(What’s Left of) Our Economy: Why So Few are Impressed with the “Biden Boom”

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Associated Press, Biden, Bill Clinton, conjunctions, grammar, incomes, inflation, living standards, Mainstream Media, polls, prices, stimulus, wages, {What's Left of) Our Economy

What a difference a coordinating conjunction can make!

You remember coordinating conjunctions, don’t you? They’re the little words that “join two verbs, two nouns, two adjectives, two phrases, or two independent clauses.” In English, for those of you who cut or snoozed in your “parts of speech” classes, they’re “for,” “and,” “nor,” “but,” “or”, “yet”, and “so”.  (Here‘s the source.)

I bring them up because an Associated Press (AP) article today just illustrated how important they can be, and in the process, added to the burgeoning mass of spoken and published material lately making clear how completely many of the usual suspects in America’s chattering classes have forgotten the fundamental purpose of the national economy and economic policymaking.

It isn’t to generate more growth, more jobs, more spending, or any other specific great performance metrics. (See, e.g., here and here.) Instead, the fundamental purpose is to help improve people’s lives. Better numbers on the above fronts and others obviously can help achieve this goal. But they’re no guarantee.

That’s why the header on the piece used the wrong conjunction. It shouldn’t be “AP-NORC Poll: Income is up, but Americans focus on inflation” – which at least to me connoted, “Why are those Americans accentuating the negative?”

Much better would have been “AP-NORC Poll: Income is up, and Americans focus on inflation.” Because the results of the survey itself are sending the exact same message as the most important figures from an individual or family perspective: Prices this year have been rising faster than wages, which means that despite all the encouraging data nowadays, the typical American is falling behind economically, not getting ahead.

To cite just a few examples from the poll:

>”Two-thirds [of respondents] say their household costs have risen since the pandemic, compared with only about a quarter who say their incomes have increased….Half say their incomes have stayed the same. Roughly a quarter report that their incomes have dropped.”

>”Most people say the sharply higher prices for goods and services in recent months have had at least a minor effect on their financial lives, including about 4 in 10 who say the hit has been substantial. The poll confirms that the burden has been especially hard on low-income households.”

>”U.S. households, on average, are earning higher incomes than they did before the pandemic. Wages and salaries grew 4.2% in September compared with a year earlier, the largest annual increase in two decades of records.”  But as RealityChek readers know, the cost of living in September rose by 4.4 percent on year according to the Federal Reserve’s preferred measure of inflation, and by 5.4 percent according to the more widely followed Consumer Price Index.

>Similarly, government stimulus checks and other supports “combined with higher paychecks, lifted Americans’ overall household incomes by 5.9% in October compared with a year earlier. Yet inflation jumped to 6.2% that month, the highest reading in three decades, negating the income gain.” (And then some!)

When he first ran for the presidency in 1992, Bill Clinton touted the importance of “Putting People First” as the lodestar for economic policy. As the AP article indicates, that’s advice that urgently needs learning or re-learning by the numerous reporters and commentators puzzled by why Americans are less impressed with the current supposed economic boom than with their falling living standards.

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(What’s Left of) Our Economy: A Pundit’s China Policy Delusions

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2016 election, artificial intelligence, big government, China, Holman Jenkins, incomes, Jobs, Jr., national security, offshoring, tech transfer, The Wall Street Journal, Trade, Trump, Welfare State, {What's Left of) Our Economy

Holman Jenkins, Jr. did make one important and useful point in his Wall Street Journal column yesterday on U.S.-China trade policy (which puts him far ahead of most of the punditocracy): He’s absolutely right to call on President Trump to “lay out for the American people just how thoroughly [he] intends to shake up the hugely important U.S.-China economic relationship.”

For weeks, I’ve offered Mr. Trump exactly the same advice – to explain his China end game comprehensively to the American people in a prime-time Oval Office address (though unlike the free trade-obsessed Jenkins, I believe such a speech would boost public support for the Trump China agenda by describing the compelling long-term stakes of what I view as an effort to disengage economically from the PRC – and why they’re more than worth short-term sacrifices).

As for the rest of his column? It’s useful only for reminding Americans how internally contradictory and dangerous (not to mention downright ditzy) the case remains for retaining most of the pre-Trump China policy status quo. Just a few key examples:

>Jenkins insists that rather than pursue a “shakeup” that would amount to “following [Chinese leader] Xi Jinping down the path of seeking foreign scapegoats for failure and heavy-handed intervention at home,” the United States should be “building up our military and alliances.”

