Tuesday, March 26, 2013

Is the Economic Recovery a Grand Illusion?

It’s not just that economic recovery is elusive; it's illusive.

As Mort Zuckerman explained in the Wall Street Journal this morning the American economy is stagnant. True, the media is touting a great recovery and the stock market keeps rising, but, Zuckerman suggests, the recovery is a “Grand Illusion.”

In his words:

The Great Recession is an apt name for America's current stagnation, but the present phase might also be called the Grand Illusion—because the happy talk and statistics that go with it, especially regarding jobs, give a rosier picture than the facts justify.

The country isn't really advancing. By comparison with earlier recessions, it is going backward. Despite the most stimulative fiscal policy in American history and a trillion-dollar expansion to the money supply, the economy over the last three years has been declining. After 2.4% annual growth rates in gross domestic product in 2010 and 2011, the economy slowed to 1.5% growth in 2012. Cumulative growth for the past 12 quarters was just 6.3%, the slowest of all 11 recessions since World War II.

Zuckerman has been reporting on the story for years now. He has not been fooled by the rosy scenarios painted by the media and the politicians.

He continues to try to give us some needed perspective on our economic conditions.

February's headline unemployment rate was portrayed as 7.7%, down from 7.9% in January. The dip was accompanied by huzzahs in the news media claiming the improvement to be "outstanding" and "amazing." But if you account for the people who are excluded from that number—such as "discouraged workers" no longer looking for a job, involuntary part-time workers and others who are "marginally attached" to the labor force—then the real unemployment rate is somewhere between 14% and 15%.

Other numbers reported by the Bureau of Labor Statistics have deteriorated. The 236,000 net new jobs added to the economy in February is misleading—the gross number of new jobs included 340,000 in the part-time, low wage category. Many of the so-called net new jobs are second or third jobs going to people who are already working, rather than going to those who are unemployed.

The number of Americans unemployed for six months or longer went up by 89,000 in February to a total of 4.8 million. The average duration of unemployment rose to 36.9 weeks, up from 35.3 weeks in January. The labor-force participation rate, which measures the percentage of working-age people in the workforce, also dropped to 63.5%, the lowest in 30 years. The average workweek is a low 34.5 hours thanks to employers shortening workers' hours or asking employees to take unpaid leave.

Of course, the stock and bond markets seem to be telling a different story. If Zuckerman is right, the markets are simply not telling the truth.

We know that the bond market is being propped up by the Federal Reserve. Given how low interest rates are, investors seeking a return have had to rely on stock dividends. We also know that American markets have been attracting foreign assets because they are the safest alternative. 

Would you rather keep your money in a European country that might decide to confiscate it tomorrow or in the United States, where such an eventuality seems far less likely?


Dennis said...

Yes, but the same thing could be said about almost every thing this administration is doing.
Better healthcare NO
More respect for America NO
Better Foreign Policy NO
More respect for religious differences NO
Better race relations NO
More respect for life NO
More attempts to find solutions to problems NO
Better relations between men and women NO
Undermining terrorism throughout the world NO
Equal application of the law NO
Transparency NO
Attention to the Constitution NO
Meeting budget requirements NO
Providing leadership NO

I could go only, but one should get the point

n.n said...

Over one trillion dollars is spent every year by the federal government to maintain the grand illusion. This account deficit is uncorrelated to productivity and represents an unsustainable demand. Similar to "affordable" health care, which does not address progressive inflation uncorrelated to population growth, and does not increase supply to meet demand.

As for confiscating earned income, it already has. First, in the form of trillion dollar account deficits. Second, in a selective pursuit of taxable income and events. Third, with infantile energy policies. Fourth, with "affordable" health care, which does not address progressive inflation. It's unlikely they will pursue overt measures until they first empty their bag of tricks.

Anonymous said...

From the perspective of a saver, there are two secure ways to get some return on your money, an FDIC insured bank deposit or a Treasury security.

Society thinks of the bank deposits as a "good form" of savings, and it thinks of the Treasury securities, which ultimately back the FDIC insurance with a line of credit to Treasury, as "bad debt?"

This logic is preposterous and absurd. Government deficits may be poorly spent, but going into debt through banks or the government are the two alternatives for financing economic activity, there are no others!

Anonymous said...

This is my idea of an "infantile" energy policy:

Daddy burns oil and fights world wars, so I should burn oil and fight wars to be like the Daddy-Warbucks generation!

n.n said...

Actually, the infantile part of that particular policy is that we fight other people's wars with marginal returns for us. The oil from the Middle East and Africa is primarily destined for Europe and Asia.

Lastango said...

I wish I had time to comment at length on this. My only complaint about the article is that the picture it paints isn't gloomy enough. To be brief, we are already into a depression. The world is imploding as the debt bubble collapses. Key signs include:

-- the collapse of the legal industry in the US, and the lack of demand for new lawyers and MBAs.

-- the economic meltdown in Europe.

-- the global capital flight that is presently juicing our real estate and stock markets.

-- declining real income. This is dropping every year, and the US has now reached 1998 levels. That's happening elsewhere too.

IMO, our economic decline is permanent. We cannot return to our previous prosperity, because that prosperity never actually happened. We were borrowing and spending, not creating true wealth. We're about to see what the nightclub we've been living in looks like when the lights go on.

Dennis said...

The fact is we could put an end to this country getting involved with the Middle East if we just developed our own oil and gas reserves. The funding for terrorism would dry up. More jobs would be available in this country thereby creating a far better economy based on products and services and not on government inspired debt.
The increase in revenue would provide more funds to be used to develop other sources of energy. Here I do not believe that solar or wind power is the answer for a whole host of reasons. I believe it exists in quantum Mechanics in ideas like "zero point modules.
I am a lot more sanguine about our ability to react and adapt if we can wean people of of big government and statism. Once one can get people to understand that currency has to be backed by something other than government, like capitalism's products and services provided, a lot of this malaise will improve. There is a rule here called the "Multiplicity of Money" that if understood gives a good primer on how money grows through an economy but one has to remove most of the government's unneeded interference with capitalism.
Capitalism has to be honest and above board in order to survive so legal professions and MBA's are a real part of making that happen. One can only cheat the customer once before losing the customer and his/her friends business. Government is what props up most bad actors. Since we have not been a capitalist country in quite some time we hardly even recognize it.
There are many good solutions to our problems and most of them require an educated and intelligent electorate and limited government. Nothing should be to big to fail. failure is good because it teaches one what works and what doesn't.
We are quite capable of solving much of this, but we have got to start by taking responsibility for our OWN lives.

Dennis said...

"Multiplicative Factor of Money."

Sam L. said...

The only thing grand about this illusion is its size. A fabrication of the administration and its syncophantic press, as most of the country sees no recovery. We are approaching the fifth annual tour of the band "Summer of Recovery".