Cartoons of the day

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Cartoon of the day

Special mention

Cartoon of the day

Special mention

  

Ten years after the crash

The economic crises that came to a head in 2008 and the massive response—by the U.S. government and corporations themselves—reshaped the world we live in.* Although sectors of the U.S. economy are still in one of their longest expansions, most people recognize that the recovery has been profoundly uneven and the economic gains have not been fairly distributed.

The question is, what has changed—and, equally significant, what hasn’t—during the past decade?

Let’s start with U.S. stock markets, which over the course of less than 18 months, from October 2007 to March 2009, dropped by more than half. And since then? As is clear from the chart above, stocks (as measured by the Dow Jones Composite Average) have rebounded spectacularly, quadrupling in value (until the most recent sell-off). One of the reasons behind the extraordinary bull market has been monetary policy, which through normal means and extraordinary measures has transferred debt and put a great deal of inexpensive money in the hands of banks, corporations, and wealth investors.

The other major reason is that corporate profits have recovered, also in spectacular fashion. As illustrated in the chart above, corporate profits (before tax, without adjustments) have climbed almost 250 percent from their low in the third quarter of 2008. Profits are, of course, a signal to investors that their stocks will likely rise in value. Moreover, increased profits allow corporations themselves to buy back a portion of their stocks. Finally, wealthy individuals, who have managed to capture a large share of the growing surplus appropriated by corporations, have had a growing mountain of cash to speculate on stocks.

Clearly, the United States has experienced a profit-led recovery during the past decade, which is both a cause and a consequence of the stock-market bubble.

The crash and the Second Great Depression, characterized by the much-publicized failures of large financial institutions such as Bear Stearns and Lehman Brothers, raised a number of concerns about the rise in U.S. bank asset concentration that started in the 1990s. Today, as can be seen in the chart above, those concentration ratios (the 3-bank ratio in purple, the 5-bank ratio in green) are even higher. The top three are JPMorgan Chase (which acquired Bear Stearns and Washington Mutual), Bank of America (which purchased Merrill Lynch), and Wells Fargo (which took over Wachovia, North Coast Surety Insurance Services, and Merlin Securities), followed by Citigroup (which has managed to survive both a partial nationalization and a series of failed stress tests), and Goldman Sachs (which managed to borrow heavily, on the order of $782 billion in 2008 and 2009, from the Federal Reserve). At the end of 2015 (the last year for which data are available), the 5 largest “Too Big to Fail” banks held nearly half (46.5 percent) of the total of U.S. bank assets.

Moreover, in the Trump administration as in the previous two, the revolving door between Wall Street and the entities in the federal government that are supposed to regulate Wall Street continues to spin. And spin. And spin.

As for everyone else, they’ve barely seen a recovery. Real median household income in 2016 was only 1.5 percent higher than it was before the crash, in 2007.

That’s because, even though the underemployment rate (the annual average rate of unemployed workers, marginally attached workers, and workers employed part-time for economic reasons as a percentage of the civilian labor force plus marginally attached workers, the blue line in the chart) has fallen in the past ten years, it is still very high—9.6 percent in 2016. In addition, the share of low-wage jobs (the percentage of jobs in occupations with median annual pay below the poverty threshold for a family of four, the orange line) remains stubbornly elevated (at 23.3 percent) and the wage share of national income (the green line) is still less than what it was in 2009 (at 43 percent)—and far below its postwar high (of 50.9 percent, in 1969).

Clearly, the recovery that corporations, Wall Street, and owners of stocks have engineered and enjoyed during the past 10 years has largely bypassed American workers.

One of the consequences of the lopsided recovery is that the distribution of income—already obscenely unequal prior to the crash—has continued to worsen. By 2014 (the last year for which data are available), the share of pretax national income going to the top 1 percent had risen to 20.2 percent (from 19.9 percent in 2007), while that of the bottom 90 percent had fallen to 53 percent (from 54.2 percent in 2007). In other words, the rising income share of the top 1 percent mirrors the declining share of the bottom 90 percent of the distribution.

The distribution of wealth in the United States is even more unequal. The top 1 percent held 38.6 percent of total household wealth in 2016, up from 33.7 percent in 2007, that of the next 9 percent more or less stable at 38.5 percent, while that of the bottom 90 percent had shrunk even further, from 28.6 percent to 22.8 percent.

So, back to my original question: what has—and has not—changed over the course of the past decade?

One area of the economy has clearly rebounded. Through their own efforts and with considerable help from the government, the stock market, corporate profits, Wall Street, and the income and wealth of the top 1 percent have all recovered from the crash. It’s certainly been their kind of recovery.

And they’ve recovered in large part because everyone else has been left behind. The vast majority of people, the American working-class, those who produce but don’t appropriate the surplus: they’ve been forced, within desperate and distressed circumstances, to shoulder the burden of a recovery they’ve had no say in directing and from which they’ve been mostly excluded.

The problem is, that makes the current recovery no different from the run-up to the crash itself—grotesque levels of inequality that fueled the bloated profits on both Main Street and Wall Street and a series of speculative asset bubbles. And the current recovery, far from correcting those tendencies, has made them even more obscene.

Thus, ten years on, U.S. capitalism has created the conditions for renewed instability and another, dramatic crash.

 

*In a post last year, I called into question any attempt to precisely date the beginning of the crises.

Cartoon of the day

Special mention

  

Cartoon of the day

Special mention

  

Chart of the day

The new jobs report is out and, once again, little has changed—including wage growth (the blue line in the chart above), which for production and nonsupervisory workers was only 2.3 percent.