But what would be the point of sending more troops and equipment to East Asia while Washington returned to trade policies that have transferred literally trillions of dollars to the Chinese state and helped fuel a rapid military buildup, and investment policies that have ignored the massive export of advanced defense-related knowhow to Chinese entities, and for too long overlooked Chinese acquisitions of similar assets in the American economy?

>According to Jenkins, “China’s avid pursuit of artificial intelligence” shouldn’t worry Western experts because it’s “likely to be employed mainly in destroying the creativity and initiative of its own people.” But capabilities even remotely that massive won’t threaten any major U.S. strategic interests?

>In Jenkins’ view, central to strengthening the U.S. economy sufficiently to meet the Chinese threats he doesn’t laugh off is “dealing with the fiscal challenge of our welfare state.” But good luck with the politics of shrinking social safety nets under an American approach to globalization that kept sending valuable opportunities to earn middle- and even living-wage working- class incomes to China and other penny-wage and regulation-free production and export platforms.

Jenkins isn’t entirely wrong in his overall conclusion that “American prosperity is still made at home.” But the impact of purely domestic reforms is bound to be seriously diluted after decades of Jenkins and his crowd at the Journal (along with most of the rest of the nation’s punditocracy, the pre-Trump Republican party, and the Clinton-ite Democrats) focusing like laser beams on building a truly globalized economy.

And finally – about that headline calling for a “vote on a China Cold War”  (even though the article’s body only glancingly mentions the point): During his successful White House run, President Trump made no secret of his determination to overhaul America’s China trade policy. From the standpoint of democratic legitimacy, the Trump 2016 election victory was all the mandate his administration’s China policy measures need.

(What’s Left of) Our Economy: White House Fakeonomics on Tariffs and the Poorest Americans

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China, consumer spending, Council of Economic Advisers, incomes, Jobs, Labor Department, NAFTA, North American Free Trade Agreement, Obama, offshoring, poverty, tariffs, Trade, White House, World Trade Organization, WTO, {What's Left of) Our Economy

We’ve heard a lot lately about fake news. But President Obama’s outgoing Council of Economic Advisers (CEA) has just reminded us that at least as great a problem is fake policy analysis. For its new report emphasizing that tariffs are “an arbitrary and regressive tax” that hits low-income Americans especially hard glosses over and ignores completely the biggest trade-related income questions that any intellectually honest researcher would ask.

CEA argues that “tariffs – taxes on imported goods – likely impose a heavier burden on lower-income households, as these households generally spend more on traded goods as a share of expenditure/income and because of the higher level of tariffs placed on some key consumer goods.”

But here’s the main point it glosses over: The vast majority of spending by poorer Americans goes to goods and service that are lightly traded, at best. Indeed, the White House economists provide the first clues themselves. As they show (in the figure below), even though the tariff burden on after-tax income does rise as such income falls, the absolute levels are very low – a little over 1.50 percent of such income for the poorest 10 percent of households.

Figure 2 Tariff burden relative to after-tax income

And as the next figure reveals, when totally untraded mortgage, rent, and utilities are removed, both the tariff burden gap between the richest and poorest Americans, and the absolute tariff burden, shrink dramatically. The latter falls all the way down to less than 0.60 percent of the total income of the lowest 10 percent.

Figure 3 Tariff burden relative to expenditures excluding mortgage, rent, and utilities

Looking at what lower-income households actually spend explains these rock-bottom numbers. According to the same Labor Department consumption data set used by the CEA economists, households in the lowest decile on the American income scale are spending fully 42 percent of their income on housing (which is not at all traded internationally) and another 17 percent on food (which is mainly produced domestically). Another six-plus percent of these households’ economic intake goes to health care, five percent to education, and a bit over four percent to entertainment (also all wholly or largely un-traded).

Interestingly, another 14 percent of the lowest-income group’s expenditures goes to transportation. U.S. oil imports are (lightly) tariffed. But assuming most of the poorest Americans don’t own, lease, or rent their own vehicles, the impact on their finances is surely minimal.

Add these numbers up, and clearly America’s lowest-income consumers spend hardly anything on imported goods that are subject to tariffs.

