US Economy surges
while the rest of globe slows
But why do the majority of Americans not feel
they are gaining ground?
The American economy is growing impressively, as many key indicators reflect significant progress in a number of key areas. This strong performance contrasts with stagnating growth in much of the rest of the world, including Europe and, especially, Russia and Japan. Here are some key stats:
- U.S. GDP growth is the highest for any developed country, growing 4.2% in Q2 and 3.5% in Q3. In contrast GDP was barely positive in Europe (0.2%) and Russia (0.5%). This is Russia’s worst economic performance since 2009, due to sanctions and lower oil prices. Japan actually officially went into recession, as GDP fell 0.5%!
- Global corporate outlook remains discouraging, except in the U.S. European and Asian companies have expectations of worsening global economic climate….low hiring intentions, anticipation of higher interest rates, fears of geopolitical unrest (Ukraine, Mideast). Many see “triple dip recession” coming.
- In contrast, U.S. unemployment nationally fell to 5.8%, down from 8% just two years ago.
- Corporate profits are at record highs.
- The U.S. is adding 200,000 jobs per month.
- Oil imports are dropping fast while production is rapidly increasing. So much so that the U.S. will soon become the world’s #1 oil producer (thanks to fracking)….Gasoline prices are falling fast.
- The dollar is at its strongest level in years.
- The stock market is at record highs.
- Consumer confidence rose 12% over the past year; home sales were up 5.6% annually and most purchases were by families, not investors; retail sales, especially autos and clothing, way up.
- And, perhaps most significantly, the deficit is going down! That came as a shock to “deficit hawks” like me, but the deficit this year will be $506 billion, or only 2.9% of GDP, representing a 70% decline from Obama’s first year in office and Bush’s last. In 2013 it was $680 billion.
But not all Americans are benefitting
Amid the very positive economic news, there are two important data points that raise concern: First, the stagnation in wages that has left the majority of Americans feeling pessimistic about their future, and second, the increasing concentration of wealth in the hands of fewer and fewer people.
With respect to wages, a Wall Street Journal poll found that 50% of Americans surveyed felt the country was still in recession. A PEW survey found that those who earn less than $75,000 a year felt they were “falling behind”.
The problem is that income for all wage earners has been stagnant for 30 years, and the average family income is the same as it was in 1995 (adjusted for inflation). While jobs have indeed been added, high paying jobs haven’t. Much of the employment gains reflect the unemployed going back to work part-time, for contract work, or for lower salaries and lesser benefits.
In contrast to the stagnation in living standards most Americans have experienced, income and wealth for the top 3% of U.S. families is now at historically high levels. Families in the bottom 90% have seen a deterioration in their net worth, with the bottom 10% having substantial declines. At the same time, the income and net worth of the top layers have soared.
As the graph below demonstrates, wealth has been concentrating in an increasingly smaller segment of the population. While the top 0.01% held about 3.3% of the U.S. net worth in 1960, today that sliver of the populace holds 11.4%!
Do these developments have political ramifications?
“Every time the stock market hits a new high, I look over my shoulder to see if they are getting the guillotines ready!”
Wealthy New York investor
That increasing concentration of wealth in the hands of a very few sounds like Karl Marx’s most apocalyptic predictions being realized. However, to date that development has not ignited the American people—indeed, as the recent elections showed, the electorate resoundingly supported candidates from the party that is the least interested in any “wealth redistribution” schemes!
That may be changing. As former White House aide David Rothkopf has written:
“Given this greatest of threats to average Americans — the threat that there is no better future out there for them and their children and that they will toil away producing profits to be enjoyed only by a privileged handful of Americans — we can count on the political debate in the United States for the next two years to turn less and less on the Islamic State or Ebola and more and more on the time bomb placed at the foundations of the U.S. economy — an economic engine of division and destruction that is gradually pulling the country apart and instilling anger and frustration in many of its citizens (especially those in the bottom fifth, those who are not only out of the money but consigned to inescapable lifetimes of struggle and subsistence).”
Let me know what your opinions are on this issue of wealth/income inequality. Is Rothkopf overstating the significance? I’ll come back to the debate once I have thought more about the issue and have the benefit of your thoughts.
– Tyrus W. Cobb, PhD