Two weeks ago, the Bureau of Economic Analysis released it’s 1st revision of 2nd quarter GDP, boosting its estimate to 2.5% growth from the previously-reported figure of 1.7%. Economists hailed this as further evidence of an economy that is gaining momentum.
But is the recovery gaining momentum? Or is the recovery even real? Two days before the BEA’s release of GDP, this article appeared on CNBC: http://www.cnbc.com/id/100987924. The article reports on a study by Charles Hugh Smith, author and blogger, in which he analyzes such things as full-time employment as a percentage of the population, real personal income and its distribution and the percentage of people qualifying for non-subsidized mortgages. Smith points out that median household income is still below the level it was at when the recession began in 2008 and has barely risen at all during the “recovery.” And the top 0.1% of wage earners now account for over 10% of all income in the U.S. The top 1% account for nearly 20% and the top 10% account for nearly half of all income.
And Smith questions metrics that aren’t being tracked at all (lest they cast even more doubt on claims of a “recovery”), like the percentage of student loans that are being taken out not to pay for higher education, but simply to have something to live on. He ends with the question, “Is an economy of people obtaining student loans they have no way to service as the only available means to keep themselves off the street a healthy economy?”
OK, Smith is just an author and blogger, not carrying much weight in the world of economics. But he must have caught someone’s attention because, just yesterday, this following story was widely reported: http://www.cnbc.com/id/101025377. The article reports on a study by three prominent universities that corroborate Smith’s findings. And it adds this piece of data:
But since the recession officially ended in June 2009, the top 1 percent have enjoyed the benefits of rising corporate profits and stock prices: 95 percent of the income gains reported since 2009 have gone to the top 1 percent.
To put that into perspective, and returning to the GDP data with which I began this post, this means that of the $64.8 billion annual rate of increase in GDP that occurred in the 2nd quarter, the share of that increase realized by 99% of American households comes to a grand total of $32.40 per year. Thirty-two dollars and forty cents. Take away the top 10% of earners and the rest are left with nothing. And for the majority of Americans, their share of GDP is shrinking.
This isn’t a picture of a recovery. It’s a recession that, if anything, is deepening – exactly the way it feels to most Americans who can’t believe their ears when they hear all this talk of recovery. It’s an illusion of a recovery created by a narrow set of macroeconomic metrics – GDP and stock market indices. Carried to its extreme, even if all wealth were concentrated in the hands of one American – Donald Trump, let’s say – our economy would be deemed healthy as long as Trump continued to grow his wealth and as long as his stock holdings increased in value, regardless of the fact that all 316 million other Americans lived in abject poverty.
This is precisely the situation you’d expect when the interests of those who benefit from population growth diverge from the interests of average Americans, just as I warned of in “Five Short Blasts.” A select few will continue to benefit from macroeconomic growth as the fortunes of everyone else decline along with falling per capita consumption.
I know that sometimes I seem to be actually rooting for an economic downturn. In a way, I am, because it’s only then – when the 1% fall into recession – that they begin to question what might be at the root of our ailing economy. The remaining 99% - those living in the real world - are already wondering what the hell is going on.