Moreover, here’s what the CEA economists completely ignore: The last few decades’ worth of trade policies they implicitly endorse here have wreaked havoc on the employment – and therefore incomes – of many of these same lower-income households.

Just look at what’s happened to domestic payrolls in two industries that used to provide jobs for many Americans who have no doubt fallen way down the income ladder: furniture and apparel. According to Labor Department data, since the North American Free Trade Agreement (NAFTA) went into effect in 1994 and ushered in the current era of U.S. trade policy, employment is down by more than a third in the former and by nearly 85 percent in the latter. Moreover, import- and offshoring-related job losses have been especially steep since China entered the World Trade Organization at the end of 2001 – as widely cited scholarship has emphasized.

As NAFTA also triggered a heated debate on trade policy in the United States, critics started printing up and handing out garments reading “My job went overseas and all I got was this lousy T-shirt.” Obviously, these are gifts that someone should have mailed the White House economists who suggest that tariffs have delivered the main trade-related hit to America’s poorest.

Im-Politic: Why the Charges Against Trump Aren’t Sticking

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2016 election, chattering class, Democrats, Donald Trump, establishment, evangelicals, Glenn Beck, Im-Politic, Immigration, incomes, Jobs, media, middle class, National Review, Populism, Republicans, Trade, working class

It’s Super Tuesday afternoon, and a blow-out night for Donald Trump still seems to be the very best bet. This despite a flood of reporting and commentary containing charges against the Republican presidential front-runner that might be the most disturbing since the Watergate Era.

Like the attacks on former President Richard Nixon, the accusations against Trump could be entirely or largely accurate. They could also be mainly mudslinging. (Some, especially regarding the candidate’s Trump’s frequent abuse of fact, hold entirely too much water.) What’s increasingly beyond dispute is that lots of voters don’t seem to care.

This attitude is increasingly evident on the Republican side, judging from Trump’s steadily rising “ceiling” of GOP support nationally. But it’s also evident when it comes to the entire electorate, where according to the comprehensive survey compilations kept on the RealClearPolitics.com website, Trump loses to both his possible Democratic rivals in most general election surveys, but is pretty competitive. (Judge for yourself whether you put stock in this theory holding that America is full of closet Trump backers too embarrassed by their preference to give honest answers by to pollsters by phone.)

Along with others, I’ve repeatedly written about why (justified) economic gloom and anger among working- and middle-class Americans is the best explainer of Trump-ism – and about how the nation’s intertwined economic, political, and media elites have responded overwhelmingly not by seriously addressing Main Street’s grievances, but by vilifying Trump and even many of his backers. And along with others, I’ve repeatedly written that this disconnect shows both how dangerously remote so many leaders of so many segments of American society have grown from the rest of their countrymen, but how irate the rabble have become at the elites. Democracy can’t possibly prosper with this division.

Nonetheless, the main reason for Trump’s strong and growing support despite the kind of verbal nuclear strike that usually wipes out its target still seems inadequately understood. Sure, there’s a lot of simple class envy at work – though polls consistently show that many low- and middle-income Americans don’t want to deprive the rich of their comforts but simply to gain a shot to join their ranks that’s perceived as fair. Sure, there’s rarely much public love lost for politicians or the media. And sure, American public and private life and speech have all become coarser. (Thanks, pop culture!)

But here’s what else seems to be going on: Growing numbers of Americans are ignoring or tolerating Trump’s historically enormous and conspicuous flaws because they view the elites’ focus on them as a dodge. In other words, they’re increasingly bombarded with coverage of Trump’s business failures and scams and white supremacist backers and hypocrisies and thin skin and crude insults of any number of individuals, groups, and entire genders. And they’ve concluded that these revelations first and foremost demonstrate the determination of the chattering and plutocrat classes to ignore the job and wage losses – and social devastation – resulting from mass immigration policies and offshoring-friendly trade agreements. And so the more such stories appear, whether true or not, the higher Trump’s poll numbers have been rising. In the absence of anything but token acknowledgements that Trump backers aren’t simply – let alone mainly – bigots and know-nothings, each new disclosure fuels public conviction that the establishment’s top priority isn’t easing Main Street’s plight but protecting its favored position.

