(This is Part 1 of a series.)
Am I really going to go back into the morass of financial analysis? Yes, I am. Here we go...
To start with, the numbers for the U.S. economy certainly do sound wonderful: Inflation is only 2.2%. Unemployment is under 5%. The price of oil has come down. Interest rates are still amazing low by historical standards. Corporate profits are at record levels. The Dow Jones Industrial Average recently made new all-time highs. It's a Goldilocks economy, not too hot, not too cold. What's not to like?
As I write this the U.S. mid-term elections are just four days away, and the Republicans are rather mystified why they aren't getting more credit for the good economy. "How come we're not getting more credit?" they say. How come?
First of all, because people are beginning to sense that there's a big dichotomy going on. Yes, corporate profits are way up and a small slice of people have stratospheric incomes—but average wages have been mostly stagnant, pensions are disappearing, health care costs are relentlessly rising, and jobs are moving overseas.
The middle class in the United States is beginning to feel endangered. As Allan Sloan points out, voters read about CEOs, celebrities and fund managers receiving astronomical pay, yet many average people are struggling to make ends meet.
Marin County, California, not far from where I live, is a fabulously wealthy county and money flows freely. Yet even in this wealthy county I personally know lots of people who are eking out a living from month to month, struggling to pay bills. And from what I read, many people across the country are in similar circumstances.
What's not to like, second of all, is that a lot of the statistics emanating from Washington are phony, what the analyst John Williams rightly calls "happy propaganda." And in fact, many of the most vital economic statistics are simply not reflecting reality.
As just one example, if we count the long-term "discouraged workers" that were penciled out during the Clinton years, the true rate of U.S. unemployment right now is not 4.6% but 12%. As any schoolchild could tell us, there's a big difference between 4.6 and 12—and that's especially true in unemployment.
And of the jobs available, an increasing number are of the low-paying "flipping burgers" type rather than high-paying production jobs. The jobs are moving overseas to China and India and Eastern Europe and so on, and people sense it. The U.S. manufacturing base is shrinking.
And that's just the beginning.
(This is the end of Part 1. Go to Part 2.)
—jim sloman, 11.6.06
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