Here’s What’s Wrong With The Economy and What to Do About It

Below is an excellent analysis of the reasons why the U.S. economy is facing problems and what to do about it.  The analysis by Business Insider is very consistent with our own.  A few things we’d add: (1) military spending cannot continue on the unsustainable path it is on.  The U.S. cannot spend as much as the whole world combined and have a sound domestic economy. (2) We need to put in place policies that lead to a more equitable sharing of the wealth.  This includes progressive tax policies, but also includes encouraging democratized economic policies that share the wealth, e.g. employee owned businesses, transforming corporate welfare into taxpayer investment so we all share the wealth the commonwealth creates.  (3) We put forward a plan to get the economy moving as part of our Occupation of Washington, DC at Freedom Plaza. See The 99%’s Deficit Proposal: How to create jobs, reduce the wealth divide and control spending. (4) Finally, we do not think we can elect our way out of this mess.  Both parties are not responsive to the people’s necessities or economic fairness.  It is going to take building an independent movement for transformational change before elections are a viable path to the changes the country needs.

By Henry Blodget
Business Insider, October 3, 2012

The most important issue in this year’s election is the economy.

Unfortunately, this topic has now been “politicized,” which means that you can’t talk about it without being cheered or jeered by fans of each political team.

But the economy is much more important than this year’s election or either political team.

And both teams are responsible for the mess we’re in–and so, I am sorry to say, are the rest of us.

The sad truth is that fixing that mess is going to take decades, regardless of who’s in power.

But we have to fix it. Or we’re going to become a nation of a few million aristocrats and 300 million serfs.

The first step is to get past the political blame-game and understand what’s wrong.

We've had an amazingly prosperous run for the last 70 years. But we just had a big, unusual hiccup in economic growth.

We’ve had an amazingly prosperous run for the last 70 years. But we just had a big, unusual hiccup in economic growth.

Business Insider, St. Louis Fed
On a per-person basis, this hiccup was worse: “Real personal income per capita”–the amount we each take home after adjusting for inflation–is about where it was a decade ago.

On a per-person basis, this hiccup was worse: "Real personal income per capita"--the amount we each take home after adjusting for inflation--is about where it was a decade ago.

Business Insider, St. Louis Fed
So, what’s wrong?

So, what's wrong?

Library of Congress, Prints & Photographs Division, FSA-OWI Collection
Is it that “regulations and uncertainty and taxes are crippling our businesses?”

Is it that "regulations and uncertainty and taxes are crippling our businesses?"

The Library Of Congress via Flickr
No!

No!

Our businesses are doing remarkably well. The profits of the S&P 500 just hit an all-time high.

Our businesses are doing remarkably well. The profits of the S&P 500 just hit an all-time high.

Business Insider, St. Louis Fed
Big companies are making more profit per dollar of sales than they ever have before.

Big companies are making more profit per dollar of sales than they ever have before.

Business Insider, St. Louis Fed
What’s wrong is that the amazing profits of our businesses aren’t flowing through to most Americans. Except at the very top.

What's wrong is that the amazing profits of our businesses aren't flowing through to most Americans. Except at the very top.

The percentage of Americans with jobs is at the lowest level in three decades.

The percentage of Americans with jobs is at the lowest level in three decades.

Business Insider, St. Louis Fed
And wages as a percent of the economy have hit an all-time low.

Business Insider, St. Louis Fed
Now, there are many reasons for this, some of which are outside the control of our (lousy) government.

Now, there are many reasons for this, some of which are outside the control of our (lousy) government.

AP Images
One big problem is debt. Total debt across our economy has skyrocketed in the past 30 years.

One big problem is debt. Total debt across our economy has skyrocketed in the past 30 years.

Business Insider, St. Louis Fed
And not just in absolute dollars. Our debt has soared from less than 100% to GDP 30 years ago to more than 350% of GDP.

And not just in absolute dollars. Our debt has soared from less than 100% to GDP 30 years ago to more than 350% of GDP.

Business Insider, St. Louis Fed
Put differently, the growth of our borrowing (red line) has wildly outpaced the growth of our economy (blue line).

Put differently, the growth of our borrowing (red line) has wildly outpaced the growth of our economy (blue line).

Business Insider, St. Louis Fed
Here it is on a year by year basis. This chart shows the change in GDP each year minus the change in debt each year.

Here it is on a year by year basis. This chart shows the change in GDP each year minus the change in debt each year.