The same kind of dynamic is at work when it comes to Republican voters’ responses to charges by Republican party mainstays and self-appointed right wing “thought leaders” (like Glenn Beck!) that Trump isn’t a true-blue conservative. Even many evangelicals, who arguably have wasted far too many elections voting their value to the exclusion of their pocketbooks, are finally concluding, along with other Republicans and conservatives still looking in at the country club, that the true-blue agenda hasn’t given them bupkis. That’s largely why they’ve been voting for Trump over former darlings like Texas GOP Senator Ted Cruz.

And although their interest in the mainstream conservative media and policy community’s output is pretty limited to begin with, the evangelicals and other Main Street conservatives are undoubtedly deciding that the National Review and right-wing think tank crowd is devoted more to preserving its cushy, plutocrat-funded sinecures than in fostering better jobs and incomes.

Often sports metaphors are useful for expressing political points, and so it’s tempting to urge the elites to “change a losing game” if they really want to stop Trump. But the powers-that-be appear to view this 2016 presidential campaign as a mortal threat, not a game. If they’re right, never will so many have lost so much so much so deservedly. 

Im-Politic: Will Trump-Bashers Start Blaming the Economy’s Victims?

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2016 election, college premium, debt, Donald Trump, Economic Policy Institute, education, Financial Crisis, Im-Politic, incomes, Mainstream Media, manufacturing, Marketwatch.com, offshoring, real wages, recession, The Race to the Bottom, Tim Mullaney, Trade, wages

I guess it was only a matter of time before the Mainstream Media’s hostility to Donald Trump’s presidential candidacy showed signs of moving into its next phase. Its mainstays have blasted the Republican front-runners’ own views and business record and character. They’ve warned that at least some of his supporters are outright racists and other forms of unquestionably bigoted extremists.

Now at least one writer has decided to dump on that large (and perhaps overwhelming) share of Trump-Nation motivated by sagging and even falling incomes. According to Marketwatch.com columnist Tim Mullaney, not only do the downwardly mobile (presumably) whites deserve no sympathy for their plight. They’re the ones who are overwhelmingly responsible.

In Mullaney’s words: “[I]f you’re 45-plus and thinking life passed you by because you didn’t understand the necessity of an education any time after 1975, you were too hormone-addled at 18 to grasp something that had long been obvious.

“When Trump’s base was coming of age, John Naisbitt’s ‘Megatrends’ was a best-seller for a full two years. You couldn’t read it or even hear about it much (and it spawned dozens of books and too many articles and TV segments to count) without understanding factories were closing and not coming back, and people who grew up wanting that life needed a Plan B. The 1982 recession, which launched Barack Obama’s career as a community organizer in neighborhoods hit by steel-mill closings, made it pretty obvious too.”

Mullaney says his background has innoculated him against “liberal elitist” charges, so let’s focus on something that’s more important. This indictment is factually wrong and analytically shortsighted.

As I’ve reminded Mullaney on Twitter, Trump’s support among the college-educated is anything but negligible. And one big reason is that in recent decades the oft-touted wage premium received by college grads over their less-educated counterparts hasn’t prevented their own wages from stagnating and even worse. In other words, more education is a great bet for ensuring that incomes will escape the massive hit taken by the less educated. But that’s not because graduates’ wages have been killing it. It’s because they’ve been declining less than the wages for those lacking a Bachelor’s degree – as this stunning chart shows:

 

Year	Less than high school	High school	Some college	College	Advanced degree
2007	0.0%	0.0%	0.0%	0.0%	0.0%
2008	-1.1%	-0.6%	-1.3%	-0.4%	0.5%
2009	0.5%	1.7%	0.0%	0.4%	4.2%
2010	-2.9%	-0.1%	-1.3%	0.5%	3.3%
2011	-4.1%	-2.1%	-4.0%	-2.3%	0.3%
2012	-4.7%	-2.9%	-5.6%	-1.3%	2.8%
2013	-5.7%	-3.7%	-5.8%	-0.7%	2.2%
2014	-5.2%	-3.7%	-5.9%	-2.0%	0.0%

The bottom line is the cumulative change, meaning that during this period, after-inflation wages for the college-educated actually fell by two percent.  And even for holders of advanced degrees, they only stayed flat.

Nor, as Mullaney (reasonably) supposed, is widespread wage deterioration simply a consequences of the financial crisis and its punishing aftermath. Data compiled by the Economic Policy Institute (the source of the above material, too), show that from 1973 to 2007 (the final year before the recession struck), the wages of college-educated Americans increased by only 14.79 percent. That’s a 34-year period!

