It’s entertaining to watch and to read reports in the corporate media about the current stock market decline, which over the course of the last six business days erased $2.1 trillion in the market value of stocks of publicly-traded US corporations (and in a lot of ordinary Americans’ retirement savings).
CNN, in an article on Wednesday, had a piece on its CNN Money website saying not to worry about the market crashing, because, “At the moment, the US economy looks healthy. It’s on track to grow about 2% this year, and unemployment is back at the low levels it was at prior to the Great Recession.”
The New York Times, also on Wednesday, did acknowledge that there were some issues that had been “overlooked” that were now getting attention, but the article focussed entirely abroad, not at the US itself. It argued that the US economy is not as immune from global economic slowdowns as many analysts had believed. For example, while trade with China may only account for some 2% of the revenues of US public companies, much of the rest of the world, including large parts of Asia and Australia, as well as Europe, are heavily dependent upon trade with China, and the US economy is linked to all of them. So, the article concluded, if China’s economy stalls, as appears to be happening, most of the world stalls, and that would cause problems for the US too.
Let’s look at both of these arguments more closely though.
First of all, anyone who says the US economy “looks healthy” isn’t looking very closely. A 2% growth rate is hardly anything to crow about, and since the Fiscal Crisis, when growth was negative, the US economy has struggled to do much more than 2% per year, with the best year being 2014 when it made it to 2.4%. Compare that to the 1990s, when there were five years of growth rates of 4% a year or more, and only two years of below 2% growth rates.
Typically economies, the US economy included, show dramatically higher growth coming off of a recession, and usually too, the deeper the recession, the more dramatic the post-recession rebound. This time we have not seen that happen. Instead there has been anemic “recovery” since 2009.
Add to that the fact that growth itself is a questionable statistic. As the wage and wealth gap in the US has stretched into a chasm, most of the “growth” in the US economy, especially since the Fiscal Crisis, has gone to the top 10% and in fact the top 1% of the population. That may be great for the wealthy, but if you have an economy basically lives and dies on consumer spending, it leaves ever fewer people having to do all that spending, with the rest just scraping by.
During 2012 and 2013, the last years that full IRS statistics were available, the average annual income of the wealthiest 1% of the US population rose by 18% per year. The remaining 99% of the population saw their income decline slightly in both years. It is likely that those numbers have gotten worse in 2014 and this year.
Meanwhile, the bogus claim that unemployment numbers are back down to “low levels,” is really a fraud. During prior recessions, when there was actually a smaller total US population, job growth in recovery periods was always well above 250,000 a month. In fact, during the 1990s, there were 47 months when job growth exceeded — often substantially — 250,000 per month. This decade there have only been 13 months with job growth of 250,000, and that is a number that is only sufficient to absorb the number of new workers entering the workforce each month.
Furthermore, that 5.4% unemployment number intentionally excludes people who have been out of work for more than 6 months, or who have simply given up trying to find non-existent jobs. There are currently 2.5 million American workers who have been unemployed for over six months, and indeed, 29% of the officially unemployed are such long-term jobless — that’s equivalent to the highest number in history.
The other thing which makes the official unemployment figure misleading is that it doesn’t address the quality or lack of quality of the jobs. And the reality is that the good jobs lost in the Great Recession are simply not coming back. They’ve either been moved abroad, or they just disappeared. Even people returning to the same jobs they once had are finding that their pay is lower or stagnant, thanks to the destruction of the organized labor movement.
Equity and humanitarian concerns aside, if incomes are stagnant or falling, it doesn’t bode well for an economy like the US one, where there is very little being produced, and where 70% of the economy is simply consumer spending, mostly on goods that are imported from abroad. No wonder so many of the jobs that are being created are in the service sector: fast food workers, bank tellers and shop clerks.
No, the reality is that the US economy is in sad shape.
Meanwhile, the Times is wrong in claiming that the issue is that experts have been ignoring the problems of the global economy, and underestimating the impact that a global economic slowdown could have on the US economy. Left unsaid is that these same experts (and the Times itself!) have also been underestimating the problems of the US economy itself.
Having pointed all this out, one can only laugh at the many assurances that the US stock market will not be tanking anytime soon.
I was particularly entertained to read in the Times a critique of how China was responding to its own market crash. The Chinese government, the Times smugly notes, desperately and foolishly blew tens and perhaps hundreds of billions of dollars trying to prop up the Shanghai Stock Exchange by buying shares.
How silly. The US would never do that, right?
Except that in effect that is exactly what the Federal Reserve has been doing. Its so-called quantitative easing program of printing money electronically and shunting it into the possession of the nation’s largest banks, where they can invest it as they please instead of lending it out at low interest to would-be borrowers, is no different substantively speaking, than just going out and buying stocks. Indeed, the whole stock market in the US is a rigged game, with companies using hoarded cash to buy back and artificially inflate the value of their own stock instead of investing it productively.
Of course, given the way the US stock market has become a rigged game, it’s anyone’s guess where it will go from here. If rigging still works, it could start going up again. But trying to claim that it won’t crash because the underlying US market is healthy is a bad joke — and also bad journalism.
Full disclosure: My wife and I took our retirement savings entirely out of the US stock and bond market a year ago and have parked it in cash, so we can look at the carnage and the comic efforts to explain it all logically with total detachment.