Business Insider, St. Louis Fed
Anyone can spend when you give them a credit card. So our frantic borrowing over the past 30 years means that our economic growth has been something of a mirage.

Anyone can spend when you give them a credit card. So our frantic borrowing over the past 30 years means that our economic growth has been something of a mirage.

AP Images
By the way, when people hear “debt,” they immediately think of the government. But our ~$50 trillion of debt has been accumulated by ALL of us, not just the government.

By the way, when people hear "debt," they immediately think of the government. But our ~$50 trillion of debt has been accumulated by ALL of us, not just the government.

Library of Congress
Households borrowed like crazy.

Households borrowed like crazy.

Business Insider, Bloomberg
So did corporations.

So did corporations.

Business Insider, St. Louis Fed
And so did the government. Here’s “state and local” debt.

And so did the government. Here's "state and local" debt.

Business Insider, St. Louis Fed
And here’s Federal government debt — $16 trillion and counting.

And here's Federal government debt -- $16 trillion and counting.

Business Insider, St. Louis Fed
Put it all together and–again–our debt has exploded relative to the size of our economy. We have to reverse that.

Put it all together and--again--our debt has exploded relative to the size of our economy. We have to reverse that.

Business Insider, St. Louis Fed
The next big problem is growing inequality. The top 1% of the country is getting ever-richer, while everyone else treads water or loses ground.

The next big problem is growing inequality. The top 1% of the country is getting ever-richer, while everyone else treads water or loses ground.

Business Insider
The problem started in the early 1980s. Before then, increasing American prosperity was shared by everyone.

The problem started in the early 1980s. Before then, increasing American prosperity was shared by everyone.

Economic Policy Institute
Since the early 1980s, however, the richest Americans (pink) have captured most of the gains.

Since the early 1980s, however, the richest Americans (pink) have captured most of the gains.

Economic Policy Institute
And this problem has gotten especially bad in the past 10 years.

And this problem has gotten especially bad in the past 10 years.

Economic Policy Institute
Why has inequality gotten so extreme?

Why has inequality gotten so extreme?

AP Images
Two big reasons. First, “globalization” opened up a vast new labor pool–3 billion people who were willing to work for a lot less than Americans.

Two big reasons. First, "globalization" opened up a vast new labor pool--3 billion people who were willing to work for a lot less than Americans.

Wikimedia Commons
This, plus the decline of labor unions, put pressure on wages. Average hourly earnings (adjusting for inflation) haven’t changed much in 50 years.

This, plus the decline of labor unions, put pressure on wages. Average hourly earnings (adjusting for inflation) haven't changed much in 50 years.

Meanwhile, taxes have been cut sharply for investors, owners, and high wage earners.

Meanwhile, taxes have been cut sharply for investors, owners, and high wage earners.

National Taxpayers Union
This has led to an explosion in the pay of CEOs and other senior execs and investors relative to average workers.

This has led to an explosion in the pay of CEOs and other senior execs and investors relative to average workers.

The richest 20% of the country has gained. Everyone else has lost.

The richest 20% of the country has gained. Everyone else has lost.

Bloomberg
The problem with inequality, by the way, is not just the sense of unfairness. It also hurts the economy–because “the 90%” spends a lot more than “the 10%,” and the 90% is hurting.

The problem with inequality, by the way, is not just the sense of unfairness. It also hurts the economy--because "the 90%" spends a lot more than "the 10%," and the 90% is hurting.

commons.wikimedia.org
The other problem with inequality is that it leads to social unrest. Eventually, people get tired of feeling screwed, and they decide to do something about it.

The other problem with inequality is that it leads to social unrest. Eventually, people get tired of feeling screwed, and they decide to do something about it.

Wikimedia Commons
For the last 30 years, we’ve muted our growing inequality with increasing government spending on social programs–Social Security, Medicare/Medicaid, unemployment benefits, and so forth.

For the last 30 years, we've muted our growing inequality with increasing government spending on social programs--Social Security, Medicare/Medicaid, unemployment benefits, and so forth.

Business Insider, St. Louis Fed
Over the past 50 years, social-program spending has exploded as a percentage of the economy.

Over the past 50 years, social-program spending has exploded as a percentage of the economy.

Business Insider, St. Louis Fed
In fact, social program spending (red) has grown so much that it now consumes almost all federal tax revenue (blue).

In fact, social program spending (red) has grown so much that it now consumes almost all federal tax revenue (blue).

Business Insider, St. Louis Fed
Meanwhile, we have cut spending (as a percent of the economy) on other things the government pays for–such as highways, military, federal salaries, etc.