It’s true that, even for those who completed “some college” during that longer period, inflation-adjusted wages dipped by 0.65 percent, and they were off by more for those with only high school diplomas or less. But when you throw in the towering levels of student debt so many Americans have amassed in recent years, the case for finishing college looks like even less impressive.

Mullaney’s column also overlooks the heavy price the nation as a whole has paid for the de-industrialization that has eliminated so many middle class job opportunities for working class Americans. Of course, a large percentage of those jobs were wiped out by automation or other efficiency gains. But a large percentage are just as gone because clueless American trade policies either encouraged the offshoring of factories (and labs) to low-income countries or ignored the damage inflicted by predatory competition from higher income countries like Japan. And as I’ve long written, when Washington encouraged downwardly mobile Americans to resort to borrowing to maintain the living standards undermined by these lost incomes, the financial crisis became inevitable.

Nor, as I found out when researching my book The Race to the Bottom back in the late-1990s, more education wasn’t insulating American workers from these globalization-related threats because higher wage, knowledge-intensive jobs were being offshored as well (or taken by high skill H-1B immigrants) and because every other government on earth – including those in low-income countries – was working frantically to better educate its workers, too. And their numbers were immense enough to hold their own wages far below levels in the developed countries.

Moreover, as I also pointed out on Twitter, Trump’s backing among the college educated (and the even better educated) could well be much higher than many polls are showing. The reason? Many such voters are embarrassed to tell telephone pollsters their true political leanings. The evidence? Trump gets much better numbers in on-line polls than in phone surveys.

As always, I’m not saying that Trump would make a good president, much less that he’s beyond criticism. But in covering his campaign – and his constituency – is it too much to ask the media to refrain from blaming victims of America’s unmistakably mismanaged economy for their resentments?

Im-Politic: American Elites’ America Last Leanings

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E.J. Dionne, elites, Establishment Media, globalization, Im-Politic, incomes, middle class, national interests, offshoring, Steven Weisman, The Washington Post, Trade, trade agreements, working class

Although I don’t know E.J. Dionne well, the Washington Post columnist has always been one of my favorite journalists. It’s not his politics – they’re too orthodox lefty for me. It’s been his personality – always respectful and open-minded in our limited dealings, and equally gracious, tolerant, and genuinely curious in print, despite being highly opinionated.

That’s why it pains me to write that his newest offering widely missed the mark on the first-order issue of identifying the U.S. government’s top economic priorities. It’s only saving grace is underscoring how wide the philosophical and worldview gaps have grown between the the Establishment Media (at least much of it) and the general public (at least much of it).

Summarizing a new book on the new world economy, Dionne commends the author for “painstakingly avoiding dogmatism” and taking care “in laying out the often-agonizing choices” created by globalization. For example, he continues, the rapid growth of international trade and investment,

“has ‘elevated the living standards of hundreds of millions, if not billions, of people worldwide’ but also ‘has helped suppress the incomes of low-skilled middle-class workers in rich countries.’ Where do our loyalties lie? How do we balance obligations to our fellow citizens in the communities and countries in which we live against the interests of those far away?”

Excuse me, but “Time out”! “Where do our loyalties lie”? Not only should the answer be screamingly obvious to any American citizen, but just when did this become a legitimate question? It certainly would never be asked with any sincerity anywhere else in the world, except perhaps in affluent Scandinavia and elsewhere in guilt-ridden northern Europe. That undeniable reality alone should warn Americans against such cosmopolitanism. A U.S. leadership unsure whether its first obligations are to its own citizens is a poor bet to protect their interests adequately in a world where other major-power leaders aren’t nearly so confused.

Then there’s the democracy angle (which Dionne ironically deals with – from a different angle – in his following sentence). How many American voters do you know have elected public officials to pursue foreign interests – however morally compelling – over their own? Just as important, how many of those public officials themselves put America Last? At the least, aren’t they obliged to identify themselves clearly, so their constituents can know who they’re supporting? Private citizens of course have every right to set their own international priorities (provided, of course, that they don’t clash with or undermine official American diplomacy). But elected or appointed members of the U.S. government can’t legitimately enjoy this option – unless they’ve advertised their views before entering public life.

