Americans Continue to Grow Poorer During “Recovery”

September 19, 2014

One of the consequences of the inverse relationship between population density and per capita consumption is declining incomes as the demand for labor fails to keep pace with the growth in supply.  As per capita consumption goes, so goes employment.

I published Five Short Blasts in 2007, just before the onset of the “Great Recession.”  That unemployment rose and incomes declined during the recession was no surprise and provided no proof of my theory.  But a report released last week by the Federal Reserve does.  The Fed released it’s 2013 update to its tri-annual “Survey of Consumer Finances.”  (Link provided above.)  The latest survey shows the changes in consumer finances during the 2010-2013 period, a period of recovery, following the previous release which covered the 2007-2010 period of recession.

The survey found that while Americans grew substantially poorer during the 2007-2010 period of recession, they have continued to grow poorer during the so-called “economic recovery.”  Median incomes fell yet another 5% after falling 8% during the recession.

Median net worth fell another 2% during the “recovery” after falling 38% during the recession.

Wealthy Americans, the top few percent of wage earners, have fared much better.  Their incomes have risen 4% during the recovery and they have completely recovered their much-smaller loss in net worth that occurred during the recession.

Economists are baffled.  I’m not, and you shouldn’t be either.  As long as the U.S. continues to mis-apply free trade to nations grossly overpopulated and as long as we continue to exacerbate our own worsening population problem, declining incomes and worsening unemployment is inescapable.  People living in crowded conditions consume less.  It’s impossible to avoid.  When people consume less, less is produced and employment declines.  It’s all really quite simple – simple to anyone willing to open their eyes and ponder the economic consequences of a growing population – something that economists are still unwilling to do.

Disappointing August Employment Report

September 5, 2014

After a couple of months of halfway-decent employment reports, the one released this morning by the Bureau of Labor Statistics was a disappointment, and the details are even more disappointing than the headline numbers.

According to the “establishment survey” portion of the report (which yields the headline number), the economy added 142,000 jobs – far fewer than the 200,000-plus jobs that analysts expected.  What’s worse is that, according to the household survey, the employment level (analagous to the establishment survey) rose by only 16,000.  Also, the June and July data from the establishment survey were revised downward by 28,000 jobs.

Despite the tiny gain in employment level, the “unemployment rate” declined again to 6.1%, thanks to the same old trick of claiming that the size of the labor force declined again by another 64,000, even though the population grew in August by 220,000.  As a result, the unemployment rate “detachment from reality index” (the difference between the official U3 unemployment rate and a more realistic figure that grows the labor force in proportion to population growth) rose again and remains at a near-record level.  Here’s the chart:  Detachment from Reality Index.

Because of the near-flat employment level while the population grew, the number of unemployed Americans rose by 96,000 in August:  Unemployed Americans.

And per capita employment fell for the first time in four months:  Per Capita Employment.

Both the number of unemployed Americans and per capita employment are at the same level as in June, 2009, a year-and-a-half into the “Great Recession.”

Manufacturing employment actually lost 1,000 jobs in August.

The average workweek was unchanged for the sixth consecutive month.  (Not a sign of improving labor demand.)

It’s beginning to look like the previous couple of months were a “flash-in-the-pan” catch-up period following the dismal, weather-impacted first quarter.  The economy is settling back into a low-to-no-growth mode that has characterized most of the “recovery.”  As I claimed would happen in my previous post, could this be the beginning of a slow slide back into recession?

Stage is Set for Next Recession*

September 3, 2014

The economy has been riding a crest as of lately. It should. Since the last recession began in 2008, between deficit spending by the federal government and monetary expansion by the Federal Reserve, over $10 trillion has been pumped into the economy.

But that’s come to an end. The Federal Reserve’s QE-whatever program has tapered to nearly nothing and ends in October. And perhaps more importantly, federal deficit spending has slowed to the point where it exactly matches the trade deficit. Check this chart of the growth in the national debt vs. the cumulative trade deficit:  Debt-Trade Deficit. The significance of this is that every time – every time – the growth in the national debt slows to the point where it begins to lag the trade deficit, the economy lapses into recession.

To understand why this happens, draw a line around the economy. Then add up the money flows that cross that line. Exports put money into the economy while imports take money out, meaning that a trade deficit is a net drain on the economy.  Taxes take money out of the economy while federal spending puts money back in.  So deficit spending (putting more money back into the economy than is taken out through taxes) has a stimulative effect on the economy while running a budget surplus is a net drain on the economy.  (The sustainability of deficit spending and the long-term effects are a whole separate discussion.)  Foreign investment puts money into the economy while American investment takes money out. In this case, net investment has consistently been a huge drain on the economy for decades as corporations have sunk all of their money into emerging foreign markets for a long time.

Add all of these up and we are now entering a phase where there is a net drain of money out of the economy. The problem is that economists and politicians lean on deficit spending to pull us out of recessions, but then grow nervous as the national debt soars. Eventually, the deficit spending has its predicted effect and the economy begins to recover.  Americans grow more confident, open their wallets, and take on more debt.  Federal revenue grows as incomes as corporate profits rise, and federal spending moderates as the need for social safety net spending (like unemployment benefits) decline, and as politicians grow eager to show fiscal restraint.

That’s all fine, but what economists and politicians alike fail to recognize is that, over the long haul, it’s impossible to balance the federal budget without first restoring a balance of trade. Otherwise, it’s inescapable that the net drain of money from the economy will drive it into recession.

It happened at the end of the Reagan-Bush era in the early ’90s.  It happened again at the end of the Clinton administration, when Clinton balanced the budget while simultaneously granting most-favored-nation status to China and sending our trade deficit soaring.  It happened again at the end of the “W” administration.

And now it will happen to President Obama.  He could avoid it, but he won’t.  He could boost spending, but that would forever label him as a reckless spender and give a boost to Republican candidates running on a platform of fiscal restraint.  Besides, Republicans in Congress wouldn’t stand for it, even if he wanted to do it.  Instead, he’ll fall into the same trap as his predecessors, hoping that history will remember him as one who did what needed to be done to end the recession, put the economy on solid footing and then restored fiscal sensibility – an economic trifecta that hasn’t happened before and won’t happen now because it can’t happen.

It may take a year or two for the net drain of money from the economy to bite, but it’s coming, so get ready.

* * * * *

* All “recessions” are determined by macro-economists to occur when the macro-economy, as measured by GDP (gross domestic product), shrinks for two consecutive quarters.  But there are actually two different kinds of such recession – the one we traditionally think of as being bad, and another kind that we’ve never witnessed that is actually beneficial.  The latter occurs when the decline in GDP is accompanied by a decline in the population when the population is above its optimal level, as it is in the U.S. and throughout most of the world.  In that scenario, the decline in population actually unleashes pent-up per capita consumption that has been strangled by over-crowding.  The decline in GDP is slower than the decline in population, resulting in an increase in demand for labor and rising incomes.  This is the recession that we’ve never seen before but should all be hoping for.