Almost four years ago, in June 2009, the U.S. entered into a technical recovery from the Great Recession touched off by the collapse of a decade-long housing bubble. The bubble collapse nearly wiped out the financial sector, thanks to extensive investment in mortgage-backed securities that ended up being nearly worthless as foreclosures swept across the nation like a wildfire.
American investors lost trillions in net worth as the stock markets plunged. The federal government shoveled out trillions more in bailouts, safety-net subsidies, and stimulus programs that promised a soft landing and then a steady recovery based on a more-sound economic foundation.
The Obama administration has insisted that the recovery has been both steady and sound, almost ever since it began. Every month’s jobs reports is accompanied by cheering that the numbers remain positive, even though the rate of increase hasn’t kept up with population growth, and despite the fact that the civilian workforce participation rate remains at three-decade-long lows.
Consumer spending increases are heralded as corroboration of confidence in the recovery. Even the brief instance of contraction in the initial estimate of the 2012 fourth-quarter US economy, later adjusted to 0.4 percent annualized growth, was explained as an artifact of government spending cuts, a mere hiccup along the path of solid economic expansion.
This week, the administration’s supporters celebrated another indicator of recovery and expansion. This week the Dow Jones Industrial Averagehit a six-year high, going above the 14,500 mark and doubling the DJIA value at the nadir of the Great Recession. The Standard & Poor’s Index also hit a record high mark last week, and then closed above that earlier this week. That has some people feeling as though we have closed out the books on the Great Recession, even to the point to where U.S. News opined yesterday that another Korean War wouldn’t necessarily push the US back into a recession.
Actually, I agree. We’d have to get out of the first one to go into another. And while the stock markets look as though the American economy has rebuilt itself to its pre-collapse strength, the measures on the ground paint a very different story.
First, the stock market rally offers more smoke than fire, for reasons related to both the stimulus and the Fed. As former OMB Director David Stockman pointed out in Sunday’s New York Times, the soaring highs of the S&P 500 and DJIA show more of a bubble than actual growth. Three turns on the qualitative-easing roller coaster has devalued the dollar, with the third apparently an infinite policy, and that makes the two indices meaningless in this comparison.
“Since the S&P 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion),” Stockman explained. “Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually.”
That “flood of liquidity” has only pooled in one specific area of the American economy, Stockman argues – Wall Street. That makes both the S&P 500 and DJIA much less indicative of the health of the overall economy, and points to “yet another unsustainable bubble.”
That isn’t the only disconnect that Stockman sees. A recovering economy should expand the workforce and reduce reliance on safety-net programs. Instead, we continue to see the opposite. Besides the aforementioned stagnation at the 32-year low in civilian workforce participation, an enormous expansion of aid has now doubled food-stamp and disability rolls in twelve years to 59 million people, nearly one in every five Americans, Stockman points out. Food stamp rolls alone have increased 70 percent since the end of 2008, The Wall Street Journal reported separately last week. It now stands at a record high of 47.8 million Americans.
The WSJ blames easing of access rules for part of that expansion, but that doesn’t entirely explain the increase. Neither does fraud, although that’s growing faster than the food-stamp rolls themselves. The main driver for expansion of food stamp recipients is the reason for the program’s existence in the first place – poverty.
Over 50 million people now live in poverty, according to a recent release by the US Census Bureau. At the end of 2010, after the passage of the $800 billion stimulus bill and eighteen months of technical recovery, that number was 46 million according to Census Bureau statistics. At the end of 2008, at the depth of the Great Recession and as President Obama first took office, that number was below 40 million.
We have added 10 million people into poverty since Obama took office, most of whom fell into poverty after the stimulus and the technical recovery began. In comparison, we have only added 123,000 jobs over the same period, according to the BLS Current Population Survey, which showed a seasonally-adjusted employment level in December 2008 of 143.369 million, compared to 143.392 million in February. (The BLS’ Current Employment Survey data looks almost as bad, with a gain of just 621,000 jobs in the same period.) The civilian participation rate in the workforce has dropped from 65.8 percent to 63.5 percent during that time, equaling August 2012 for the worst since September 1981.
The Obama administration agrees. "While the perception may be different,” Department of Agriculture Undersecretary Kevin Concannon told the WSJ, “the actual raw numbers, almost 50 million people [under the federal poverty level], is certainly one of the principal reasons why we see the enrollment increases in the SNAP program.”
Perception is the key term in that response. This administration has been selling the perception of a recovery – by dumbing down expectations for jobs growth, by using gimmicky stimulus spending to temporarily improve stagnation numbers, and by leaving the Fed with no other choice than to fuel a currency bubble that makes Wall Street look stronger than it is at the expense of the actual economy. The real fundamentals of the last five years don’t show a recovery at all, but a slow slide into poverty and decline. Until we get serious about fiscally responsible regulatory, monetary, and spending policies, we won’t ever break out of this cycle.