Some September economic notes

This is going to be somewhat disjointed and rambling. Bear with me.

1) Garnered from an AFP article on September 4 (N.B. All the information and quotes are from the article but because I moved a few things around for convenience, this is not an excerpt):

- Mark Weisbrot, co-director of the left-leaning Center for Economic and Policy Research: "The average real wage - that is, adjusted for inflation - has actually fallen over the past year. This is in spite of the fact that the economy has grown by 4.7 percent. In other words, even when the economy is growing, most of the people who make it grow aren't getting anything out of it."

- Lehman Brothers chief economist Ethan Harris: "What's disappointing is not the pace of growth, which is adequate, but the fact that this growth is without significant gain on the job market, and that the recovery has been slow by historical standards."

Harris said the US economy emerging from recession typically shows six percent growth for about a year and a half, and sustained job gains of 200,000 to 300,000. US gross domestic product expanded at a pace of just 2.8 percent in the second quarter, and most economists see growth of four percent or less for the rest of the year.

Harris noted is a big difference in the economic outlook between "property owners" who have significant investment in real estate and stocks, and others. The first group "has done quite well over the last decade, they have seen their value go up, portfolio value on net has had great return. They also tended to benefit disproportionately from the tax cuts."

- Sung Won Sohn, chief economist at Wells Fargo Bank: "The jobless rate edged down primarily because 152,000 people dropped out of the labor force, not an encouraging sign."

2) The Sacramento Bee for September 6 had this to say:

Labor Day finds American workers more productive than ever - perhaps too productive for their own good. ... While hiring has clearly been curtailed by rising oil prices and general softness in the recovery, economists said improvements in productivity also have been a key reason. ...

Just a few years ago, productivity growth - measured in output per hour of labor - was hailed as America's economic miracle. Emerging from a 20-year productivity slumber in the mid-1990s, U.S. workers, armed with the best technology money could buy, churned out goods and services with stunning efficiency. That gave employers the financial flexibility to ramp up production or to expand into new fields, hiring more workers. ...

Then came the recession in 2001 and a recovery marked by often sluggish job creation. Sales and profits are increasing, but companies are discovering they can keep a lid on hiring.

3) From the Christian Science Monitor for September 8:

Census data confirm that the median household income - a level where half of US households earn more and half less - has fallen by $1,500 between 2000 and 2003. ...

Economists don't have a standard definition for the "middle class." But the percentage of households having a pretax income of between $25,000 and $75,000 - a group occupying roughly the middle half of Census income tables - has declined by 1.2 percentage points since President Bush took office, after adjusting for inflation.

In the same 2000-2003 period, those making less than $25,000 grew by 1.5 percentage points to 29 percent of households. Those making more than $75,000 declined by 0.4 percent to 26 percent of all households. ...

Since May, nominal wages have risen at an annualized rate of more than 3.5 percent, higher than the inflation rate, notes Heather Boushey, an economist at the Center for Economic and Policy Research, a Washington think tank.

Still, for the past 12 months, nominal hourly wages are up by 2.3 percent. And that's less than the 3 percent rate of inflation. So real wages are down in that period. ...

In the 2-1/2 years of the current recovery, wages and salaries have received just 15 percent of the overall increase in national income. That compares to an average of 49 percent in other recoveries since World War II. Meanwhile, corporate profits have received 47 percent of the income increase, compared with an average 21 percent in other recoveries.

4) From a commentary by Morgan-Stanley economist Stephen Roach at MorganStanley.com for September 10 (via TomPaine.com):

Based on data over the first 32 months of this upturn, real wage and salary disbursements have recorded a cumulative increase of just 2.2%. By contrast, by this same juncture in the previous six business cycles, real wage income had recorded a 10.6% average increase. ...

[P]rivate nonfarm payrolls are now up only 0.3% over the first 33 months of this expansion. By contrast, at similar junctures of the past six cycles, the increase averaged 7.8%.

A similar pattern shows up in real wages - comparisons in the current cycle are running an astonishing 0.3% below year-earlier levels (as measured by CPI-deflated average hourly earnings). ...

But the most fascinating insight of all into business attitudes may be the $38.7 billion spike in corporate stock buyback announcements that occurred in July - the strongest such surge in 20 years and fully four times the average monthly pace of the past year. ... Awash in newfound earnings and cash flow, companies would rather buy their own shares than embark on growth oriented strategies of hiring, boosting compensation, and adding to productive capacity.

5) From AP for September 16:

A Senate committee voted Wednesday to scuttle new rules that critics say would deny overtime pay to millions of workers, as Democrats won the latest round in their election-year bout with President Bush over the issue.

The 16-13 vote by the Republican-run Senate Appropriations Committee came less than a week after the GOP-led House embarrassed Bush by approving a similar measure.

Despite the twin rebukes by Congress, the provision could well disappear when House-Senate bargainers write a final version of the spending bill to which it was attached. GOP leaders and the White House will dominate that part of the legislative process. ...

The White House has threatened a veto of the entire spending bill if the overtime language survives. House leaders have said they believe the provision will be removed from the final House-Senate compromise. ...

In another victory for labor, the House approved a Democratic provision barring the White House from counting jobs at fast-food restaurants as part of the manufacturing sector. A White House economic report this year posed whether fast-food work should be considered manufacturing jobs, more than 2.6 million of which have disappeared since Bush took office.

There are a couple of comments by way of footnotes here.

- Two people quoted in the Christian Science Monitor article say the economy is actually doing just great.

Martin Regalia ...says it's not unusual for the median income to decline in a recession. And in 2003, the tiny drop in median income was statistically insignificant. Further, 2004 data is not yet available for household income.