To be clear, I’m not arguing that the United States should never subordinate its needs and wants to those of others. Often in world politics, and politics in general, long-term gain can justify short-term pain. But if the pain is likely to last longer, and keep intensifying, the American people have a right to know about such consequences before the key decisions are made. Nor do I have any intrinsic problems with using U.S. assets to create overseas benefits for their own sakes (as opposed to self-interested goals like buying and keeping allies). But again, these choices need to be approved in advance by the voters. Otherwise, politicians would have free rein to be charitable and compassionate with Other People’s Money.

And in a sense, this is what Dionne and the author he lauds (former journalist-turned Washington think-tanker Steven Weisman) arguably, if unwittingly, are engaged in. For it’s much easier to call for more altruism in American policy when high incomes make such measures affordable. Unfortunately, the kinds of Americans who Dionne and Weisman at least recognize will bear the brunt of the price aren’t in this position.

There are also major policy reasons to doubt the wisdom of globalization policies that elevate raising foreign incomes over maintaining American incomes. As I’ve written repeatedly, offshoring-friendly U.S. trade policies that have had these effects bear much responsibility for the last financial crisis, which harmed the populations of first and third world countries alike. But that’s an argument that’s reasonably debatable on the merits. Acting as if foreign populations’ interests should outweigh Americans should be completely out of bounds – again, unless the public actively approves. And the fact that thoughtful commentators like Dionne even view this option as deserving consideration, whether as an “agonizing choice” or not, tells you most of what you need to know about why so many working- and middle-class voters nowadays are so furious at their nation’s elites.

(What’s Left of) Our Economy: Has the Fed Gotten Savings Incentives Completely Wrong?

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Baby Boomers, banks, consumers, debt, deposit rates, federal funds rate, Federal Reserve, finance, Financial Crisis, housing, incomes, interest rates, recession, retirees, savings, savings rate, seniors, spending, The Economist, zero interest rate policy, {What's Left of) Our Economy

As many of you may know, the Federal Reserve yesterday raised the interest rate it directly controls above an effective zero level for the first time in seven years. So it’s especially interesting and important that a post from The Economist just before the rate hike made a strong case that one of the main rationales for keeping interest rates so low has backfired big-time on ordinary Americans and on the consumer spending still driving most U.S. economic activity.

Just after the height of the financial crisis, the Fed lowered its so-called funds rate to zero (actually, it was a range of zero to 0.25 percent) in part to make sure that the carnage that was spreading from housing to Wall Street and increasingly to the rest of the economy wouldn’t scare households into closing their wallets,and therefore choke off even more growth. The federal funds rate doesn’t directly set consumer borrowing rates – it’s the rate offered by the central bank to the country’s biggest banks. But the Fed was hoping that super-easy money would have twin stimulative effects.

First, when these banks’ borrowing costs fall, they can offer cheaper loans to both consumer and business borrowers and stay just as profitable. And the more affordable credit becomes, the more borrowers were expected to use. Second, the Fed was hoping that super-low rates would penalize saving. A rock-bottom federal funds rate would drive way down the returns on such popular consumer savings vehicles as money market funds and certificates of deposit and savings bonds, and convince Americans that they were better off spending existing savings and incoming income rather than receive literally no reward for thriftiness.

The Economist, though, has argued that the Fed’s penalize-savings strategy was misbegotten. And it looks like it should have been obvious even then. As the magazine points out, the biggest reason Americans save is to ensure a comfortable retirement. For any retirees or those nearing that age who already have substantial savings, even very low-yielding assets can together spin off enough income to ensure the golden years living standards they want.

But then ask yourselves how many Americans were in this situation when the financial crisis and recession struck. Inflation-adjusted incomes for the typical household had been stagnating. Thrift became a forgotten virtue; in part because of those stagnant incomes and in part because perpetually rising home values were hyped as an acceptable substitute, the nation’s personal savings rate hit historic lows and in fact briefly fell below zero. Then, of course, home values began cratering and the stock market went into free fall. So safe but low-yielding assets looked like the only viable savings game in town.

Unfortunately, the lower the return, the bigger the pot needed to guarantee that comfortable retirement. As a result, more and more of the aging American population has felt greater and greater pressure to salt away any new income not needed to cover ongoing living expenses.

Nor do you need to take The Economist‘s analysis on faith. For nothing has been clearer during this weak economic recovery than the continued consumer caution so responsible for holding it back. Many analysts attribute this behavior to a simple – possibly excessive – “once burned-twice shy” fear. But The Economist‘s treatment at least points to another important factor: For Americans with stagnant incomes and meager liquid savings – along with continuing debt – returning to pre-crisis and recession-level spending simply hasn’t been an option. In fact, evidence is accumulating that growing numbers of seniors, including recently retired baby boomers, are feeling these pressures, too – especially on the debt front.

