The Boom That Feels Like a Bust
By Stirling Newberry
t r u t h o u t | Perspective
Tuesday 15 March 2005
You'd have to have sharp eyes to notice it, but it's true - last year, Bush's popularity began to slide, even as hiring picked up for the first time since employment reached its bottom in 2003. And it is happening again: last month, seasonally adjusted private payrolls grew by 229,000, according to the Bureau of Labor Statistics, and according to the irreplaceable and irrepressible Dr. Pollkatz's "Bush Index," the popularity of the executive dropped to 47.5%.
That's because this is the boom that feels like a bust.
If you listen to the right-wing commentators on cable, things should be coming up roses for the President who saved us from Saddam's terrorism and Clinton's recession. They crow over the Dow reaching three-year highs, an unemployment rate that is just over 5%, along with good GDP numbers and low inflation. And yet, people don't feel good about this economy, or have much faith in Bush's judgment: a CBS/New York Times poll said that a stunning 58% of Americans feel that "the White House doesn't share their priorities on foreign policy."
So what is going on? Are the numbers lying? Or perhaps fibbing a bit?
Let's start with what is supposedly a Republican strong point: the stock market. Republicans are constantly talking about how important business is, and they collect a great deal of their political money from the big investors. The most trusted measure of the stock market is the Standard and Poor's 500, composed of the 500 largest American corporations. Right now, that index stands a bit over 1200, well below its Clinton-era high of almost 1600, but far above the bottom, in 2002, of just under 800. It seems to be doing well.
Or is it really? During that time, the dollar has dropped like a stone against currencies that aren't pegged to the dollar itself. What good is having something worth more dollars, if each dollar is worth less and less? If one takes the price of the same stocks in Euros or Great British Pounds, two major currencies not tied to the dollar, one gets a different picture: instead of a strong rebound from a bottom, the stock market has been virtually flat the last two years, crawling up only slowly. Priced in Euros or Pounds, the S&P 500 has gone nowhere slowly since September of 2003. If making money is what you like to do, you could have dumped American stocks and bought Eurobonds a long while ago.
The same thing can be said about the Gross Domestic Product, or GDP. Is the GDP up? Or is it just that the dollar is down? With oil having nearly doubled since its low just after the invasion of Iraq, it seems likely that it is more of the latter than the former.
But realistically, most of us don't make our money on the stock market, we make it by working and selling our labor, so what about employment? Isn't 5.4% as an unemployment number respectable?
The answer is that the headline number that the Bureau of Labor Statistics puts out, the "Unemployment Rate," isn't a very good measure of the job picture right now. Not because the numbers are wrong, but because most people don't know what the Unemployment Rate actually measures: it is the one of the numbers that tells the central bank, in our case the Federal Reserve, the amount of wiggle room it has in setting interest rates. It is important if you work for a bank, but for the rest of us, there are more important measures: real wages, labor under-utilization, and labor slack.
Not surprisingly, the Bureau of labor statistics doesn't trumpet the numbers of underutilization it does compile, which show that 9.3% of the people who want to work either can't work, or are working part time when they want to work more.
But even better is to ask why the headline number is so low. It isn't because people are finding work in large numbers, it is because people are leaving the workforce in large numbers. Bush has presided over one of the two times in post-war history during which people have left or stayed out of the workforce without a recession to push them out. The other time was under the end of Eisenhower's two terms. If people were looking for work in the same numbers as in 2000, we would have an unemployment rate of not 5.4%, but close to 7.5%. And that is a number that would worry most people.
With so much slack in the job market, it is no surprise that real wages have been flat, and show no signs of going up any time soon.
And this isn't even the end - going down the supposedly good economic numbers, each and every one of them conceals the bad news beneath a number which seems good. So what is the story they do tell? Who is doing well in this economy? It's a good time to be among the very, very rich. Tax rates are low, inflation is almost dead in the water: which means there is no reason to take risks and invest, no competition from up and coming rich people. It is true that gasoline is up in price, but the things that rich people care about - buying companies and paying taxes - haven't been cheaper, relative everything else, in a very long time. That's why merger-mania is gripping Wall
Street: there has never been a better time to sell out and cash out than right now. It is no wonder that the percentage of wealth held by the top one percent of America is now higher than it has been since the Crash of 1929.
So if you are wondering why Bush's popularity is sinking, even as his supporters are trumpeting how well he is doing, now you know: the numbers may not be lying, but they aren't telling the whole truth either. That means if someone tells you "stocks are up, unemployment is down, taxes are low," just tell them that "the dollar is down, the job market is out, and Bush's poll numbers are lower."
Because if the numbers are telling the truth, very soon, discontent is going to be busting out all over. Why is this? Because right now the United States isn't creating real economic growth, but using federal borrowing - now leaving the billion dollars a day of deficit in the rear view mirror - and easy monetary policy of the fed to get more to happen now, rather than later. This inefficient approach is generating inflation, inflation in basic commodities, particularly oil, which has reached the $50 a barrel mark, a level that OPEC says it is happy with. This credit boom, and not economic progress, is what is driving the US economy.
Because much of what has happened in the world economy over the last few years has been a credit boom, when there is a bit more activity, there is a bit more inflation. The people who have jobs are not getting wage increases, and so they feel the inflation pinch. Every new job in the Bushconomy is paid for by other people working, people who have to pay higher prices, higher prices for gasoline and other necessities that they cannot easily cut back on. This is why, when the economy hires, it often hurts, rather than helps, George Bush. As Dr. Stuart Eugene Thiel noticed, "Bush popularity is, in fact, a gas."
And what is more ominous is that the credit boom is increasingly looking like a credit bubble that is ready to burst. In the language of the Financial Times: "Although corporate default rates remain low, some fear the legacy of recent private equity buy-outs and hedge fund investments in distressed debt will be a swath of over-leveraged companies ill-equipped to survive in less benign conditions." Shrill words indeed from the normally staid business press. And a warning to Americans that we are dancing on a volcano.