11/12/2009 05:12 am ET | Updated Sep 02, 2011

Things Are Getting Better

The first and best response to this statement is always a series of questions. The first two inquiries should be, which things and for whom? We are not in the habit of asking these two questions, and it shows. To see why these questions are not asked, let's ask them. Let us also acknowledge that many things have gotten better.

What is getting better?

Our remaining financial institutions are more profitable and less subject to public and business suspicion. These firms are also bigger and face significantly less competition. Many financial firms have used new legal options, special programs, government handouts and reduced competition to begin to rebuild. This is a marked improvement over the dire circumstance of one year ago.

As you read this, we are in the middle of the one-year anniversary of the nine days that shook the financial world. The period between September 7, 2008 and September 16, 2008 witnessed the collapse of much of the US investment banking and home mortgage lending systems. We lost Freddie Mac, Fannie Mae, Lehman Brothers, AIG and independence for Merrill Lynch in just over a week. Today, we are not all seized by panic as the financial world collapses atop our heads. It remains to be seen and tested how many of our deep structural problems have been fixed. I am skeptical.

Who is benefiting?

Public sentiment is better than it was one year ago and asset markets have done very well. The S&P 500 is about 125 points, 12%, below where it was one year ago. This masks the reality that asset prices plunged from September 2008-March 2009 and have spent the last 6 months surging back. On the close of business, Wednesday 09 September 2009 we are 40% and over 290 points, above the lows reached in February and early March 2009. Corporate profits have also begun the process of rebounding from their recent crash. Corporate profits rose 5.7% even as the economy contracted by 1% in the second quarter of 2009. Profits and assets have done well. Thus, the commanding heights of America's stratified income structure have begun to heal themselves across the last few months.


The three graphics included here offer a valuable view. What we call recovery is a return to the structural economic conditions that created the problems that came to a head in 2001 and 2007. We are getting back on trends that have created the consumer debt problems and the bubble, boom and bust cycle that has defined the US economy for more than a decade.

The great mass of Americans live on income earned from employment. Here, the story is very, very different. The number of hours worked presently hovers near a 40-year low. America's average work week has fallen to 33.1 hours. We have only kept these numbers for 45 years.

The Bureau of Labor Statistics provides multiple measures of unemployment. The official unemployment rate, widely reported at 9.7%, is too narrow to speak to the extent of job weakness in America. The most inclusive measure, called U-6, includes involuntary part time workers and people out of work and desiring jobs who have given up looking. The inclusive U-6 unemployment rate in America is 16.8%. Perhaps this more inclusive unemployment rate helps to explain our 350,000 foreclosure filings a month and the one million homeless school children starting the new school year? American consumption is 69% of the US economy and 14% of world GDP.

Let's ask one last question.

How did we get here?

The two charts below, all data from the Bureau of Labor Statistics, illustrate the challenges facing the bottom 80% of Americans. These problems have been a long time building.

Figure 1 Average Weekly Hours of Production Workers 1964-2009

Figure 2 Average Hourly Earnings in 1982 Dollars 1964-2009
Look closely at the vertical axis in each graph. The range of values is fairly small. This is particularly crucial in Figure II, Average Hourly Earnings in 1982 Dollars. Our average hourly earnings - corrected for inflation - have been stuck between $7.50 and $9.00 for 45 years. Only real and sustained wage and job growth will allow most Americans to announce recovery.

We have not seen either yet.