The economy is "doing very, very well," he holds. And that should boost incomes.

"American workers are much better off now than they were a year ago," states Jerry Jasinowski....

Regalia is chief economist for the US Chamber of Commerce; Jasinowski is president of the National Association of Manufacturers. 'Nuff said.

- In the Sacramento Bee article, several economists defended productivity growth even as it makes it harder for people to find work.

It's been that way for ages. Some workers get hurt, others prosper. But the long-term overall direction of the economy is up, experts say.

"The automobile eliminated all of the jobs in the horse-and-buggy industry" but ultimately created many more jobs of its own, [economic historian Michael] Bernstein said.

But that's classic apples and oranges. The issue here is not some new industry springing up and replacing an old one, it's one of existing industries expanding production and profit but not jobs. It's not a case of jobs lost here but gained there, it's just jobs lost here. Stephen Roach, in a part not quoted above, notes that consumer spending is ultimately the fuel that drives the economy. At what point does companies' search for short-term gain collide with the fact that people without jobs can't drive demand?

- That same Bee article called productivity growth

a blessing and a curse. The economy needs productivity growth like a person needs oxygen, but sometimes it can choke off hiring.

Okay, here's a heretical thought: Does the economy really need productivity growth? Does the economy really need to be more productive, year after year? Why? I'm not talking about producing more, that is, economic growth, but about producing more per unit of labor, that is, productivity growth. Or is the supposed need for productivity growth just an assumption, an unquestioned belief, an article of faith, a prejudice crammed into our heads from the time we were old enough to understand what money is?

Indeed, we can go beyond that to challenging the very idea of growth - or, more accurately, the idea that growth can be sustained indefinitely - and say there must be an alternative.

One such alternative is the idea of a steady-state economy, developed by former World Bank economist Herman Daly in 1977. It's been popular among environmentalists because it of necessity involves limits to growth (including population growth) and a heavy emphasis on renewable energy, conservation, and recycling.

I actually shouldn't say "one" alternative because there are - surprise! - a number of flavors of the basic recipe. (Some of which, unfortunately, look at the US in isolation from the rest of the world and use the principle of limiting population as a cover for a xenophobic agenda of opposing immigration.)

The usual objection to a steady-state economy - one, frankly, that a number of its advocates have not adequately addressed - is that without economic growth there is neither help nor hope for the world's poor. And in fact, on September 8 the Christian Science Monitor reported that

[a]s Asia continues to grow, developing countries are making remarkable progress in cutting poverty and boosting livelihoods of vulnerable citizens.

In a new report, the Asian Development Bank (ADB) says the number of people in Asia living on less than $1 a day fell by 223 million between 1990 and 2002. China accounted for 3 out of 4 of those whose incomes rose above a level classified as "extreme poverty" by economists.

But the fact that the objection hasn't been adequately addressed doesn't mean it can't be. Indeed, the very same article quoted Ifzal Ali, chief economist of the ADB, as warning that

future progress could be jeopardized by a growing gap between the haves and the have-nots within Asia.

"Even in a country as successful as China there are warning signals that if you don't address [inequality], it's very difficult for governments to continue to reduce poverty," says Ali. "Growth is important. But addressing inequalities is also important."

The growing gap is particularly evident in India. A booming software industry has sprouted office towers and gated communities, while the number of people living on under $2 a day actually rose 17 percent to 840 million through 2002.

Even the economists realize that growth can only do so much. We can't grow our way out of poverty because poverty is not simply a matter of economic circumstances, it's structural: It's built into the society and the economy.

I know I've been quoting myself a lot lately, but even though this was actually written on a different topic, I think it has some relevance. It's taken from a personal letter; the date was August 25, 1988.

My philosophy is simple and is the same for individuals and nations: "Always seek to act with justice in the world." As national policy, it'd entail some basic changes in the way we as a society view the world and our place in it. It'd mean regarding all peoples as having equal rights to their own natural resources and viewing people as ends and not as means. It'd mean embracing morality as both process and goal, even when so doing went against our narrow selfish interests. ...

Didn't say it's easy; often it's not. Didn't say it'd always work to our selfish benefit; often it won't. In fact, pursuing a policy of acting with justice in the world may well require some moderation in our national standard of living because one inevitable (and intended) result would be a far more equitable world-wide distribution of wealth. (On the other hand, applying a similar policy domestically, where 1% of the population now controls 35% of the wealth, would likely mean that even if the national figures dipped, the figures for the vast majority of individuals could rise.) But that's not a result to be feared but to be welcomed. Reduced poverty, lessened oppression, and raised hopes in the world aren't sources of threats but of greater security. If doing without a few high-tech goodies and accepting, perhaps, a '60s standard of living instead of an '80s standard of living can promote both justice and peace, I say it's a damn small price to pay.

Calling economic growth the cure for our ills and declaring productivity growth the oxygen of the economy may have been fine at a time when the world's abundance seemed endless. But in a world where we have become aware of limits (and face some of them) it's dangerous and no longer acceptable.

That does, however, mean adding another R to the familiar trio of "Renew, Re-use, Recycle" - Redistribute. A steady-state economy coupled with a just redistribution of the Earth's wealth would provide a sustainable future for the people of the world, it would mean a world where we could honestly talk of human society surviving for millennia rather than dissolving in decades among resource wars and crumbling, energy-starved economies. It would even promote the population stability and gradual decline many argue is necessary: Short of repressive enforcement of draconian laws, the surest means to putting the brakes on the birthrate is economic security.

But doing that would mean giving up on the idea of ever more, ever bigger, ever expanding. It would mean sacrifice, it would mean we who by comparison have so much having less so that others who have so little could have more.

Which is why I expect it will never happen.