The news that the economy grew at a strong 4.1 percent last quarter brings optimism and anticipation for a better future. Like all single statistics, it doesn’t tell the whole story – one must look at underlying drivers, sustainability, and most important – what does it mean to Americans.
When one does this, optimism is doused with realism, and while not necessarily doubts, the realization that the economic growth may well not be all that great for the American wage earner, and that it may well be fragile. Optimism has to be tempered with some truths:
While unemployment has decreased to record lows, wages have not increased significantly as part of the economic growth – a critical issue not included in the growth numbers which look at total goods and services (Gross Domestic Product) only.
Growth has been in health care and services, far less in manufacturing (although this is positive in of itself, but a not a driver yet). Health care, in my mind is a cost to the economy, still not adequately covered, and represents a liability, even though it is employing people (mostly at lower end care-giving and basic support services). Service jobs also tend to be in lower end wage categories. Manufacturing is a ray of hope. But the bottom line to me is that growth isn’t really growth until it shows up in the working individual’s bottom line. The surge in hiring has down sides: one of which is housing costs rising to the point of being unaffordable to entry level earners in many of the places with the rosiest unemployment numbers. New Hampshire is a great example. Facing high housing costs, the individual’s bottom line is a challenge.
The tax break to corporate America has not driven higher wages, or long term capital investment by the beneficiaries of this taxpayer gift. The vast majority has gone into increasing the corporate bottomline by buying back of stock shares, increasing dividends to shareholders, and increasing top management already mind boggling compensation. The “1 percent” is doing really well; the jury is out for the rest of us. The most concerning issue in this aspect of growth is that should the economy face a significant challenge,the easiest thing to shed is jobs. One can make this assumption based, again, on the overall lack of long term investment (assumption of risk) by corporate America – a short term strategy. Which could give all the new jobs a longevity of a snowball on a July sidewalk.
Rollback of environmental regulations has created a flurry of positive economic activity. This is not sustainable – current policy is quickly reversible by Congressional action, or administration change. We Americans are nearly alone in the world in our official denial of environmental damage and climate change brought on by indiscriminate industry (and our own activity). Sooner or later we will get back onboard. And it will blunt or eliminate all the new productivity – which is just beginning to infringe on the progress made over two generations. But the cost will be a greater drag on the economy every year we wait.
Debt: “Personal” and “national” (if one is a taxpayer, it’s also personal). Two trillion this year of the projected 14.7 trillion over the next 10 years. There are opinion pieces out there that report the economic growth is paying as we go. One has to look at these numbers with great reservation – there simply hasn’t been enough time to make accurate assessment. We haven’t even had a tax cycle yet. As the saying goes – “wait until next year.” Personal debt is mounting. Personal net worth of 90 percent of Americans is woefully low (by one calculation $1,800!), which is ominous for retirement.
There are rumblings of cuts in Medicaid, changes in Medicare funding, as well as Social Security. Anyone, or all, depending on individual circumstances and situational awareness to protect one’s assets could make the present or future bottom line bleak indeed.
Looming trade wars could make this boom a flash in the pan. A brief look at the history of tariffs, notably just prior to the Great Depression of the 1930s, gives one great pause in being optimistic that they will provide growth in our economy, and real concern of just the opposite. I am no economist (as if the above wasn’t ample evidence), but when jeans at Walmart go from $17 to $40, there will have to be one hell of a lot of growth in personal income to cover costs. The soybean farmers (and agriculture in general) are getting nailed now. The $12 billion in tax dollars to keep them from going under this year doesn’t fix the problem of market loss. We have been paying farmers not to grow to keep them in business for years – how does getting rid of major markets for American goods make sense? Who is next?
When considering the above, one has to consider a conclusion that a 4.1 percent growth in the GDP “ain’t no booming economy.” Yet. When one sees individual wages go up, and individual personal networth increase it will be time to say “boom.” But until then, it’s all political hype to me.