The Financial Times weekend edition has a good magazine section that generally doesn’t make it into the US edition. Which is too bad, because US readers will miss Ed Luce’s very good piece today on the long term decline of America’s middle class. The FT has probably done the best job of any newspaper in chronicling the increasing disparities of American economic life, and Luce, who is the Washington editor, does a pretty good job of discussing the problematic outlooks for two American families, one in Minnesota, and one in Virginia. It’s the usual combination of two-earner incomes, barely adequate (or inadequate) medical care, basically living from paycheck to paycheck, and a bleak retirement outlook. Anyone paying attention knows all this, of course, except for Republicans in denial, and the vast number of British I keep encountering who believe that everything is just fine in America, and who can’t wait to try to move there. Usually this means trying to retire in Orlando, by the way—there’s definitely a thing here for Orlando.
Luce does make a couple of interesting points, though. Most importantly, he does note, although it’s almost in passing, that the family in Virginia has to drive everywhere, and the picture of the family’s driveway that accompanies the article is full of cars and trucks (since the extended family has to all crowd into one house). He also notes that for one member of this family, dental work was postponed so that the car loan could be paid off. We’ve been banging on about this for a while, as have many smarter people—America’s dependence on the automobile has now begun to bite back. Most Americans continue to live in places where driving is not an option—it’s mandatory. And as energy prices continue to rise, gradually but inexorably, most Americans will continue to find themselves stuck—they can’t get anywhere without their cars and pick-ups, but the cost of maintaining the family fleet will keep getting higher.
And it doesn’t help that the jobs aren’t coming back. This is the more fundamental issue, and we’ve discussed this before, as have, again, many smarter people. As James Surowiecki notes in this week’s New Yorker in relation to why Obama is unpopular in the business community,
…. as Keynes argued, “animal spirits” play an important role in driving business decisions, and there are historical examples of so-called “capital strikes”—where investors pulled capital out of an economy in reaction to anti-business policies. But there’s no evidence that anything like this is happening in the U.S. right now. Corporate profits are healthy. Investment may be low, but, given how slowly the economy is growing, it’s about where you’d expect. If businesses truly were holding back on hiring new workers or building new plants in the face of real opportunities, we’d see them working their current employees and factories to the limit. But they aren’t: weekly hours worked have scarcely budged in two years, and factory usage is at just seventy per cent of capacity, which is historically quite low.
If businesses aren’t hiring or investing, in other words, it’s because they don’t need to: they have enough workers and factories to meet the demand for their products. And there are few signs that this is going to change any time soon: consumer demand remains weak, economic indicators—inflation rates, consumer confidence, the stock market, bond rates—aren’t forecasting a quick return to boom times, and, just last week, the Fed chairman, Ben Bernanke, told Congress that the state of the U.S. economy was “unusually uncertain.” So it’s no wonder that companies are feeling cautious. The uncertainty that’s keeping businesses from spending or hiring isn’t uncertainty about what Barack Obama is doing or saying. It’s uncertainty about whether the economic recovery is going to stick.
This pretty much jibes with all the other economic data I’ve been seeing recently, including yesterday’s desultory 2.4% second quarter GDP growth in the US. This was below consensus expectations for growth for the quarter, and while one might wonder why growth was below consensus, a more reasonable question might be why consensus was as high as it was. The issues Surowiecki discusses are not unkown to Wall Street economists, after all. And, as Bloomberg points out, the pace of this recovery is slower when compared to previous recoveries, because consumer spending remains muted. And this is because no one knows where job growth is going to come from.
Luce discusses this issue, but hedges his bets as to the real cause, mentioning the off-shoring of US jobs to Asia as but one of a number of possible causes for the current plight of the shrinking American middle class. Well, he’s a reporter, and has to be responsible. I’m just a blogger, and feel no such need. You can’t keep sending all your manufacturing jobs overseas and expect to continue to be able to provide the opportunities for joining the middle class that previous generations of Americans enjoyed. The US economy depends on consumer spending, and consumers aren’t spending because they believe they have uncertain job prospects—and they’re absolutely right. This is the great economic issue in America today, and a lot of people seem to understand this. But no one seems to be doing much about it.