(What’s Left of) Our Economy: America’s Now Struggling to Sustain Even Unhealthy Growth

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consumption, economic growth, Financial Crisis, personal savings, recession, recovery, savings rate, {What's Left of) Our Economy

Don’t blink! As revealed by government data released yesterday, the U.S. personal savings rate has been vanishing so quickly lately that, before too long, you might miss it entirely. And here’s the kicker to this latest evidence: Although, as I reported on Monday, the American economy is just about as consumption-heavy as during the run-up to the financial crisis, all the resulting spending is now generating growth that’s not only subpar by historical standards, but shockingly weak.

According to the Commerce Department, the savings rate for the last three quarters of national economic activity (through the second quarter of this year) has sunk below four percent of disposable personal income for the first time since the first quarter of 2008. The latest nadir of 3.6 percent was hit in the fourth quarter of last year, and represents the lowest such level since the fourth quarter of 2007 (2.8 percent). If those dates sound familiar, they should. That’s when the last recession officially broke out. As of the second quarter of this year, the rate bounced back a bit to 3.8 percent.

These are a pretty far cry from the worst savings rates in U.S. history. During the previous (bubble) decade, this figure bottomed out at 2.2 percent (in the third quarter of 2005). But the latest numbers are a much further cry from the double-digit levels that were common from the early 1950s through the early 1980s.

After the last recession began, there was some evidence that Americans were learning the lessons of over-spending and socking away more of their incomes. By the second quarter of 2008, the savings rate jumped from 3.7 percent in the first quarter of that year to 5.7 percent. It rose steadily even after the recovery began in the middle of 2009, and actually hit 9.2 percent in the fourth quarter of 2012. Savings didn’t stay nearly that high, but still generally remained well above five percent through the early part of last year. Since then, however, they’ve slid pretty rapidly downhill.

Throughout the recovery, shortsighted economists and other observers actually have bemoaned these signs of consumer caution as unnecessary restraints on economic growth that were preventing the expansion from achieving a satisfactory pace. I disagree, because as I wrote on Monday, the nation needs a sustainable basis for growth, to improve its long-term economic health, even more urgently than it needs faster growth. But what’s especially troubling about the recent drop in the savings rate is that it’s shown no ability to generate what’s seen as respectable growth at all.

In fact, over these last three quarters of weak personal savings rates, the economy grew in real terms by just 1.8 percent, 1.2 percent, and 2.6 percent (the preliminary figure for the second quarter of this year). Those results aren’t even impressive by the low bar set by the current expansion. And they’re positively abysmal when compared with the performance registered between the early 1950s and 1980s, when double-digit savings rates were no obstacle at all to real growth rates of between five and ten percent!

Of course, America’s growth rises and falls for many reasons part from savings and consumption rates. Moreover, the economy of that 1950s-1980s period was very different structurally from today. One example: Military spending played a much bigger economic role during those Cold War decades, and generated abundant production, as well as employment. At the same time, for most of that era, women had not entered the labor market in great numbers, meaning that households generally speaking were living off a single paycheck and benefits package. And still both growth and family incomes were by and large stellar.

The current situation, though, is unmistakably sobering. In recent decades, America has substituted borrowing and spending for saving and producing as its main engines of growth. Now even the unhealthy growth recipe has not only helped trigger a terrifying financial crisis and deep recession. But seven or eight year after those crises were overcome, the spendthrift approach seems close to exhaustion. In sports, those playing a losing game are usually encouraged to change it. How much longer before Americans and their leaders take the hint?

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(What’s Left of) Our Economy: More Evidence of Germany’s Stealth Protectionism

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Angela Merkel, consumers, consumption, developing countries, Financial Times, Germany, Global Imbalances, globalization, imports, Matthew C. Klein, protectionism, savings, taxes, Trade, Trump, value-added taxes, VATs, wage suppression, wages, {What's Left of) Our Economy

President Trump’s charges that the United States has signed terrible trade deals in recent decades, and that foreign economies have been the main beneficiaries, inevitably have triggered a potentially useful debate over which major countries are most open to trade and which are tightly closed. Unfortunately, such arguments won’t actually be useful until “open” and “closed” are properly defined, and a new Financial Times column on Germany’s economic policies nicely illustrates how remote that goal remains.

