoring that family size has gone down.

If this is the worst economy in your lifetime, then you weren't alive during the Carter administration.

[missette]

The New York Times had an eye-opening article in Sunday's paper about how the places that have not suffered economic woes, largely because people there did not assume risky mortgages, are college towns - Madison, Wisconsin; State College, Pennsylvania, among several others. Now, these towns are largely known to be liberal in politics, and are thriving - ironically because they believe in what would in normal times would be considered conservative lending practices - sufficient down-payment on fixed-rate loans that the parties can afford. Basically common sense. The "anti-regulation" Republican-dominated towns throughout the land meanwhile are suffering on the backs of loans that merely encouraged new homeowners to gamble, not invest, for the quick profit of those who did not have the homeowner in mind and had no stake in the community. (The article added that many if not most mortgages in these towns were covered by local "It's a Wonderful Life" type banks.) A Republican "conservative" economy is based on deceptive, once illegal, practices that are reckless and merely intended to gain quick profits for a few. Very Third World actually. An old lesson being learned once again - those who truly care about the communities they do business in lead better economies. One banker in a college town in Virginia went so far as to say her prosperous, stable town resembled what middle America used to look like.

[wsblake]

Exactly right. Supply side economics does not now nor did it ever work for a prolonged period of time. You don't have to be a Harvard MBA to understand that giving tax cuts to only 1 percent of the population, instead of to 90 percent of workers and the middle class, does not expand the economy. The wealthy hoard the billions in extra money, while workers spend it- its as simple as that. A consumer economy relies on spending- and that only comes when working people have money to spend. It's called demand-side economics- and it works. You're right with your other point as well- any growth under Bush has only come through the Feds lowering of interest rates- the lowest ever- and we will pay dearly for that policy with inflation and massive amounts of personal debt- which will only weaken spending in months and years to come.