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

[EvereaderinSC]

I've said it before on this website's message boards & I'll keep saying it until it sinks in, oil is the key in all that goes with our economy.

If you haven't already done so, PLEASE get a hold of & watch the award-winning "Who Killed the Electric Car?" Watch that & you'll get a true sense of what's going on. Electric cars were fine, viable & working. GM & all the other powers that be crushed them all - quite literally, (that's in the film too).

But we can do something. We can demand these things and quit buying internal combustion 102 year-old technology that guarantees Bush/Cheney and their cronies, terrorist nations and all with stock in this polluting, energy source about to run out, their unending ungodly profits.

The prices keep going up for us because they know the reserves are running out. The economy be damned, they want to wring every last dollar from us. Demand electric cars from the automakers. Robert Segal, on NPR was going crazy over a hydrogen fuel cell car in last night's report.

Give me a break! It was a complete fluff piece, with the GM VP and his "baby" & Segal pretty much providing the ad copy. I wanted to scream: tell us what you did to the electric cars you produced in the late 1990s! This VP's baby is going to insure oil keeps reaping our hard-earned money. Bush loves the fuel cell technology too because it's 20+ in the future - long enough for oil profits to keep on keeping on and the fuel stations cost 2 million to build. Oil is still the key in our economy. Until we realize that we are screwed, folks...

[BRUMALIA]

Indeed, this is an extremely bad economy.Rising oil prices,depreciation of the dollar,problems with job creation,out sourcing of jobs,debt problems,trade deficits,sub-prime mortgage debacle,cost of the Iraq war, etc.The future does not look good for the U.S.

[Plowboy]

Interesting. This may be why the Republicans are sure to lose. But don't be too sure that we Americans will win. Note another interesting thing: the Neocons are not completely stupid. Having gotten all they could from the Republicans, they are nowe switching to the Democrats. So when the Democrats win, the Neocon policies will be continued unchanged, under other
'leaders'.
Hillary's biggest booster is Murdock who doesn't support her for the sport of it.

[Kendo Nagasaki]

Oil has doubled in price since Bush took office.

Not only gasoline and heating oil impact us directly, but everything produced and transported is affected. The recent hikes have not yet worked their way through to the consumer, but they will. Will wages go up to match ? Hardly likely.

The dollar has declined by 50% in value against the Euro over the same period. Its amazing how well those socialist countries are doing, isn't it ?

The Federal Debt now stands at $9 trillion. This is about $30,000 for every American. How can a debtor nation be a world power without dropping bombs on faux enemies ?

George Orwell's "1984" is a little late, but alive and well here in America.