The Antidote to Our Pessimism: Change

In decades of tracking such sentiments, I've never seen people so pessimistic about the economy. And remember, we haven't even had a quarter of contracting GDP yet.

Of course, rising gas prices, the deteriorating job market, and paychecks that are barely making it past gas and groceries are the major drivers of these poll results. But they're not the whole story. Well before gas prices spiked, majorities were telling pollsters that something fundamental was wrong in the economy, and that it had to do with the fact that most of the folks who were baking the economic pie were ending up with thinner slices.

These latest economic stressors have simply served to turn this underlying feeling that the game was rigged into a much more urgent sense that something's got to change.

First, what's so unique about where the polls are pointing right now? It's this: it actually doesn't take all that much for people to feel lousy about the economy, but it takes a lot of hurt for them to feel that way about their own situations. Folks will often say, "the economy's doing badly, but my personal circumstances are OK." It's their way of saying they recognize something is off out there, but it's not really affecting them so much.

Well, it's affecting them now. For the first time in the 32 years over which they've been asking the question, Gallup reports that a majority of respondents believe they're losing ground. Both of the main consumer (lack of) confidence surveys show the same equally rare finding, i.e., people expect their income to fall in coming months.

One of the most precise questions in this regard comes from a CNBC poll that asks people about their expectations regarding both wages and prices. Last month respondents reported that they expected their wages to grow by 2%, on average, compared to 11% for inflation. Inflation's been growing at a much lower rate than that, about 4%, but their estimate reflects the cost of energy, which is up 17% over the past year.

Last Thursday, we learned that they weren't too far off on the wage side either. Weekly earnings for most workers were up 2.8% over the past year, well behind overall inflation, and miles behind energy costs.

So, you're thinking...what fun. The economy's in the tank, people know it, and here's just what we need: another dismal scientist to fill us in on all the gory details.

Not so. There's no denying the downbeat news. Even the Bushies have stopped intoning their monotonous meaningless mantra: "the fundamentals are sound." But there is hope embedded in this current state of affairs.

First, the structural fissures in the US economy -- the bubble and bust macroeconomy, over-leveraged households consuming beyond their means, inequality levels not seen since the late 1920s -- had to come to light at some point. We're fortunate that they've done so a few months before a general election between the two candidates with starkly different economic visions. More on that in a moment.

Second, on the energy side, despite all the talk about what somebody else can do to bring gas prices down -- poke more holes, beat up on oil execs, enact feckless tax holidays -- the only person who can make a difference in the short run is you. And, in fact, to be deeply wonky about it, the price elasticity of demand has finally kicked in, which is a fancy way of saying people are driving less in response to higher prices at the pump. The evidence is really quite eye-popping (see chart of page 9 here). It's been a long time coming, but people are doing exacting what the price signals are telling them too: conserve energy.

It's not without pain. People are driving less because they can't afford to drive as much as they used to, and that can be costly in terms of family well-being. But good things may well come as a result of this change, assuming it persists, including much higher mpg standards, more public transit, and a whole set of greener outcomes, from home insulation to city planning.

Then there's this bit of good news: these economic developments, from the current downturn, to the sharp growth in inequality, to the energy price spike, are amenable to policy, assuming we can muster the wisdom to make the right choices. Here again, recent history is extremely useful.

If supply-side economics/market fundamentalism worked, the economic landscape would look quite different than it does now. The last eight years have served as something quite rare in economics: a natural experiment of the effectiveness of market forces, goosed liberally (wrong word, but you know what I mean) with high-end tax cuts, to address the challenges we face. Health care would be on a sustainable trajectory, energy policy would exist (subsidies to big oil don't count), tax policy would help to offset inequality, not exacerbate it, financial markets would speculate less, price risk more accurately, and be much less bubbly, and the benefits of productivity growth would be more broadly shared with the working men and women responsible for creating them.