I’ve previously made the case that accurately measuring protectionism – and thus accurately gauging which countries are contributing adequately to global prosperity and which are free-riding – entails much more than adding up individual trade barriers. Such simple counts also mislead on the equally important question of which countries the United States can reasonably hope to trade with for mutual benefit, and which countries can’t possibly qualify.

And because Germany’s government has both taken trade fire from Mr. Trump and vigorously replied, I’ve used it to illustrate the above points. In a short op-ed for USA Today and a much more detailed RealityChek post, I’ve noted that, as with many other leading foreign economies, the main problem with Germany as a promising trade partner stems at least as much from its overall national economic strategy as from its specific trade practices. That is, countries like Germany, which heavily emphasize growing by saving, producing, and exporting, can’t possibly be good trade matches for countries like the United States, whose priorities have been the diametric opposites.

Of course, those national economic strategies manifest themselves in specific practices and policies. (How else could their focus be established?) But the links to trade flows aren’t always clear. For example, there’s widespread reluctance to acknowledge the trade impact of value-added taxes (VATs), which promote exports and penalize imports. The role played by other German policies, like suppressing wages or skimping on infrastructure spending, has been even less apparent.

What the new Financial Times post adds to the mix is a generally neglected form of wage suppression: Germany’s taxes on low-wage workers – which author Matthew C. Klein describes as “among the highest in the world” since at least the turn of the century.

These taxes inflict an outsized blow on Germany’s imports – and on the the world economy as a whole – in at least two important respects. First, economists tend to agree that the lower an individual’s or household’s income, the higher the share of that income will be spent (as opposed to saved). If they’re right, then these taxes ave been hitting Germany’s overall consumption and import levels especially hard. Therefore, these levies look like notable contributors to the bloated German trade and current account surpluses that are not only detrimental to America, but that could threaten the entire world’s financial stability.

Second, as supporters of pre-Trump U.S. trade policies constantly point out, much of what low-income consumers buy is produced and exported by low-income countries (e.g., apparel or school supplies or furniture). So since high taxes on low-wage workers in Germany prevent them from importing as much from the developing world as they could, third world countries need to focus more on customers in more promising markets – like America’s.

Germany and its leader Angela Merkel lately have been basking in the glow of praise from the political classes in the United States and abroad, which have anointed them as among the new, post-Trump champions of free trade and all its purported benefits. (China’s another alleged globalization champion, but that’s another story.) Its lofty taxes on low-wage workers add to the evidence that these titles are wildly premature.

Making News: Podcast of Connecticut Radio Interview on Trade Policy and Financial Crises

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bubbles, Connecticut, consumption, credit, Financial Crisis, Global Imbalances, Larry Rifkin, Making News, Trade, Trade Deficits, Waterbury, WATR-AM

I’m pleased to present the podcast of my September 30 interview with Waterbury, Connecticut radio host Larry Rifkin on why wrongheaded U.S. trade policies could bring on a rerun of the 2007-08 global financial crisis.  Click on this link for a provocative conversation originally broadcast on WATR-AM about subjects completely neglected by the Mainstream Media –how huge American trade deficits and the flood of cheap credit they sent into the U.S. economy contributed to the spending and housing bubbles that eventually burst so disastrously, and how they’re building up again.

And be sure to keep checking in at RealityChek for news of recent and upcoming media appearances and other events.

P.S. Sorry for sounding a little out of breath at the beginning!  I’d just run to the phone to answer Larry’s call on time!

 

(What’s Left of) Our Economy: In Case You Thought China is Finished….

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China, competitiveness, consumption, exports, Financial Crisis, Global Imbalances, high value manufacturing, IMF, imports, International Monetary Fund, labor-intensive manufacturing, manufacturing, rebalancing, Trade, {What's Left of) Our Economy

A new International Monetary Fund report on China’s changing trade patterns has challenged so many comforting myths propagated recently by cheerleaders for America’s trade and broader economic policies that it’s easy to lose count.

These myths matter greatly because if you buy them, then it’s logical to buy the approach to globalization pursued by American presidents and Congresses in both parties for the last quarter century. Rather than worry that this U.S. strategy has permitted China to steal the march on America economically, its proponents confidently assert that Beijing’s export- and investment-heavy economic blueprint is reaping rapidly diminishing returns, and urgently needs replacement. Reasons cited focus on soaring Chinese wages and resurgent American competitiveness.

