Sunday, July 31, 2011

Our Bad Economy Is Getting Worse

The pundits have been trying to tell us that the recession is over -- that it ended more than a year ago. Of course they are using a technical textbook definition of when a recession ends -- three or more quarters of growth in the national Gross Domestic Product (GDP). But while that may be fine for the academics, the rest of us have to live in the real world and in the real world the recession is not over (and may not be for quite a while).

Wall Street may be celebrating the growth of GDP, but Main Street is experiencing the results of over 14 million people without jobs (approaching 10% again) and nearly 9 million more are underemployed, record foreclosures of family homes and falling home prices, stagnant or falling wages for those lucky enough to have a job, rising food & gas & medical prices, and a growing feeling that our leaders don't care.

Now there is evidence that even the much-touted growth in GDP may be coming to a screeching halt. The GDP for the first quarter of 2011 was originally thought to be about 1.9%, but that has now been downgraded to only 0.4% (which would translate to an annual rate of a very anemic 1.6%). The second quarter GDP has now been released and it is even worse -- only about 0.3%, or an annual rate of 1.2% (and it would not be surprising to see it also downgraded after more study).

If the economy was healthy the growth in GDP should be at least 4% a year. At the current growth rate the economy would be lucky to make 1.5% -- and it seems to be slowing down, so it might be less or even go back into negative growth (like 2008 & 2009).

Now the Republicans would like to convince people that the economy is not growing fast enough because taxes, especially on the rich and the corporations, are too high. This is just an outrageous lie meant to benefit themselves and their rich cronies. Both the tax rates and taxes as a percentage of GDP are at their lowest point since the early 1950's. And the economy grew very well during those "high tax" times between then and now.

The real reason the economy is going back into the dumper (as defined by GDP growth) is because consumers are not buying more products and services. Consumer spending has fallen to a microscopic 0.1% growth (which would translate to less than a half of one percent annualized). Considering the high unemployment (and underemployment), the stagnant wages, and rising prices, this should not come as a surprise to anyone.

And what does Washington want to do? The politicians of both political parties want to cut trillions of dollars in government spending. This is exactly the wrong thing to do. Pulling trillions of dollars of spending out of the economy means there will be less money circulating. That means less goods and services paid for, and therefore less jobs created. Massive spending cuts will just make the economy worse and extend Main Street's recession for a lot longer.

In the 2008 election, I had hoped we were electing leaders that would follow the lead of Franklin Roosevelt who knew jobs were the number one problem and fought hard to create them. But the people we would up electing in 2008 and 2010 seem to think the failed policies of Herbert Hoover make more sense. Buckle your seatbelts folks, the economy is still heading downhill fast and nobody wants to take charge and turn it around.

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