Not that the Fed’s quarter-point rate hike will change matters much. In fact, signs haven’t even appeared yet that it’s a step in the right direction, as those banks that have raised the rates they’re charging for borrowers haven’t raised those that they’re paying to depositors. Until rates rise high enough to reward savings significantly again, most Americans will have ample reason to view recent Fed policies as lose-lose propositions.

(What’s Left of) Our Economy: Open Borders, the Goose, and the Golden Eggs

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Bernie Sanders, bubbles, central banks, developed countries, developing countries, Ezra Klein, Financial Crisis, free trade deals, Great Recession, Immigration, imports, incomes, investment, Jobs, New Economy, Open Borders, recovery, Sharing Economy, third world, Trade, Trans-Pacific Partnership, Vox.com, wages, {What's Left of) Our Economy

Since Ezra Klein is still young, he has time to learn what a bad idea it is to try being clever on unfamiliar subjects. Nonetheless, as made painfully clear in a new interview with Democratic presidential hopeful Bernie Sanders, the media wunderkind and Vox.com founder would be well advised to learn this lesson sooner rather than later, at least when it comes to how the global economy works.

Evidently trying to be clever, Klein tried to trip up the Vermont Senator by asking him how he could reconcile his avowed democratic socialism – and its presumed concern about global poverty – with his opposition to “sharply raising the level of immigration we permit, even up to a level of open borders….” Added Klein, “It would make a lot of the global poor richer, wouldn’t it?”

Sanders’ response was good. But he could have really humiliated Klein by reminding him that unlimited immigration would not only slash American living standards, but that it would ultimately backfire on developing countries as well. The reason is the same as that which argues, from a global perspective, against dropping all barriers to imports from the third world, and it springs from a reality as unmistakable as it is apparently unknown to Klein: American consumption is the goose that lays the developing countries’ golden eggs. To paraphrase that immortal adage, it’s “where the money is.”

Yet just as the United States ultimately can’t responsibly finance the consumption of enough third world imports to spur developing country progress unless its own economy remains truly healthy, it can’t ultimately provide opportunity for third world immigrants without maintaining genuine prosperity. And as Klein and other chattering class advocates of much freer immigration and trade policies should understand – but clearly don’t – the financial crisis demonstrated the heavy costs for everyone of forgetting this truth.

As I’ve written, thanks in large measure to more than a decade of U.S. job- and wage-killing trade deals focused tightly on developing countries, a critical mass of American workers lost the incomes they needed to support acceptable living standards by living within their means. Rather than change course on trade policy, the bipartisan Washington powers-that-be decided to enable the working and middle classes to at least run in place economically by borrowing, instead of earning. The economic meltdown and Great Recession that inevitably ensued inflicted damage worldwide.

Just as important, the historically feeble recovery that’s followed has claimed its share of third world victims, too. Slower American growth has helped crimp imports from China and the rest of Asia, thus sapping the vigor of these export-dependent countries. (Although, as this recent post shows, this phenomenon is easily exaggerated.)  The continuing U.S. malaise has also undermined employment opportunities for current and prospective immigrants from Mexico and the rest of Latin America. Meanwhile, because many global investors have become more risk averse since the last decade’s bubbles burst, and because Wall Street regulations have (necessarily) tightened up some, much international capital has forsaken developing country market and fled to the safety of the United States.

Do Klein and his ilk really believe that admitting a flood of overwhelmingly low-wage, low-skill immigrants will turn this situation around and help anyone, at least for any serious length of time? The only possible justification is a belief, contrary to the evidence and common sense, that the newcomers could rise up the U.S. income ladder as quickly as previous immigrant cohorts. The same question applies to boosting American imports from developing countries – which other supposed experts have touted as a prime reason for supporting President Obama’s Pacific Rim trade deal. Moreover, as I’ve just reported, import- and offshoring-friendly American trade policies could also start victimizing recent immigrants – and choking off opportunities for their successors.

