The United States continues to live far beyond its means while losing its once uniquely dynamic productive expertise and its financial independence. The standard business news narrative is that the United States is now 18 months into recovering from the worst downturn in 70 years. Private sector jobs grew in each of the past 12 months. Industrial production, real wages, after-tax incomes and personal spending are all rising with monthly savings up from post-1933 lows three years ago. Prices are stable. Global corporate profits and Wall Street bonuses are again at record levels, helping reflate equity markets to 28-month highs.
But in the first U.S. economic lost decade since the 1930s, there are still 3.2 million fewer private sector jobs than there were 10-years ago, including one-third fewer manufacturing jobs. There is less private investment and less real per-capita net worth. Income inequality is at the highest level since the 1930s, and the median real annual income of men with a college degree is less than it was for men with four years of college in 1966. No surprise, consumer spending this decade is the weakest on records back to WWII.
The official rate of unemployment is 9.4 percent, even with an unprecedented 1.2 million fewer people counted in the labor force than were counted two years ago. Long-term unemployment is off the charts. Even excluding record levels of involuntarily part-time employment, the true unemployment rate is nearly 14 percent.
This record would be far worse but for an explosion of new private and public debt. Household debts almost doubled from $7.2 trillion in 2000 to $14 trillion in 2010. At the same time, government debt more than doubled from $5.7 trillion to $14.0 trillion.
This combined private and public increase of over $15 trillion in debt for the decade compares with an increase of just $4.8 trillion in nominal Gross Domestic Product. That is, over the past decade the United States borrowed $3 for every $1 of growth in output. Since 1980, the United States has borrowed over $2 for each $1 of GDP growth.
As a percent of GDP, household and government debt peaked at an unprecedented 138 percent at the end of World War II but fell steadily to 76 percent in 1975 before skyrocketing after 1981. Since then, debt soared to 170 percent of GDP in 2008. At the start of 2011, debt is at 187 percent of GDP and is still rising rapidly.
Personal savings rates have rebounded over the past three years but only through transfers from government to households. Since December 2007, total real worker compensation and earnings are down, but after-tax real incomes are up — only because personal tax payments fell by 26 percent and government insurance such as Social Security, Medicare and other payments to individuals rose by 27.5 percent. The result has been skyrocketing federal deficits.
This is why, for the first time since 1934, starting in the second quarter of 2008, the United States has suffered net national dis-savings and dis-investment: The government now is borrowing more than all net businesses and households’ new savings and investing combined.
Since 2000, U.S. demand for goods and services has exceeded production by $6.2 trillion. This is far more than all GDP growth. Foreign-made imports and foreign borrowing made up the difference. It is wildly wrong to assume that U.S. demand drives U.S. production and jobs. However, Wall Street traders and importers make so much money from global arbitrage that, for all the hype about “globalization,” they have made serious discussion of global commerce the new “third rail” of economic policy — touch it and you die of a thousand smears.
The clear, simple fact is that production, jobs, income and tax revenues lost to trade deficits have devastated the U.S. economy to the point where it may already be too late to fully recover. U.S. jobs and businesses lost to net imports do not move automatically to higher wage, more productive employment. In fact, they generally don’t get re-employed at all except through massive new borrowing by households and government. Even with unprecedented borrowing, most re-employment moves down sharply to far less productive, lower wage employment that does not face imports and cannot export. Most of the economic destruction from trade is not “creative,” but simply and mindlessly destructive — although it is often wildly profitable for Wall Street traders, importers and countless “think” tanks, media and politicians they employ.
Read the Rest at Economic State Of The Union: The Future Will Likely Be Worse.