Even better, insist the optimists (which include the authors of this new IMF report), China has already learned this lesson and is “rebalancing” its economy to seek growth led by consumers – which will prove a bonanza for its trade partners. And no need to fret about China mortally threatening America’s domestic manufacturing – with all that’s boded ominously by that possibility for the whole economy as a whole and for national security. The PRC remains stuck turning out mainly labor-intensive goods, or at best simply slapping together more sophisticated stuff from imported high-value components.

Not that the Fund is necessarily the last word on the subject. But its new China trade study sure presents copious evidence for the following conclusions:

>Instead of hitting a wall, China’s exports are more competitive than ever. As I reported earlier this week, calculations based on the IMF’s data show that these shipments are grabbing more global market share than ever. This success, in the meantime, debunks another example of hopium regarding China’s future – that slowing global growth in and of itself means that Beijing’s policies urgently need changing. Such analysis has always ignored China’s potential to keep growing through exports by winning ever larger shares of a stagnant and even shrinking worldwide pie.

China’s exports have indeed been falling lately on a year-on-year basis, as has its worldwide trade surplus. But both remain at lofty levels, indicating that trade’s role in powering the country’s growth is still impressive. These statistics also indicate that if and when global growth revives significantly – as the leaders of the world’s major economies keep trying to achieve – China will be the paramount beneficiary. As a result, the imbalances that helped set the stage for the financial crisis will head back to dangerous proportions again.

>Despite the clearly stunning increase in household wealth throughout China’s population and workforce in recent decades, not only is rebalancing progress painfully slow when gauged by trade’s role in the economy. It’s been at least as slow in the sense that matters most to companies and workers in other countries who hope to supply this larger and potentially immense Chinese consumer market.

For as the Fund observes, (a) “While Chinese consumption is on an upswing, imports of consumption goods and services remain modest except for tourism….” and (b) “even as China succeeds in rebalancing toward consumption, it could be that this increased demand is satisfied by production from within China, and not from other countries.”

>Finally, as I’ve written previously, the IMF and the World Bank have found that China’s manufacturing keeps moving steadily up the technology and value chain – i.e., from low-cost, labor-intensive products to capital- and knowledge-intensive goods. This trend, moreover, includes providing ever more Chinese-made parts and components of advanced manufacturing products. In fact, as the new Fund reports, a higher share of the content of China’s exports is now Made in China than is the Korean content of Korean exports and the Taiwanese content of Taiwan’s exports.

Not that China isn’t experiencing major economic problems – notably, a soaring ratio of the whole economy’s debts to the size of its economy, and state-run or dominated financial institutions and markets that are too easily manipulated – sometimes incompetently so – by the government. But the IMF findings add to the case that the productive sectors of China’s economy are passing the test of global competitiveness – and with increasingly impressive marks. In fact, the only major relevant points omitted are that much of this progress keeps being made in violation of global commercial rules and norms, and at the expense of America’s productive sectors.

(What’s Left of) Our Economy: U.S. Growth Isn’t Only Worsening, its Quality Keeps Falling

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an economy built to last, bubbles, consumption, Financial Crisis, GDP, gross domestic product, housing, Obama, real GDP, recovery, {What's Left of) Our Economy

Although you wouldn’t know it from the candidates or the press coverage they’ve generated, one of the biggest questions facing America this election year is whether it’s learned the main lessons of the last financial crisis – and therefore stands a good chance of avoiding a repeat. Last week’s official data on U.S. economic growth shed new light on the answer, and the message they’re sending is “Hold onto your hats!”

The main problem: Along with its advance estimate on the economy’s overall performance during the second quarter of this year (which was feeble), the Commerce Department also released revisions for the past three years. They make clearer than ever that the current, historically weak recovery is getting just as dangerously bubbly as the previous decade’s expansion. As usual, the main evidence is the outsized growth of the two sectors of the economy whose bloat paved the way for that last meltdown – personal consumption and housing. In other words, the nation had been borrowing and spending way too much, and saving, investing, and producing way too little.

As the United States sailed toward its scary Lehman Brothers moment, that toxic combination hit a record for its all-time share of total American economic activity: 73.27 percent of the gross domestic product (GDP) adjusted for inflation. Consumption peaked at 67.84 percent during the first quarter of 2007, and housing topped at 6.17 percent in the third quarter of 2005.

