The Truth About the Economy that Nobody In Washington
Or On Wall Street Will Admit: We're Heading Back Toward
a Double Dip

Robert Reich
blog
March 30, 2011

http://robertreich.org/post/4218613020

Why aren't Americans being told the truth about the
economy? We're heading in the direction of a double dip
- but you'd never know it if you listened to the upbeat
messages coming out of Wall Street and Washington.

Consumers are 70 percent of the American economy, and
consumer confidence is plummeting. It's weaker today on
average than at the lowest point of the Great
Recession.

The Reuters/University of Michigan survey shows a 10
point decline in March - the tenth largest drop on
record. Part of that drop is attributable to rising
fuel and food prices. A separate Conference Board's
index of consumer confidence, just released, shows
consumer confidence at a five-month low - and a large
part is due to expectations of fewer jobs and lower
wages in the months ahead.

Pessimistic consumers buy less. And fewer sales spells
economic trouble ahead.

What about the 192,000 jobs added in February? (We'll
know more Friday about how many jobs were added in
March.) It's peanuts compared to what's needed.
Remember, 125,000 new jobs are necessary just to keep
up with a growing number of Americans eligible for
employment. And the nation has lost so many jobs over
the last three years that even at a rate of 200,000 a
month we wouldn't get back to 6 percent unemployment
until 2016.

But isn't the economy growing again - by an estimated
2.5 to 2.9 percent this year? Yes, but that's even less
than peanuts. The deeper the economic hole, the faster
the growth needed to get back on track. By this point
in the so-called recovery we'd expect growth of 4 to 6
percent.

Consider that back in 1934, when it was emerging from
the deepest hole of the Great Depression, the economy
grew 7.7 percent. The next year it grew over 8 percent.
In 1936 it grew a whopping 14.1 percent.

Add two other ominous signs: Real hourly wages continue
to fall, and housing prices continue to drop. Hourly
wages are falling because with unemployment so high,
most people have no bargaining power and will take
whatever they can get. Housing is dropping because of
the ever-larger number of homes people have walked away
from because they can't pay their mortgages. But
because homes the biggest asset most Americans own, as
home prices drop most Americans feel even poorer.

There's no possibility government will make up for the
coming shortfall in consumer spending. To the contrary,
government is worsening the situation. State and local
governments are slashing their budgets by roughly $110
billion this year. The federal stimulus is ending, and
the federal government will end up cutting some $30
billion from this year's budget.

In other words: Watch out. We may avoid a double dip
but the economy is slowing ominously, and the booster
rockets are disappearing.

So why aren't we getting the truth about the economy?
For one thing, Wall Street is buoyant - and most
financial news you hear comes from the Street. Wall
Street profits soared to $426.5 billion last quarter,
according to the Commerce Department. (That gain more
than offset a drop in the profits of non-financial
domestic companies.) Anyone who believes the Dodd-Frank
financial reform bill put a stop to the Street's
creativity hasn't been watching.

To the extent non-financial companies are doing well,
they're making most of their money abroad. Since 1992,
for example, G.E.'s offshore profits have risen $92
billion, from $15 billion (which is one reason it pays
no U.S. taxes). In fact, the only group that's
optimistic about the future are CEOs of big American
companies. The Business Roundtable's economic outlook
index, which surveys 142 CEOs, is now at its highest
point since it began in 2002.

Washington, meanwhile, doesn't want to sound the
economic alarm. The White House and most Democrats want
Americans to believe the economy is on an upswing.

Republicans, for their part, worry that if they tell it
like it is Americans will want government to do more
rather than less. They'd rather not talk about jobs and
wages, and put the focus instead on deficit reduction
(or spread the lie that by reducing the deficit we'll
get more jobs and higher wages).

I'm sorry to have to deliver the bad news, but it's
better you know.

___________________________________________

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