Which brings us to politics. McCain can run from Bush, but as long as he doubles down on both Bushonomics and the war, he can't hide. His tax cuts tread even further into supply-side fantasy land than Bush's, transferring another $300 billion to the wealthiest households. His health care plan is designed not to tap the power of pooled risk sharing and single payer, but to incentivize individuals to go out and shop for coverage in the non-group market. His chief economic policy architect is Phil Gramm, that cowboy deregulator who brought us the Enron loophole and sponsored banking legislation that put us solidly on the path to where we are today, bailing out investment banks that failed partly from lack of oversight.

Obama's economic agenda is very different. He recognizes the failures noted above and, as I've written before, seeks to reset the balance between market forces and effective government intervention in all of these areas.

I think his agenda will make a positive difference, but I don't know that. Moreover, if he wins, none of us can foresee what will come of that agenda, once Congress gets involved. But I do know this: our current economic system is broken. I've known it for awhile. I've written numerous books about it. I like them okay, but they're not important. What's important is that everybody else knows it now too.

And so it is a time of uniquely deep economic pessimism. Forgive me if I'm uniquely optimistic about our chances to do something to change that.

Comments

[dac253]

You're exactly right!

The antidote to my pessimism is change.

Can ya spare some?

Bush's karma ran over my dogma

[esquire07]

Change is a hollow word. Obama can change nothing. The Military Industial Complex has already won. America's next step is total facism... all it will take is one False Flag Attack... just like 9/11.

Wake up America. Do you really think some guy in a cave on the other side of the World planned and carried out the "Terror Attacks?" Has cable news really made Americans that stupid ?

Who benefited from 9/11 ? Who benefited from the illegal occupation of Iraq ?

Spreading "freedom and Democracy.­" Yea, and I'm gonna sell ya the Brooklyn Bridge.

[DRaymond]

Well, it proves that statistics can lie, even economic statistics.

So personal incomes are up. If a few millionaires and billionaires are making ten percent more that sure can cover a lot of ordinary people making nothing more. So GDP is up. To the extent that the value of a gallon of gasoline is created from domestic crude and in a domestic refinery, then that increases the GDP. Same thing for leaping prices for basic foodstuffs. So the Dow and S&P is up. Oil stocks pay a big role in those indices, so windfall profits by the oil companies hit those numbers even if the other companies in it struggle.

People don't vote economic statistics. They don't even vote 'the economy'. They vote their well-being. And one of the greatest con jobs ever was convince the middle class that trickle down Reaganomics was really in their best economic interest.

[Uselessboy]

"The" economy was long ago defined in terms of the top 1% of owners.

The "people" you find "pessimistic" are the "bottom" 99%.

[ubetchaiam]

Camus said 'hope is the neurosis of modern man' so if once can accept one's neurosis, then change can occur. BUT change does not occur like on television(just look at how long it took for child labor to outlawed in the U.S.).
The changes necessary to address:
http://online.wsj.com/article/SB121520753147729275.html?mod=googlenews_wsj --over 6 months unemployed

http://www.csmonitor.com/2008/0707/p04s01-wosc.html ----Philipines for outsourcing; "Shifting overseas could be a win-win, saving American companies 20 to 40 percent off their bottom line and creating as many as 600,000 new jobs for Filipinos, according to estimates by the Asian Development Bank (ADB). "

http://www.forbes.com/home_europe/feeds/ap/2008/07/06/ap5186048.html

http://www.nytimes.com/2008/07/06/business/06oil.html?_r=2&adxnnl=1&oref=slogin&partner=rssnyt&emc=rss&adxnnlx=1215358562-2fsRO8p/mbTPpxkpxGnTmw

Here's an interesting fact: As of 2006

42.7% of the U.S. population earned less than 25K per year, and

71% earned less than 50K per year.

(A condensed table of the poorly organized U.S. Census bureau figures is available at wikipedia.­)

will not occur in the next 4 years no matter who is elected. If Congress and the media can wake up to who the real middle class in this country is, there might be a chance for some progress. If not, another ,larger great depression will occur.

[Erdgeist]

I really believe, looking at some of the facts and figures, that most Americans sense they are being "gamed" by big oil and big financial institutions playing the commodity futures.

