The Truth About the Economy that Nobody In Washington Or On Wall Street Will Admit: We’re Heading Back Toward a Double Dip
by Robert Reich
WHY aren’t Americans being told the truth about the economy? We’re
heading in the direction of a double dip – but you’d never know it
if you listened to the upbeat messages coming out of Wall Street
Consumers are 70 percent of the American economy, and consumer
confidence is plummeting. It’s weaker today on average than at the
lowest point of the Great Recession.
The Reuters/University of Michigan survey shows a 10 point decline
in March – the tenth largest drop on record. Part of that drop is
attributable to rising fuel and food prices. A separate Conference
Board’s index of consumer confidence, just released, shows
consumer confidence at a five-month low — and a large part is due
to expectations of fewer jobs and lower wages in the months ahead.
Pessimistic consumers buy less. And fewer sales spells economic
What about the 192,000 jobs added in February? (We’ll know more
Friday about how many jobs were added in March.) It’s peanuts
compared to what’s needed. Remember, 125,000 new jobs are
necessary just to keep up with a growing number of Americans
eligible for employment. And the nation has lost so many jobs over
the last three years that even at a rate of 200,000 a month we
wouldn’t get back to 6 percent unemployment until 2016.
But isn’t the economy growing again – by an estimated 2.5 to 2.9
percent this year? Yes, but that’s even less than peanuts. The
deeper the economic hole, the faster the growth needed to get back
on track. By this point in the so-called recovery we’d expect
growth of 4 to 6 percent.
Consider that back in 1934, when it was emerging from the deepest
hole of the Great Depression, the economy grew 7.7 percent. The
next year it grew over 8 percent. In 1936 it grew a whopping 14.1
Add two other ominous signs: Real hourly wages continue to fall,
and housing prices continue to drop. Hourly wages are falling
because with unemployment so high, most people have no bargaining
power and will take whatever they can get. Housing is dropping
because of the ever-larger number of homes people have walked away
from because they can’t pay their mortgages. But because homes the
biggest asset most Americans own, as home prices drop most
Americans feel even poorer.
There’s no possibility government will make up for the coming
shortfall in consumer spending. To the contrary, government is
worsening the situation. State and local governments are slashing
their budgets by roughly $110 billion this year. The federal
stimulus is ending, and the federal government will end up cutting
some $30 billion from this year’s budget.
In other words: Watch out. We may avoid a double dip but the
economy is slowing ominously, and the booster rockets are
So why aren’t we getting the truth about the economy? For one
thing, Wall Street is buoyant – and most financial news you hear
comes from the Street. Wall Street profits soared to $426.5
billion last quarter, according to the Commerce Department. (That
gain more than offset a drop in the profits of non-financial
domestic companies.) Anyone who believes the Dodd-Frank financial
reform bill put a stop to the Street’s creativity hasn’t been
To the extent non-financial companies are doing well, they’re
making most of their money abroad. Since 1992, for example, G.E.’s
offshore profits have risen $92 billion, from $15 billion (which
is one reason it pays no U.S. taxes). In fact, the only group
that’s optimistic about the future are CEOs of big American
companies. The Business Roundtable’s economic outlook index, which
surveys 142 CEOs, is now at its highest point since it began in 2002.
Washington, meanwhile, doesn’t want to sound the economic alarm.
The White House and most Democrats want Americans to believe the
economy is on an upswing.
Republicans, for their part, worry that if they tell it like it is
Americans will want government to do more rather than less. They’d
rather not talk about jobs and wages, and put the focus instead on
deficit reduction (or spread the lie that by reducing the deficit
we’ll get more jobs and higher wages).
I’m sorry to have to deliver the bad news, but it’s better you know.