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

[Paul]

You wanna send the economy a message: cancel Christmas in your house this year.

Give some money to charity, but none to Wal-Mart. Commercialism is a vulgar blasphemy on a sacred Christian observance. Have dinner with your extended family, go to church, but skip the gifts - you won't miss them.

50% of retail sales occur during Christmas season. Let the Chinese eat their own lead paint and screw globalization.

[Shortyfuse]

Thanks for the charts. I hope the democrats do not try throwing charts around. Boring. Just show shrinking paychecks. I remember the thing that got Clinton in office was putting the national debt up on road side signs. That would work again.
Anyone that has been to the grocery store lately knows the economy is crap. Inflation is here already.
" Globalize yourself " is the greedy cry of corporate media.

[ThomH]

The real news, confirmed here by Hale Stewart, is increasing inequality of income. This is well shown in a single chart of the so-called Gini index, which I found just recently in Tom Frank's book "One Market, Under God", published in 2000.

Also find it here:

http://en.wikipedia.org/wiki/Gini_coefficient

Before the Reagan-Bush I years, the US was below 4.0, along with most other developed economies. The US index began a long climb in 1980, pulling us out of the pack, declined in a few of the Clinton years, and is climbing fast again. In recent years US inequality has been exceeded only by Brazil and Mexico, with China climbing fast and recently surpassing us.

The somber thesis advanced by both Frank and now by Naomi Klein in "Shock Therapy" is that this growth in income disparity is an inevitable consequence of "free markets". That conclusion is supported by some unpleasant facts, including the ones explored here by Stewart.

Acceptance of this thesis by a significant number of "free market Democrats", including the New Economy techno-enthusiasts, would have profound political effects, and may well happen in this election cycle. After all, if the free market consensus of recent years does indeed lead to increasing productivity, but ALL the gains flow to only a few at the top, leaving everyone else behind, is that politically supportable?

All of a sudden, Dennis Kucinich doesn't look so far out after all.

[Mormondude]

If you're suggesting that the 2001 tax cuts caused revenue to drop, doesn't that mean that the 2003 tax cuts should ALSO cause revenues to drop?

Instead we see that since the 2003 tax cuts went into effect revenue has grown substantially every year.

If anything, your argument about the 2001 tax cuts simply shows that they were not deep enough.

[1will]

You cannot possibly say things are worse in America than in the Carter years. Maybe some of these kids in college will believe but some of us lived that period.

[realitytrumpsbull]

The old saying goes, 'figures don't lie, but liars figure', and so how much value is there
in an old saying? Well, depending on how things
go, which is not set in stone, there could be
more value in that statement than in some of
these mortgage-backed securities. Ah, security,
another old saying was that those that would
trade liberty for it deserved neither, and
increasingly, people are financially INsecure,
and on the treadmill for life, and falling
BEHIND. How's THAT gotta feel? Pretty crappy,
and you can attribute it to globalizationer,
runaway government spending, cloudy days,
dented pop cans, or just plain shitty and
dishonest management. I don't know about
anyone else, but I'm tired of being a
'human resource'. It's not my dream to live
in a cookie-cutter home in some overpriced
housing tract. Economy? How about Con Game,
run by con artists. Yes, that's right, the
nice green-eyeshade people, all that's missing
from the discussion on the economy is the
poker table, and the lady with the drinks.
What's REALLY going on? We're getting robbed,
again. Still. We've been being robbed for
decades, but are just now wising up to it.
And, that's no ACCIDENT, either.
The question is, 'will we learn anything, THIS
time'? Hmmm....

[Herrington]

I’m afraid the major problem with persuading people that low taxes do not benefit the economy is fear of the consequences of not drinking the tax cut Kool-Aid. And, the realty of shrinking job prospects and real dollar wage losses reinforces the notion that tax increases are a personal risk.

So the recession actually, politically, works in favor of the supply siders with the voting public on the issues of taxes. We can’t vote against lower taxes because we can’t even pay higher taxes. A political Catch 22.

This all plays out over such a long time that people who have been in the job market for 8 years, almost a third of a working lifetime, have never seen what a good economy is like. To them, a better economy is a theoretical, fraught with imperiling what they know. And for many, already beaten down by this depression, the choices of improving your lot devolve to dwindling expectations, cutting expenses, cutting taxes, and cutting consumption. A perfect recipe for economic decline.

[peterg76]

Wow. And that's not even counting the lower wages, lessening job security, expanding national debt and financial decimation of public services and infrastructure.

[olephart]

Many average people suspect that something is wrong but just can't put their finger on it. All of the news shows tell them that despite the housing/fo­reclosure/­credit mess; that the economy is chugging right along. Indeed, the business news says unemployment is low, inflation is contained and the GDP is up (3.9%) during the latest quarter. Still there is an uneasiness that lacks clarity. That uneasiness is based in reality. Unlike Wall Street types with 6 and 7 (or more) figure incomes most people live what the experts see on there computer generated charts and graphs. Most people feel $3.00 a gallon gas, stagnant wages, layoffs and medical bills. Its not just a bunch of numbers to them, they live it and breathe it.