Making matters even worse, is the threat of Israel attacking Iran so that the price of oil goes up several hundred dollars per barrel. This will not only affect prices at the pump but will cause, as a result, a world-wide food shortage since oil, which is the basis of fertilizer, will be astronomical in terms of price.

This will lead to further hoarding and the eventual imposition of Martial Law in the U.S. canceling the November elections. The preconditions of this scenario are in place with the exception of Israel attacking Iran.

[Zeje]

Shhhhhh --- don't say anything bad about Israel!

[jteschke]

I notice others caught onto the "4% inflation problem. As others responding have indicated, the real figure is probably close to the 11% view held by the public. I've seen reputable statisticians who state that accurate figures would reveal that the US economy has likely contracted in every 21st century year so far. The Demos should be running on the question of are you better off now than you were in 2000, economically, and as far as the level of freedom.

[opines]

The respondents to the poll expected 11% inflation. Your statement that inflation is really only 4% excludes oil and food increases. The people answering the poll eat food, buy gas and pay for home heating.

The fraudulently low offiicial rate of inflation is in part to justify low cost of living allowances for Social Security recipients and to provide cover for the Fed's abandonment of its primary mandate to guard against inflation.

By reducing interest rates and issuing 'stimulous' checks in an attempt to shore up the stock market, the Fed has assured a plummet in the value of the dollar and opened the floodgates for inflation.

Excluding food and oil from the inflation calculation is ludicrous.

[Mildmannered]

Check out this Opinion

Working without a net
The shift of economic risk to ordinary families has them staring into a financial abyss.
By Peter Gosselin
July 6, 2008
http://www.latimes.com/news/opinion/la-op-gosselin6-2008jul06,0,4670416.story

[Thorn]

Prescribing "change." Why didn't anyone think of using that word until now?

[Herrington]

The question is, Mr. Bernstein, where were you when Milton Friedman unleashed all this invisible hand bull on the nation? I was busy designing and building the first personal computers. I thought I was doing my part and that someone else would see to that buffoon. In a free exchange of ideas, surely the best would emerge. It was true in computing, more or less.

Was there opposition? I was in correspondence with Pierre Rinfret just before his passing in 2006. He was co economic counselor to the office of the President with Friedman. He despised the man and thought his work to be garbage. So how come Presidents listened to Friedman and not his counterpoint? I mean you might doubt a half hearted dispute of Friedman's work, but having a highly placed government servant called it crap should give one pause.

So now we are stuck with 50% of the public believing in the "market" as a panacea. Nothing will change until the public is broken of that insanity. And so far this election season does not evidence much change in the public, other than being unhappy. And fully 50% think they are unhappy because, somehow, socialism has prevented capitalism from working.

[pennst1143]

and let me guess, capitalism is preventing socialism from working in $19-a-month cuba. those personal computers you were busy designing and building 25 years ago just made it down to cuba six weeks ago

[whatsthatsound]

This is the Slumlord's argument: If you don't like living here there's always the street. As if those were the only two alternatives. You could have used Norway as an example. (Very) roughly comparable in size and population to Cuba, this social democracy provides its citizens with a higher standard of living than the U.S. Not only do they have great computers, most of them have second homes. Ask them about their opinion of "trickle down" economics some time.

[joebaggadonuts]

Good question.

[whatsthatsound]

You're so right. If Reaganomics really worked, we'd be smugly congratulating ourselves on how superior our system is to those of the socialistic Europeans. And we would have been feeling this way for the last fifteen years or so, at least. It has been a scam that has fattened the uber rich and the connected, at the expense of a shrinking middle class. In Norway, in Sweden, in Switzerland, etc., they are bemused by how easily fooled we have become. "Sure, things are tough, but we've got it better than everybody else. We have our free markets, and people down South are risking everything to come over here, so that MUST be true!" Wishes not being horses, we're not riding anywhere.

[esquire07]

Forget Economic indicators­... the nation is in the Gutter - sending its young troops to die for Oil and Arms profits. A President and Vice-President who are War criminals, and the next False Flag Attack just around the corner.