Meanwhile, we have cut spending (as a percent of the economy) on other things the government pays for--such as highways, military, federal salaries, etc.

Business Insider, St. Louis Fed
But the combination of explosive social-program spending (most of the red line), plus reduced taxes (blue), has created a massive budget deficit. We need to develop a plan to fix that.

But the combination of explosive social-program spending (most of the red line), plus reduced taxes (blue), has created a massive budget deficit. We need to develop a plan to fix that.

Business Insider, St. Louis Fed
So, what’s wrong with the economy? Well, for one thing, consumers and the government lost spending discipline. And it’s not going to be easy to fix that.

So, what's wrong with the economy? Well, for one thing, consumers and the government lost spending discipline. And it's not going to be easy to fix that.

We will need sustained discipline and effort and a smart long-term plan.

We will need sustained discipline and effort and a smart long-term plan.

Vimeo/Dmitry Kostyukov
Specifically, consumers need to spend less, save more. and pay down their debts. The good news is they’ve already started doing that. The savings rate is trending up…

Specifically, consumers need to spend less, save more. and pay down their debts. The good news is they've already started doing that. The savings rate is trending up...

Business Insider, St. Louis Fed
And household debt is trending down.

And household debt is trending down.

Business Insider, St. Louis Fed
Second, companies need to stop being so obsessed with “profits” and start sharing more of their immense wealth with their employees.

Second, companies need to stop being so obsessed with "profits" and start sharing more of their immense wealth with their employees.

Business Insider, St. Louis Fed
Profits are at an all-time high, wages at an all-time low. Wages simply have to go up.

Profits are at an all-time high, wages at an all-time low. Wages simply have to go up.

Business Insider, St. Louis Fed
Yes, this means corporate profit margins will drop. But they can drop a long, long way and still be “above average.” And this is our country we’re talking about. If corporations really are people, it’s time for them to start acting like people–and sharing their wealth.

Yes, this means corporate profit margins will drop. But they can drop a long, long way and still be "above average." And this is our country we're talking about. If corporations really are people, it's time for them to start acting like people--and sharing their wealth.

Business Insider, St. Louis Fed
And then, lastly, of course, we have to implement a plan to eventually get our massive government deficit under control. We don’t want to do this immediately, in one fell swoop, because lots of Americans (and the economy) have become highly dependent on that government spending. But we do need a long term plan.

And then, lastly, of course, we have to implement a plan to eventually get our massive government deficit under control. We don't want to do this immediately, in one fell swoop, because lots of Americans (and the economy) have become highly dependent on that government spending. But we do need a long term plan.

Business Insider, St. Louis Fed
And, yes, we have to get Healthcare and Social Security spending under control.

And, yes, we have to get Healthcare and Social Security spending under control.

YODCOX! via flickr
But! Before you go vote for candidates who are just going to whack Social Security and Medicare/Medicaid spending, remember this…

But! Before you go vote for candidates who are just going to whack Social Security and Medicare/Medicaid spending, remember this...

englishrussia.com
Our economy has become highly dependent on those “transfer payments.” They now amount to a record 16% of GDP. If we suddenly slashed them, especially while raising taxes, we would give the economy a heart attack.

Our economy has become highly dependent on those "transfer payments." They now amount to a record 16% of GDP. If we suddenly slashed them, especially while raising taxes, we would give the economy a heart attack.

Business Insider, St. Louis Fed
So we need to fix our social programs gradually, calmly–not in a fit of panic that will throw us into a Depression.

So we need to fix our social programs gradually, calmly--not in a fit of panic that will throw us into a Depression.

It took us 30 years to get into this mess. (Debt = red, GDP = blue). It will probably take us 30 years to get out.

It took us 30 years to get into this mess. (Debt = red, GDP = blue). It will probably take us 30 years to get out.

Business Insider, St. Louis Fed
So go elect someone who can fix it.

So go elect someone who can fix it.

Library of Congress, Prints & Photographs Division, FSA-OWI Collection
DEAR AMERICA: You Should Be Mad As Hell About This…

Read more: http://www.businessinsider.com/whats-wrong-with-economy-charts-2012-10?op=1#ixzz28GgTDbKj

Share This

2 comments

  1. Pingback: Lifting the Veil of Mirage Democracy in the United States » Clearing the FOG Radio

  2. Pingback: Assassinations, Obama the War Criminal, Sheeple, Lifting the Veil of Mirage Democracy » Clearing the FOG Radio

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>