During his first term, President Obama put it well: America needed to become “an economy that’s built to last.” The crisis and ensuing depression did reverse those worrisome trends. But the new GDP statistics show that movement back toward those levels lately has been even stronger than previously reported. And what have we heard from American politicians and journalists? Nada.

Prior to the latest release, the toxic combination was reported (by me) to have reached a recovery-era high of 72.31 percent. Now we know that the figure was actually 72.42 percent. And the new (initial) second quarter number? An even higher 72.85 percent. Worse, the growth gap separating consumption and housing from the rest of the economy – particularly genuinely productive activity, like business investment – has been getting wider.

Housing is still far below its bubble-era levels – standing at just 3.57 percent of real GDP in the second quarter after totaling 3.64 percent in the first quarter. But for most of the last two years, consumption has been even more economically predominant than during the last decade. As of the second quarter, it represented 69.28 percent of real GDP.

History of course never repeats itself exactly, so there could be some “unknown unknowns” out there that will once more spare the United States and the global economy from repeating the last financial crisis – or a full-blown collapse – despite the resurgence of low-quality growth. But what kind of country would place all its eggs in that basket?

(What’s Left of) Our Economy: About that American Shopping Revolution….

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consumer spending, consumers, consumption, goods, Great Recession, holiday shopping, hotels, recreation, restaurants, services, shopping, spending, {What's Left of) Our Economy

The final figures for the last holiday shopping season are in, and they seem to confirm a trend that students of the retail industry – and lots of retailers themselves – claim is becoming dominant: Shoppers are spending more and more of their dollars on services – especially those that offer “experiences” – and fewer and fewer on goods.

This Washington Post article handily sums up the evidence – both the data and the views of various retail executives and consultants. Even more telling, it describes the very substantial store closings recently announced by like companies like Macys. Nonetheless, if you look at the U.S. government figures on how Americans spend their money (as opposed to what’s sold by stores), the only significant increase visible in that “experience” spending has come over the last year. And so far, there’s no sign that it’s come at the expense of goods purchases.

The spending figures are found on the Commerce Department’s Bureau of Economic Analysis website, and they’re not only broader than the retail sales numbers (which are kept at the separate Census.gov). They also come adjusted for inflation. They show that, through the third quarter of this year, spending on restaurants and hotels and other forms of accommodation rose by more in real terms (4.45 percent) than overall after-inflation personal consumption (3.15 percent). But spending on “recreation” was up only 1.49 percent. And purchases of goods increased a relatively healthy 3.91 percent – also considerably faster than purchases as a whole.

But maybe the shopping priorities shift only becomes apparent if you look at the entire economic recovery? Not according to these statistics. Since the last recession ended in mid-2009, restaurant and hotel spending has risen by 17.45 percent in real terms – faster than the advance in total personal consumption (14.85 percent). But recreation services spending has increased by only 12.76 percent. And real consumption of goods beat them both – up 23.21 percent.

Nor is there much reason to think that the Great Recession ushered in big change in American consuming away from goods. If anything, quite the opposite. Since it began, in December, 2007, all real personal spending has risen by 11.71 percent, with goods spending leading the way with an increase of 14.94 percent. Restaurant and hotel spending is higher by just 10.54 percent – barely better than the increase in after-inflation overall services spending of 10.17 percent. The figures for recreation services? A mere 7.28 percent improvement.

And revealingly, the growth disparity between goods and the other spending categories is wider still since the start of the century. Between 2000 and 2014 (the last full-year data available), adjusting for inflation, restaurant and hotel spending increased by 25.51 percent, recreation spending by 27.67 percent, while goods spending jumped by 44.16 percent. The goods rise was also much faster than that for services overall (27.60 percent).

These numbers, in fact, challenge not only the claims about changing shopping tastes in the United States. They challenge claims about the entire economy being dominated by services. It turns out that that’s mainly true on the production side – where measured by real value-added (a different but comparable gauge) inflation-adjusted services output was up 31.87 percent between 2000 and 2014. That’s nearly three times faster than the real goods production increase of 10.98 percent. That is, Americans still buy huge and smartly growing quantities of goods. But more and more of them come from abroad.

