The American Dream


This will be my last post on the subject, and I’ll let NM For Sale get the last word in, offering them another chance to answer their own question: why don’t more people think the economy is doing great? As I wrote yesterday, a majority of Americans think the economy is bad, and 58 percent think it’s getting worse.

Rather than address that question, NM For Sale has trotted out more economic figures showing the strong economy (we already knew that), and, yesterday, sought to discount the economic hardships faced by the country�s working families with that old standby: the American Dream.

Fear not, those 40 million of you who don’t have health insurance. If you’re living paycheck-to-paycheck, rest assured, things will be fine. One day, the poor will be rich, and the rich will be poor.

So, where do we stand? While NM For Sale will talk about “life cycle events,” they fail, again, to explain why America’s economic upswing hasn’t been good for more Americans. Or, for that matter, why Americans don’t think so:

Republicans are getting clobbered by voters on the question of which party can best handle the economy even as the stock market hits record highs, gasoline prices plunge and the unemployment rate stands at a five-year-low.

Voters in all five states said the economy is worse off because of the [sic] Bush’s policies of the past six years. In New Jersey, 53 percent of respondents said worse, versus 26 percent who said better. In Missouri, the margin narrowed to 41 percent to 33 percent.

While a sharp reduction in gasoline prices — down 83 cents a gallon since early August — has boosted consumers’ disposable income, Republicans haven’t reaped a discernible benefit. Voters surveyed in all five swing states said Democrats would do a better job of dealing with high fuel prices, and several respondents said in interviews that they view the decline in prices as just a ploy to boost Republicans’ chances on Nov. 7.

NM For Sale can shout, “The economy is fantabulous!” from the rooftops, until their blue in the face. But as long as Americans think the economy is in the dumps, the GOP message just doesn’t resonate.

Oh, and what about the record high Dow? Let’s see what Dean Baker has to say, and focus on his thoughts on cycles:

Earnings are highly cyclical. They have risen very rapidly in the last three years and are now approximately the same share of income as they were at the peak year of the 90s cycle (1997). The earnings share typically falls substantially after peaks, implying stagnant or declining profits. Based on this pattern, the Congressional Budget Office projects that profits will actually be lower in nominal terms in 2011 than they are today (The Budget and Economic Outlook, Fiscal Years 2007-2016, Table 2-1).

My crystal ball would support the declining profit view. We are just beginning to feel the effects of the collapsing housing bubble and it is not going to be pretty. It is also worth noting that productivity growth has slowed sharply in recent quarters. With the sharp upward revision to employment growth, productivity growth will be under 2.0 percent for the six quarters ending in the 3rd quarter of 2006 (assuming consensus projections for 3rd quarter GDP). If we ever see any wage growth in this cycle, it should be now and it will be at the expense of profits.

That’s the problem in a nutshell: profits (i.e. the Dow) are great, as long as workers don’t see any wage growth.

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