Why the Economy Is Gloomier Than We Are

It's hard to know when dealing with the mainstream media at what point simple propaganda passes over into sheer idiocy. Case in point: yesterday's Washington Post. A piece by Neil Irwin, "Why We're Gloomier Than The Economy," puzzles about the fact that Americans' collective attitude toward the economy is so negative.

He notes that consumer confidence is at its lowest level in almost 30 years but then flogs the standard repertoire of government statistics to suggest that the economy is, in fact, fine. Official inflation is relatively low. Official unemployment is relatively low. Official GDP is growing. What's the problem? The intimation is that the pall of gloom hanging over things is really just a bunch of crybabies who can't hack it today's dynamic world.

We can't know for sure if Irwin is simply carrying water for his corporate masters, trying to paint lipstick on a pig that, embarrassingly, persists in going "oink." If he were, he'd be among worthies, what with Ben Bernanke, Henry Paulson, and even Big George himself regularly opining how the economy is "fundamentally sound," on "solid footing," and with its perennially recurrent crises perennially "contained." This is the "perception-is-reality" school of propaganda at its most condescending.

Or, Irwin and the Post may actually believe, like Voltaire's Dr. Pangloss, that "things are perfect and getting better all the time," that a swelling tide of prosperity is lifting the economy to new heights, buoying the vast middle class to that elevated plateau of nouveau riche gentility that Bush used to tout (but doesn't any more) in his "ownership society" speeches. Perhaps he is of that Thomas Friedman/David Brooks billionaire/millionaire ilk of noblesse oblige declaimers who feel that the proper, orderly response to a little financial headwind is to discreetly let go one of the downstairs maids or pastry chefs.

Whatever the cause of Irwin's misapprehension, it is worthwhile cataloging -- for him, for the Post, and for all the rest of the ranks of oblivious officialdom -- just some of the reasons mainstream Americans are so gloomy about the economy. Readers are asked to understand the space limitations that compel only a partial and suggestive rendering. So, to wit:

  • Real income for the median male worker is still below what it was in 1973.
  • Even after seven years of "growing GDP," real median incomes for all workers are still below where they were before the last recession, in 2001. And they're headed down again.
  • The ratio of debt-to-income for the average American has doubled over the past 30 years, from 65% to 135%, as families have struggled to maintain lifestyles once promised as part of the social contract but now beyond their means.
  • Some 77 million Baby Boomers stand on the threshold of retirement with half of them having no savings whatsoever. A full 40% of all income earners have a net worth of zero.
  • The price of oil has more than quintupled since George Bush took office. Its rise is coursing through all other goods in the economy that use oil as inputs -- which is to say virtually everything. This is effectively extracting hundreds of billions of dollars of wealth and income from middle class consumers and transferring it to the oil companies and sheikdoms in the Middle East.
  • Housing prices, the repository of most of middle America's wealth, are plummeting at rates that now rival those of the Great Depression. They have fallen 20% from their 2006 highs and appear headed for another 20% fall, assuming they don't overshoot the historical trend on their way down.
  • Mortgage rates are rising, assuring a still more accelerated decline.
  • Foreclosures represent half or more of all home sales in some areas of the country.
  • As a result of the housing bust, some $4 trillion in consumer wealth has been destroyed with another $4 trillion still to go.
  • The percentage of equity that Americans own in their homes has fallen below 50%, the lowest level since World War II.
  • More than $1 trillion in global banking system assets have reportedly been wiped out in the housing bust. Only $300 billion have been reported to date. When the rest are reported, they will cause a shrinkage in lending capacity on the order of $5+ trillion. That's a significant hit for an economy solely dependent on the issuance of ever new debt for its growth.
  • Three million high-wage manufacturing jobs have been exported in the past seven years. Some have been replaced by jobs for waitresses and bartenders, home health-care workers and greeters at WalMart, all other jobs with low pay and no benefits. Most have simply disappeared.
  • Automobile sales are going off a cliff and, with them, jobs and wages throughout the manufacturing sector. With gas prices likely to stay high, General Motors and Ford are history, zombies, walking dead. The market knows this. Toyota could buy GM lock stock and barrel with less than a third of the cash it has in the bank.
  • Unemployment is rising.
  • The duration of time on unemployment is rising.
  • Foodstamp usage is at a record high.
  • Consumer spending, currently at 72% of GDP, is significantly above its historic trend of 67%. As it returns to trend as a result of the above forces, the contraction in the economy will become even worse.
  • Sober, steady economists from both parties, such as Larry Summers, a Democrat, and Martin Feldstein, a Republican, say we're facing "the worst recession since the Great Depression."
  • In other words, millions of people are seeing their wealth wiped out, their incomes destroyed, with no assets, no recourse to borrowing, no safety net, and retirement with another 20 years of statistical lifespan staring them in the face.
  • Meanwhile, the U.S. borrows $2.5 billion every day from the rest of the world -- 85% of the entire world's net savings. When foreigners, burned once too often by U.S. financial scams or its implicit repudiation of its debts through naked dollar devaluation, decide to quit lending, the effect will be catastrophic. Interest rates will skyrocket as the government desperately bids for funds just to keep its lights on.

As I said, this is just a partial and suggestive list of problems facing consumers who are vastly overextended and facing a desperate, dramatically poorer future. They may not see them all. They may not understand every one. But they get the drift.

At the same time, people see the Federal Reserve bailing out failed investment banks, committing openly to bail out any others arbitrarily deemed "too big to fail," lending commercial banks money at less than 1% so they can re-lend it to maxed-out credit card holders at 27%. They see stratospheric increases in incomes for the already obscenely bloated and the disparity in wealth distribution reaching its highest levels since before 1929.

They see the trillions of dollars fawningly lavished on weapons makers and pharmaceutical manufacturers, all at their expense, and the billions of dollars sloshed through the political system every year, all to keep these good times rolling -- at least for the Neil Irwins and the Washington Posts of the world.

People aren't stupid, though the lapdogs of power must continually try to convince them that they are. There is a palpable gloom about the economy. It's real. It's deep. It's growing. The only question is whether the mainstream media, owned by the very beneficiaries of the calamity they themselves helped construct, can deflect attention from it artfully enough and blame for it long enough to throw the next election to the Republicans so they can do it all over again. It's your choice.

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