The numbers are only as good as the methods used to generate them and the integrity behind them. I strongly suspect that the economic numbers are being generated by the Enron method. They're being cooked. More than cooked, they're being roasted, deep fried and flame broiled. The August CPI stated that inflation FELL 0.1%! The chain deflator used to factor inflation out of other numbers came in at 0.8% during the quarter (really?). That would infer that inflation fell during the quarter from previous quarters! Using the average deflator over the last few years, 3.0%, the GDP would have been up only 2.5% (Bonddad). If that's not bad enough, if the "imputed income" (look that up if you've got the stomach) were factored out the GDP would be about 1.5%. Further, the "official" unemployment number is called U3, the narrowest measure which doesn't count "discouraged", part timers and other workers. While it comes in at 4.7%, U6, a broader measure, is about 9%! If inflation were measured as it was when Bush the First was President it would be over 6%.

So if you're feeling queasy about the economy you're a lot closer to the truth than many on Wall Street. However, some Wall Streeters have already placed their bets on the don't pass line.

[FlowerGirl]

Too many Democrats, including the media's favorite, support the same agenda the Republicans are following. Pay attention to their votes, forget their words. They can lie as well as Bush. Some even better. (HRC contradicts herself every time she is asked the same question twice.)
So nothing is likely to change. NNothing for the better in any case!

[JohnnyK]

Thanks bonddad - we need someplace to go to cut through the hype. I remember a political cartoon strip (Doonesbury?) from '91 or '92 depicting Bush 41 basking in the glow of Desert Storm when an adviser points out that "it's the economy, stupid". His response: "uh-oh!"
People vote their pocketbooks.

[veracitatus]

All of the post and many of the comments assume one thing that I suggest ought to be seriously questioned. That is that GROWTH is inherently good and stagnation (or stability if you look at it in the right way) is bad or undesirable.

Growth in the economy means two things: More CO2 in the atmosphere (until some miracle technology saves us - not likely), and less of finite resources like energy to go around.

Take something that everybody takes for granted: getting a raise is a good thing. Well it is if it represents your actual increased contribution to productivity. You should be rewarded for doing more with less (as Buckminster Fuller said). But when you think you should get a raise automatically just because everyone else gets one (so-called cost of living raises) you are simply contributing to the rise in the cost of living. You are part of the reason that inflation continues.

Growth in the number of jobs is another issue. Machines and computers contribute more to increased productivity than does labor. Jobs in the real-wealth economy diminish as a result. The so-called growth in jobs over the past several decades has been in things like financial services - a sector that is little more than a house of cards - and low paying service jobs in retail and burger flipping. There has been an increase in demand for high tech workers but that is mostly for consumer products, like iPods, that in the end don't actually add to the real-wealth economy.

What we are witnessing today is nothing more than simply reaping what we have sown by not realizing that much of the economy today is based on fluff and dreams and entertainment. Who is really engaged in manufacturing plows? If you really believe that can and should go on forever then you need to think again.

V.

[Snakeback]

"the joys of living in a talk radio fact free world" - I believe you have named the problem.

Deficits don't matter. Bomb the bogeymen. Science is a religion that is believed in by a cult called "scientists" who have a dead guru named Darwin. Climate change is a hoax. W was chosen by God. Completely unregulated markets automatically police themselves. The Constitution says we were founded as a Christian nation. Waterboarding is not torture. Iraq is a great success and we are winning. The 9-11 widows are gold-diggers. No further investigation of 9-11 is needed. The 2000 and 2004 elections were free and unhampered by voter suppression and vote tampering. Iran has nukes. Iraq had nukes. All protesters are traitors. Any soldier who speaks out against the war is a "phony".

These are the "truths" of talk-radio-world, where facts never intervene to derail spin, and nothing the Cheney White House does can ever be wrong.

It's impossible for someone who feeds their minds such crap to make an informed vote.

And they know it.

[BillZBubb]

Two adjustments to the jobs data would make the Bush/RepubliCLOWN economic failure even clearer:

1) Normalize the jobs creation data by adjusting for working age population. The current job "creation" numbers would be laughable.

2) Adjust the jobs creation data for quality of jobs created. How many are in professions? How many in manufacturing? How many in poorly paid services? Again, the Bush/RepubliCLOWN failure would be very evident.

[loril]

I wish I had a better grasp on economics. I admit to getting lost in these articles much of the time. However, the bottom line is the bottom line. What is totally clear to me is that we are stagnating in a real way, financially, while the cost of basic living continues to skyrocket.

My husband recently got a "raise"...­(and obviously, he is employed..­.so I am truly grateful) This "raise' amounted to less than $100 a month in real pay. Compare that to the rising costs of gas and, consequently, food and other staples, not to mention utilities. We are entering another heating season and it is scary.

When you make the same income year after year...(or your income actually diminishes) and everything you must purchase to live on continues to dramatically increase in cost, you have a recipe for a worried, disgruntled and under-confident general public. This sure hits home even with econ-illiterates like me.

So, is this what they want? A meek and desperate public?