(What’s Left of) Our Economy: Debt-Strapped America is Still the World’s Leading Growth Engine

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China, Congress, consumption, debt, export-led growth, exports, Financial Crisis, Information Technology Agreement, intermediate goods, Obama, offshoring, South Korea, TPP, Trade, trade Deals, Trade Deficits, Trans-Pacific Partnership, {What's Left of) Our Economy

Although I wasn’t planning on posting today, some data was released yesterday that underscores two major points about the nature of the world economy and the dangers it still face it that can’t be repeated often enough.is

The data seem pretty arcane – on South Korea’s exports. But that country’s trade patterns exemplify broader flows that have created a dangerously lopsided international economic system, that in fact set the stage for the last financial crisis, and that threaten to create a rerun.

The headline development is that Korea’s exports dropped sharply on a year-on-year basis in December – which in a conventional sense spells bad news for the U.S. and world economies. Korea’s, after all, is an economy heavily dependent on exporting. If its overseas sales are crumbling, that’s a strong indication that the economies of customer countries are too weak to buy much of what the Koreans sell.

But the real import of the new statistics concerns where the fall-offs have been biggest and smallest. Most important of all, virtually none of it took place in shipments to the United States. Specifically, Korea’s overall goods exports (no figures were provided on services exports) plunged by 13.80 percent from December, 2014 to this past December. But they dipped only 0.60 percent to America.

This disparity is the latest evidence that the United States is still playing its traditional contemporary role of global importer of last resort – even though its own growth is lagging. In fact, America’s overall goods imports have been growing much faster than its goods output (let alone its goods exports!) since the current economic recovery technically began back in the summer of 2009. That kind of growth can only be fueled by debt accumulation – which led to such misery in 2007 and 2008.

More broadly, because of the losses in real incomes resulting from years of the offshoring-friendly trade policies they pursued so avidly, U.S. leaders during the previous decade recognized that their ability to stay in power depended on one of two hopes materializing. First, against all odds and evidence, incomes in offshoring destination countries would rise so dramatically that Americans could increase their own earnings by supplying those new markets. Second, Washington could encourage the public to maintain its living standards by substituting borrowing for earnings. Since the first hope was dashed, the second was peddled – and like all houses of cards, ultimately collapsed.

But in addition to showing that the United States and its binge consuming remains the world’s import sponge – and thus growth engine – the Korea trade data make clear that China is not, as widely supposed, performing this function. Here’s why. China’s ostensible growth role stems from its status as the top export market for not only Korea, but most of East Asia. That, however, doesn’t mean that China is where most Korean or other Asian exports are finally consumed – which is what would be needed for China to deserve its growth leader title. After all, China’s economy is export-led itself. So what gives?

As reported in a Bloomberg article on the new trade figures, two-thirds of Korea’s goods exports to China are intermediate goods. They’re the inputs for final products – parts, components, materials, and the like, along with machinery and equipment – that are assembled in the People’s Republic. Many of the final products are sold in China, whose own growth is slowing. But many others need to be exported from China. And a large share goes to the United States.

So U.S. growth is what really pulls along economic activity throughout throughout the string of countries that largely serve as its supply chain – which includes China itself. And lagging American growth is what sends this process into reverse, including in China, even though cheap credit continues enabling U.S. imports to grow much more than they should.

It would be great to report that Washington is on the case and working to diligently to prevent worsening trade imbalances from moving the nation and world closer to another near-financial collapse – and perhaps a bigger one. But in 2012, President Obama and Republican Congressional leaders cooperated to win approval of a U.S.-Korea trade deal practically formulated to supercharge America’s bilateral deficit. And this past year, they secured trade promotion authority for the president that greatly increases the odds of Congressional passage of a Pacific Rim trade deal (the Trans-Pacific Partnership, or TPP) structured in much the same way. Moreover, a less publicized global trade deal covering high tech products, the Information Technology Agreement, is likely to have similar effects. And you thought Charlie Brown letting Lucy hold for his place kicks had a shallow learning curve?

(What’s Left of) Our Economy: Where America Is and Isn’t an Economic Superpower

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China, consumption, exports, finance, GDP, gross domestic product, manufacturing, patents, research and development, services, technology, Trade Deficits, {What's Left of) Our Economy

I’m usually not big on fancy interactive graphics in the media, but The Economist magazine and the Washington Post have just issued two that are both worth your while. Each vividly illustrates some of the most important national and international economic trends of the last few decades.