That may not be good for workers but their employers and stock-market investors couldn’t be happier. The Dow Jones Industrial Average (the red line in the chart above) continues to soar, on the expectation of higher future profits.

Just in the first couple of hours of trading today, the average is up more than 58 points.

Trumponomist

According to recent news reports, Kevin Hassett, the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (no, I didn’t make that up), will soon be named the head of Donald Trump’s Council of Economic Advisers.

Yes, that Kevin Hassett, the one who in 1999 predicted the Down Jones Industrial Average would rise to 36,000 within a few years.

Except, of course, it didn’t. Not by a long shot. The average did reach a record high of 11,750.28 in January 2000, but after the bursting of the dot-com bubble, it steadily fell, reaching a low of 7,286 in October 2002. Although it recovered to a new record high of 14,164 in October 2007, it crashed back to the vicinity of 6,500 by the early months of 2009. And, even today, almost two decades later, it’s only just cracked the 20,000 barrier.

But, no matter, mainstream economists and pundits—like Greg Mankiw, Noah Smith, and Tim Worstall—think Hassett is a great choice.

Perhaps, in addition to his Dow book, they want to place the rest of Hassett’s writings on an altar.

Like Hassett’s claim (which I discuss here) that “lowering corporate taxes is the only real cure for wage stagnation among American workers.”

Or his other major claim (which I discuss here), that poverty and inequality in the United States are merely figments of our imagination.

Let’s focus on that last claim. As regular readers of this blog know, income inequality—whether measured in terms of fractiles (e.g., the 1 percent versus everyone else) or classes (e.g., profits and wages)—has been increasing for decades now. But for conservative economists like Hassett (who was an economic adviser to Mitt Romney before being a candidate to join the Trump team), inequality has not been growing and poor people are actually much better off than they and the rest of us normally think. What they do then is substitute consumption for income and argue that consumption inequality has actually not been growing.

So, what’s the big problem?

But even in terms of consumption they’re wrong. As Orazio Attanasio, Erik Hurst, Luigi Pistaferri have shown, once you correct for the measurement errors in the Consumer Expenditure Survey (which Hassett and his coauthor, Aparna Mathur, don’t do), and bring in other sources of consumption information (including the well-regarded Panel Study of Income Dynamics), consumption inequality has increased substantially in recent decades—more or less at the same rate as inequality in the distribution of income.

Overall, our results suggest that there has been a substantial rise in consumption and leisure inequality within the U.S. during the last 30 years. The rise in income inequality translated to an increase in actual well-being inequality during this time period because consumption inequality also increased.

And, remember, that doesn’t take into account other forms of inequality, such as the increase in the unequal distribution of wealth, which has exploded in recent decades. The poor and pretty much everyone else—the 90 percent—are being left behind.

It’s the spectacular grab for income, consumption, and wealth by the small group at the top that Hassett and the new administration will be trying to protect.

“That’s your bloody GDP, not ours”

While Wall Street celebrates yet another stock market record—surpassing 20,000 on the Dow Jones industrial average—most Americans have little reason to cheer. That’s because they own very little stock and therefore aren’t sharing in the gains.

The only possible response is, “That’s your damn stock market, not ours,” analogous to the response about Brexit and the expected decline in GDP by a woman in Newcastle.

It’s true, even after recent declines, about half (48.8 percent) of U.S. households hold stocks in publicly traded companies directly or indirectly (according to the most recent Survey of Current Finances [pdf]).

But, according to Ed Wolff (pdf), the bottom 90 percent of U.S. households own only 18.6 percent of all corporate stock. The rest (81.4 percent) is in the hands of the top 10 percent.

So, while the stock market has experienced quite a turnaround from mid-February of last year (when a barrage of selling sent the Dow Jones Industrial Average to its lowest close since April 2014), especially since Donald Trump’s November victory (including more than 100 points just yesterday), most Americans continue to be left out in the cold.

Clearly, a much better alternative for American workers would be to follow Shannon Rieger’s advice and look toward a radically different model: enterprises that are owned and managed by their employees. That would give them a much better chance of sharing in the wealth they create.

They would also then be able to finally say to mainstream economists and politicians, “That’s our GDP and stock market, not yours.”

Rent or hunger

It sure looks like a recovery: consumer confidence, corporate profits, and the stock market are all up. Way up over their Great Recession lows, as is clear from the chart above.

But the U.S. Conference of Mayors [ht: ja] is also reporting an increase in the demand for emergency food assistance. Forty-one percent of surveyed cities reported that the number of requests for emergency food assistance increased over the past year, while 71 percent of the cities reported an increase in the number of people requesting food assistance for the first time.

From the report (pdf):

Increased requests for food assistance were accompanied by more frequent visits to food pantries and emergency kitchens. Forty-one percent reported an increase in the frequency of visits to food pantries and/or emergency kitchens each month. . .

When asked to identify the three main causes of hunger in their cities, 88 percent named low wages; also 59 percent said high housing costs and poverty. Forty-one percent cited unemployment and 23 cited medical or health costs.

Since the end of the recession, wage increases (almost 23 percent, in nominal terms) have not been able to keep pace with the increase in rental rates for housing (which are up 26 percent).

And the situation is even worse for extremely low-income households, according to the National Housing Trust Fund (pdf). The more than 10 million extremely low-income households accounted for 24 percent of all renter households and 9 percent of all U.S. households—and they face a shortage of more than 7 million affordable rental units. Thus, 75 percent of extremely low-income households are severely cost-burdened, spending more than half of their income on rent and utilities. And that means they don’t have enough money left over for food.

Which is why cities across the country, from Charleston to Seattle, have had to increase the amount of food they distribute—7 years into the so-called recovery.