In a perfect world, of course, inhabitants from poor countries could move to wealthier countries any time they wished, and they and the native-born populations would all live happily ever after. Alternatively, in a perfect world, third world populations could supercharge their incomes by providing their first world counterparts with an indefinitely growing supply of increasingly advanced products. Americans (and in principle, Europeans and Japanese) would all support themselves by finding themselves jobs in the New Economy, or the Newer Economy, or the Sharing Economy, or whatever fantasy economic utopians conjure up. Or maybe central banks could keep trying to shatter ever-soaring records for money-printing,

In that perfect world, however, we wouldn’t need economics, or economics. And we certainly wouldn’t need economic journalists like Ezra Klein.

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

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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.

(What’s Left of) Our Economy: Why Increasingly Disposable Workers Become Increasingly Wary Consumers

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benefits, bubbles, consumers, debt, Employment, Federal Reserve, growth, incomes, Jobs, JPMorgan Chase, Robert Samuelson, salaries, savings, savings rate, spending, temporary jobs, volatility, wages, {What's Left of) Our Economy

After his last clunker attempting to debunk claims of a U.S. employment recovery led by lousy jobs, Washington Post columnist Robert Samuelson owed us a good piece. I’m pleased to say he’s delivered with this morning’s effort examining the roots of the consumer caution witnessed since the Great Recession ended.

First, however, let’s specify that “caution” is a relative concept here. Yes, Americans are spending much less of their income these days than they did during the bubble decade – when it hit all-time lows. In fact, in July, 2005, the personal savings rate, which measures that relationship, sank to 1.9 percent, and some news reports back in those days said that it actually went negative that whole year (though it seems that figure has been revised). All the same, even the 1.9 percent figure showing up in the government’s tables now is much lower than the 5.6 percent for last month reported this morning by the Commerce Department.

Yet although it’s clear that savings have been growing on a monthly basis since late 2013, they’re still not close to their highs earlier in the recovery, when the rate regularly hit high single digits. And for decades until the last massive spending and housing bubble, high single-digit savings rates were the American norm.  In other words, the nation knew how to expand the economy in ways other than launching shopping sprees.

Nonetheless, since U.S. growth is still so spending-heavy, any sign of slackening is at least a short-term cause for concern. And Samuelson’s column today presented a great explanation. On top of still being burdened by accumulated debts and understandably gun-shy after the worst economic downturn since the Great Depression, Americans are facing a labor market in which employers increasingly treat them as more disposable than ever before. Principally, more and more businesses are looking at their employees as variable costs, which they can and should reduce whenever possible even in normal times to boost profits, rather than as fixed costs, which they’re stuck with except when economic conditions worsen significantly.

The resulting move toward using temporary workers has lowered employers’ costs both by giving them more flexibility and by enabling them to use more workers who can’t command significant benefits. But as Samuelson observes, these trends also creates much more economic insecurity for those workers, and logically a greater reluctance to spend.

In addition, Samuelson points out, this insecurity is being reinforced by ever more flexible compensation practices. Fewer and fewer workers are earning wages and salaries that are regularly and predictably increased (when possible via some combination of their bargaining power and their employers’ finances). Compensation increases that are handed out increasingly consist of various one-time payments that don’t need to be added to base wage and salary structures, and therefore can be withdrawn at the drop of a hat.

I’d just add two points. First, it looks very much like increasingly flexible employment and pay practices by business are showing up in statistics on how much Americans are earning. According to a recent major study from JPMorgan Chase, between October, 2012 and December of last year, 84 percent of Americans saw their incomes change by more than five percent month-to-month. Even year-to-year, when smaller fluctuations would be the norm, 70 percent of Americans still experienced such large income swings.

Even more noteworthy, 26 percent of the 2.5 million Americans examined by JPMorgan Chase saw their incomes rise or fall (mainly rise, fortunately) by more than 30 percent between 2013 and 2014. Forty-four percent experienced swings of between five and 30 percent. And this volatility was somewhat greater among higher income Americans than among lower.

Second, although U.S. businesses may see their workers are increasingly disposable, the American economy can’t afford nowadays to see consumers – most of whom are workers – in this dismissive light. Indeed, as I’ve just written, personal consumption is just about as great a share of the economy these days as it was during the bubble decade.

Combine an economy that remains consumption-heavy with income sources that are becoming less and less reliable, and it’s no mystery why what meager growth the nation can still generate remains so greatly fueled by ever greater indebtedness – and why the Federal Reserve is so reluctant to end America’s addiction to easy money.