The “American Abacus” in The Economist‘s October 3 feature on the surprising (to many) resilience of America’s superpower status makes possible examining the U.S. share of 26 categories of global economic activity and how it’s changed since 1980. The categories are even color-coded into several super-categories, which enables you to see some mega-trends at a glance. Because data going back 35 years can’t be found for all the subjects the Abacus seeks to measure, it’s far from a perfect gauge. (We’ll get to some other flaws shortly). But I found it thought-provoking at the very least, and although I hope you’ll want to play around with it yourself, here are some of the main conclusions that stand out to me.

First, the situation this year – the picture presented when you first see the Abacus – makes clear that the greatest relative U.S. global strengths are in finance (look at all those medium blue bars near the top) and to a much lesser extent, technology. The technology measures, however, seem controversial, to say the least. I’m OK with including “cloud hosting.” But “social-media users”? At the risk of seeming flip, how are they going to help the nation keep Vladimir Putin at bay in the Middle East, or boost living standards across the board?

Much less impressive is the U.S. standing in the “economy” category, and not just because these measures of economic power are more concrete. After all, they also include America’s share of global research and development activity and patent issuings. At the same time, why are “public and private debt” and “cross border lending” in this grouping, rather than finance. And I know that “consumption” is part of the real economy. But does it generate, or even have much to do with, economic strength and influence?

Also more than little troubling is how indicators such as “manufacturing output” and “merchandise exports” are found near the bottom. And somewhat surprisingly, the United States doesn’t exactly dominate the world in “services exports,” either, even though economists tend to view services as sectors of the future, and goods as kind of old hat.

The results get even more interesting as you move the toggle at the bottom back and historical comparisons become clear. Take “GDP at market prices.” That’s the best measure of how big the U.S. economy is, and last year (the latest data available) it represented slightly over 20 percent of the global total. Toggle back to 2010 and it looks somewhat higher, and it stays higher going all the way back to 1980s, seeming to peak as a percentage of the world economy in the mid-1980s. The main message here: However quickly the United States has grown during this 35-year period, the rest of the world as a whole has been growing faster.

Manufacturing output shows a similar same pattern (though for some reason, the figures only go back to 1997), as do merchandise exports. Household consumption, interestingly, is somewhat different. The U.S. share of the global total has fluctuated some, but has stayed roughly the same since 1980. That, coupled with the nation’s shrinking share of global production, readily explains why the United States runs such big trade deficits. More encouragingly, the percentage of total worldwide public and private debt accounted for by Americans is down since 2000 – apparently when the first figures became available.

Also good to see – since 1985, the U.S. share of global patents has more than doubled . Yet since 1997, America’s research and development spending sank from about 40 percent of the international total to about 30 percent. That doesn’t sound like a formula for continued world science and technology predominance – and all their prosperity- and national security-related benefits.

Unfortunately, The Economist‘s Abacus doesn’t show you which other countries have been on the rise according to these various measures, and which have fallen behind. For a sense of those changes, click on this link at the Washington Post‘s cite for a short video showing that “Asia is the New Europe.” It shows how the world’s economies have seen their percentages of the total global economic pie wax and wane (according to that GDP at market prices measure).

The main conclusion drawn by the Post is that “national economies and the global economy tend to move in waves.” But that claim seems belied by the “trading places” act staged by Asia and Europe, not to mention by the ballooning of Chinese economic power. Concentrate on what happens to the China space starting about three-quarters of the way through the production. Then tell me you’re absolutely sure that it’s in America’s interests that China continue to grow strong and prosperous – and that you’re equally certain that the U.S. government has fully thought through the full implications of the PRC’s spectacular rise.

(What’s Left of) Our Economy: Growth Has Been Both Bubblier & Weaker Than Previously Thought

Tags

2016 elections, bubbles, consumption, Financial Crisis, GDP, Great Recession, gross domestic product, growth, housing, recovery, {What's Left of) Our Economy

I’ve frequently written that if Americans should have learned anything from the financial crisis, it’s that not all growth is created equal. During the bubble decade leading up to the crisis, the U.S. economy grew at rates that were below average historically speaking, but the real problem was the growth was unhealthy; it stemmed largely from sources that were unreliable, namely personal consumption and housing.

