Earnings up, deficit up, slow growth, no jobs

There is great news! The economy has continued its growth in the 4th quarter of 2003. Corporate earnings have increased (for some dramatically - DuPont Posts 82 Percent Profit). Wall street has been on a general upward trend. It's all good according to the White House.

But...

Unemployment in the US is not improving. US jobs are not growing - 1000 (one thousand) in the whole nation for December 2003. The deficit will reach the Moon before the US plants its boots there again.

President Bush's Medicare plan just added $140 to the estimated drug benefit cost, which jumps the 2004 projected deficit to $540 Billion. Yep half way to a trillion dollars for a one year deficit - White House Defends Medicare Law Despite Higher Price Tag, Pear, NYT, 1/30/04.

But the US is not alone in the average person's experience of this "recovery" ( Global unemployment at record high - more than 185 million, Al Jazeera, 1/25/04). Please keep in mind that the undercount globally is likely much worse than in the US count.

I have commented before that one can't call something a recovery if the people aren't experiencing it. If the economy improves and unemployment doesn't decrease, then we are certainly looking at a false recovery. What I suspect is happening in the US is that the economic improvement reflects people purchasing on credit. The Fed has (so far) kept interest rates incredibly low. This has been reflected in generally lower consumer interest rates which has encouraged many to buy. Consumption has been the driving force behind the so called recovery. However, now folks are getting nervous. Job losses continue. Well paying jobs are being "outsourced" to other nations. US job creation isn't happening at anywhere near the rate to absorb those 3 million plus who have lost jobs. In fact, at the current rate, it could take half a century to create the jobs to replace the ones lost. There are also the warnings that the Feds may raise interest rates, and for the US consumer at this point that could be almost the worst possible news. People are over-extended. People are living on credit (groceries, housing, etc).

The low Fed interest rate is also meant to spur business. It doesn't just allow consumers, but business, access to money at a lower rate. "Cheap" money to add inventory, expand operations, add jobs, etc. It also gives them "cheap" money to engage in mergers and buy-outs, and expand operations outside the US. How much of the growth in the economy is due to corporations consolidating their debt at a lower rate, thereby decreasing their debt to earnings ratio? I have no idea, but my guess is it is part of what is going on.

Real economic improvement occurs across the population. An economy that tries to raise all boats by funneling money into the hands of the richest simply doesn't work. It didn't work under Reagan's "vodoo economics" and it won't work under Bush. So called "trickle down" economics are at best just that - a trickle. What is this the "leak theory" of economic growth? When the amount of wealth accumulated at the top overflows the bath tub and starts seeping through the floor to those below? It doesn't help that there is no running water in the lower floors.

When you add the structuring of the leak theory to the deficit (which Bush sees as not a problem at all), you have the folks in the lower floors collecting what leaks down in buckets and hauling it back up to the top floors - for generations. This is not just happening in the US. The global unemployment figure shows that this is a much larger phenomenon. Not only is unemployment high, but outsourcing will drive wages down globally, just as the global workforce competition has driven manufacturing and agricultural wages down. This is not part of some "natural" economic process. It is one that is structured through "free trade," spurred on by economic policies (such as those in the US) and overseen by a belief that privatization and democracy are synonomous. This is a process that is amazingly good for a very few, but it does not ease the suffering of those on the lower floors - and it is not meant to do so.

Posted by rowan at January 31, 2004 8:20 AM | TrackBack | [eMail this article!] |