The Constitution is Dead.

[doneflyin]

And leave us not forget our lovely Secretary of State who is proud, oh so proud to have invaded Iraq.

Our dear Condi, she of oil tanker fame who along with Bush and Cheney has earned her place at a war crimes tribunal.

Of course that's not going to happen as nobody at that level of power has to answer for anything.

[esquire07]

Of course not.. this is America... Crime Pays... War Crimes pay VERY WELL !!!

What a joke the Nation has become.

[khristmaskathy]

Oops, Condi, your ignorance is showing...

[MarkInEugene]

In the last 8 years we've witnessed conservative ideology that has nearly dominated all 3 branches of government. And in that time the middle class has lost buying power while the very wealthy have become exceptionally wealthy. I've seen a lot of corporate abuse and opportunism to the detriment of the environment and country.

There needs to be some regulation imposed that keeps the country on an even keel. The market will never police itself! Remember the old adage, "Everyone's got their price." Free Market, supply-side, trickle-down just doesn't work period.

We need a balance between regulation and incentives to keep a healthy economy teeming with innovation and growth in a way that benefits everyone as well as our precious environment.

[bobwalters]

Innovation may, indeed, be necessary for sustainability, but the mantra of "growth-is­-the-magic­-talisman" is the Trojan horse of disaster, and formed one of the fallacious underpinnings of Freidman's fascist "economics". The unfettered, mindless pursuit of "growth" uber alles is what ravages the environment, debases culture and human values, makes a mockery of any notion of democracy, and cannot be a basis for a "healthy" economy. Those ideologues who reflexively condemn the concepts socialism or social democracy are purveying propaganda or revealing gross ignorance -- maybe both -- and are peddling the same kind of voodoo economics as Freidman, ostensibly a sort of libertarian fascism that celebrates the rich and well-connected as 'natural' leaders fully justified and worthy of trampling on everyone else to attain/sustain their hegemony. Capitalism is a rapacious, exploitative philosophy much more consonant with authoritarian, anarchic politics than with either democracy or a democratic republic. Exploitative corporations are the predictable expressions of the rapacity of the philosophy. Fortunately, capitalism contains, as essential elements, the seeds of its inevitable destructio­n...UNfort­unately, it will not self-destruct within my lifetime, or likely, the lifetimes of anyone posting to this blog. But self-destruct it surely will.

[NateJ]

"Capitalism is a rapacious, exploitative philosophy much more consonant with authoritarian, anarchic politics than with either democracy or a democratic republic."

Do you know what anarchy is? It is fundamentally non-authoritarian. As far as capitalism goes, we don't have it. We have a mixed system. with just enough market forces to make it look like we have a "capitalist" economy, so that when something bad happens, it gets blamed on the "free market" that we don't even have.

How do you think a society with no property rights and no individuality would progress, or even survive?

At any rate, both most socialists and most capitalists don't get the real issue, anyway.

[markie1111]

well jared, one can look at from two different perspectives. one is that we can turn this ship around and make everything fine and wonderful. the other is that that there is no hope for humanity with 7 billion crawling over the planet exploiting its resources. the truth lies somewhere in between. and the truth is that its never gong to a pleasant place for the bulk of its inhabitants until such time as there are only a couple of billion of us. when that happens, the damage will have already been done and this little globe will need several millions years to erase the damage. and you can take that to the bank.

[SiberianRat]

"Forgive me if I'm uniquely optimistic about our chances to do something to change that."

You're forgiven and I hope you're right. It seems to me that today's America likes to shout and complain a lot but doesn't really like to make changes--they want a magic wand to be waved that will disrupt their personal lives as little as possible. It's a shame that it takes money (more than all of the other nightmarish problems we have) to get Americans to make changes. The biggest change must come in the mentality--then hopefully behavior will follow.

[Titonwan]

Well said. I'm trying but it's going to take a few more of us "patriots". Patriots and Leftwingers are sure getting a lot of flack lately. (OH, I know! Because the corporations and the 1% are right?)