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 us 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 have
emerged from the first 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 Index 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 past six months
surging back. On the close of business, Wednesday, September 9, we are 40% and
more than 290 points above the lows reached in February and early March 2009.
S&P500 Index, 1964-2009
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 past 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 1 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.
Look closely at the vertical axis in each graph. The range of values is fairly
small. This is particularly crucial in Figure 2, "Average hourly earnings in
1982 dollars". Our average hourly earnings, corrected for inflation, have been
stuck between US$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.
Figure 1: Average weekly hours of production workers, 1964-2009
Figure 2: Average hourly earnings in 1982 dollars, 1964-2009
Max Fraad Wolff is a doctoral candidate in economics at the
University of Massachusetts, Amherst, and editor of the website
GlobalMacroScope.
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