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

[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.

[dadw5boys]

Before Reagan the U.S. has steady job growth. After Reagan the U.S. has constantly lost jobs.

WAKE UP REAGAN'S POLICY WERE STUPID.

FREIDMAN'S ECOMONIC THEORY IS GREAT ON PAPER NOT FOR SOCIETY'S.

[janmB]

What a great article this is.
Kudos to this blogger.
When republicans need propaganda mills to SELL there is a WONDERFUL ECONOMY to our citizens --something has to be wrong with that notion. But when do republicans even have a CLUE these days to even figure that small detail out.

[deminmo]

The truth is the top 10% are making money. They
are in the $90,000 to $150,000 salary. The
next 85% are somewhere in the $65,000 to
$40,000 range and the rest are below $40,000.
The middle income bracket might have a couple
working, and the latter bracket might have
one wage earner working two jobs.

Because of US trade policies, jobs that pay in
the higher end are few and getting less every
year. In my area the average income falls in
the $25,000-$30,000 range and that means a lot
of people need assistance to make ends meet,
or they do without.

Bush and even Congress has not said where the
money will come from to pay down the debt for
the "wars" we currently are mired in. But my
guess is cutting a lot of social programs. I
am a single wage earner, luckily no dependants
and barely making ends meet, and I am in the
age area of "senior", but not old enough for
Social Security. We are going to have another
recession and it will be a bad one. How will
people continue to live?

[mmckinl]

Well said .

Two more points

- Median income while stagnant is adjusted for inflation using government numbers which by all measures are too low an inflation fiigure , so that the real income numbers are not stagnant but in decline.

- Income figures do not include the slashing of benefits such as health and pension. We see a post WWII low in the offering of these benefits and the cutting of these benefits at jobs that do.
.

[IntrepidReader]

People laughed at me for making dire predictions about what would happen if America put two oil men in the White House, but even I could have never imagined what Bush & Co. would do to this country.

I have to agree with the comment that people do not always vote their pocketbooks. I know people who drive secondhand cars, have no health insurance and haven't had any significant increase in salary in years. They do most of their shopping at Dollar General, Big Lots or other bargain stores, have cut corners wherever they can and yet still proudly spout the "conservative" line, quoting nutter right wing radio hosts and proudly voting for Republicans. They seem to do this because they think liberals are devils who will, er, take away all their prosperity and make them socialist.