That’s why a typically neglected aspect of the new figures on gross domestic product (GDP) released by the Commerce Department this morning contains such distressing news. The numbers include revisions for the years 2011-2014, and confirm that America’s growth during the recovery it’s currently experiencing from that financial crisis – and from the ensuing recession – is getting even less healthy than its bubble-era counterpart. Just as bad – the economy isn’t even growing as fast as it was during the mediocre “oughts.”

First let’s review what the new GDP figures report about that 2011-2014 period. Their findings? Growth during that period of this historically sluggish recovery was even worse than previously thought.

Adjusting for inflation, the economy grew by 1.60 percent in 2011 – just as earlier estimates showed. But 2012’s real expansion was revised down a bit from 2.30 percent to 2.22 percent, and the 2013 rate all the way from 2.20 percent to 1.49 percent. Real growth last year was revised up marginally – from 2.40 percent to 2.43 percent. On net, however, 2011-2014’s economic performance was weaker than originally thought – and certainly weaker than the bubble decade’s performance.

But if the economy’s makeup is examined, it becomes clear that recent growth has not only been slower than during the bubble – its been even more consumption- and housing-heavy. And the new GDP release shows that this trend has continued through the middle of this year.

As a benchmark, let’s look at the economy in the fourth quarter of 2007 – when the Great Recession officially began. At that time, the toxic combination of consumption and housing accounted for 71.16 percent of all economic activity, adjusted for inflation. By the time the current recovery began, in the second quarter of 2009, this figure was down to 70.94 percent, indicating that a bit of progress had been made.

But the latest data, providing first look at the second quarter of this year, show that the consumption and housing share of the economy in after inflation terms is up to 71.80 percent – nearly as high as the last bubble decade reading. In other words, consumption and housing have been growing faster than the economy as a whole for the last six years. They also were among the economy’s growth leaders from the first to second quarters of this year, and over the last year.

An economy getting healthier – not simply bigger – would be an economy whose growth was led by business investment and exports. The current growth mix, by contrast, looks like a recipe for Financial Crisis 2.0. Raise your hand if you think anyone will raise this crucial issue at next week’s Republican presidential debates – or at any stage during the intensifying presidential campaign.

(What’s Left of) Our Economy: New Evidence that Greece’s Former Prosperity Really was Built on Sand

Tags

bubbles, consumption, Europe, Eurozone, France, Greece, incomes, Ireland, Italy, Spain, {What's Left of) Our Economy

A new Pew Research Center report is a gold mine of information that I’ll be returning to in the next few days and weeks. But given the intensification of the Greece crisis this weekend, it seems especially important to note briefly what it shows about that country’s experience in the Eurozone. It’s especially revealing on how the easy access to credit made possible by Greece’s membership created one of history’s most stunning examples of false prosperity.

Among other statistics, Pew’s study of global incomes over the last decade presents figures on the shares of many national populations that could be classified as “high income” in 2001 and 2011. And the Greece numbers are mind-blowing. In 2001, 10.8 percent of Greeks belonged in the category with family per person income (or consumption) of $50 or more per day. (These figures are expressed in 2011 dollars adjusted for differences in price levels across countries.) By 2011, this share had more than doubled – to 23.8 percent. Moreover, the share of “upper middle income” ($30-$50 per capita per day) Greeks by this measure increased from 49.8 percent to 54.2 percent.

Even given the relatively low base from which Greek incomes began, it has to be significant that the only other countries in Western Europe that saw anything close to this progress were the continent’s other problem debtors. In Italy, for example, the high income share of the population just about doubled, from 17.1 percent to 34.8 percent. Spain saw 18.4 percent to 27.3 percent growth in this category, and the numbers were 21.2 percent to 36.2 percent in Ireland. (Pew did not present any figures for Portugal.)

Among economically and financially healthier Western European countries, oil rich Norway’s high income residents rose from 56.3 percent of the population to 77.2 percent, while the comparable numbers for France were 27.3 percent and 37.9 percent.

Moreover, Greece was a major out-performer in the Upper Middle class as well. In Italy, Spain, and Ireland, this group fell as a share of the population from 2001 to 2011. Ditto for France.

In case you’re wondering, the United States is one of the few wealthy countries studied that saw a decline in its share of the population living on more than $50 per day between 2001 and 2011 – from 58.2 percent to 55.7 percent. The Upper Middle class increased only from 31.4 percent of the American people to 31.9 percent. And therein hangs many a tale, as I’ll be reporting.