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By Ron Robins, Founder & Analyst, Investing for the Soul Blog Enlightened Economics; twitter First published June 1, 2011, in his weekly economics and finance column at alrroya.com Why don’t Americans believe Mr. Ben Bernanke, the chairman of the US Federal Reserve, when he says that the economy is growing and getting better? Americans are right not to believe him or the Obama administration when they claim that the economy is on the verge of significant and sustained growth. Past predictions by these parties have either been flat out wrong or overly optimistic. Hence, Americans are not fooled and their own experience tells them that the US economy is still in recession—or worse. They see the reality of unemployment and increasing poverty everyday, and hear of out of control government deficits and debt. They know that massive deficits and debt can only mean belt tightening and increasing taxation ahead—resulting in even higher unemployment. In a Gallup poll published on April 28, Gallup found that, “more than half the of Americans (55 per cent) describe the US economy as being in a recession or depression… Nor does it seem likely that -- given surging gas and food prices -- most would agree with the Committee [the Federal Reserve’s Open Market Committee] that ‘longer-term inflation expectations have remained stable and measures of underlying inflation are subdued.” And Americans are not convinced that cutting the federal government’s deficit will create jobs. A New York Times/CBS News poll on April 21 reported that, “for all the talk from Congressional Republicans and Mr. Obama of cutting the deficit as a way to improve the economy, only 29 per cent of respondents said it would create more jobs. Twenty-seven percent said it would have no effect on the employment outlook, and 29 per cent said it would cost jobs…” Most Americans are also beginning to understand that despite the huge growth of corporate profits and executive pay in recent decades, their pay has been left far, far behind. And this adds to their belief that the economy for most Americans is one of continuing and growing recession. On March 16, Yahoo Finance noted that, “since 1973, the median take home pay of full-time workers is virtually unchanged on an inflation-adjusted basis. [That] the top 11,000 households in America have more income than the bottom 25 million. [And] since 1976, 58 per cent of real income growth has gone to the top 1 per cent of Americans… ” Jeffrey Sachs, professor of economics at Columbia University, says in the article that, “we've reached the greatest income [and] wealth inequality in history… people at the top buy the politicians… All of them - all parties. Everyone is in the hands of the super wealthy.’” However, the above inflation adjusted median take home pay situation of full-time workers is probably even far worse than depicted. Unfortunately, the take home pay
data above is discounted by US government inflation statistics which have had numerous ‘modifications’ over the years that cumulatively, effectively, and dramatically, have lowered the inflation rate from what it would otherwise have been. With a higher inflation rate, the real take home pay in the above analysis becomes almost miniscule. For many years now, the current US consumer price index (CPI) no longer measures the prices of a fixed basket of goods and services. To understand what the CPI really is, see my post, Unethical Statistics Lead us Astray. Shadowstats.com has created their SGS Alternate CPI which they say is a true “measure of the cost of living needed to maintain a constant standard of living,” and it is now running about 10 per cent higher than a year ago. That compares with nominal wages increasing only around 2 per cent over the same period, according to the US Bureau of Labor. No wonder that Americans feel they are still in a recession—or a depression. Adding to Americans’ sense of economic distress is that the US job market is becoming one of lower paying jobs. In 1980, the US had a plethora of middle income jobs—about 75 per cent more than low income jobs. However, by 2010, the number of middle and low income jobs were almost even at just over 40 per cent each of America’s job market, as reported by Sherle R. Schwenninger and Samuel Sherraden in, “The American Middle Class Under Stress,” released by the New America Foundation on April 27. Schwenninger and Sherraden also report that, “wages and salaries have fallen from 60 per cent of personal income in 1980 to 51 per cent in 2010. Government transfers have risen from 11.7 per cent of personal income in 1980 to 18.4 per cent in 2010, a post-War high… [and] America’s social wage has been eroded by the rising cost of health care and education. Health care spending increased from 9.5 per cent of personal consumption in 1980 to 16.3 per cent in 2010… The average cost of one year of college… after adjusting for inflation… has risen 72 per cent since 1990… ” They continue that, “household net worth declined from $65.7 trillion in the second quarter of 2007 to $56.8trn in the fourth quarter of 2010… At the end of 2010, 23.1 per cent of all residential properties with a mortgage were underwater [home value being less than the principal left on the mortgage]… Over the past three decades, household debt as a share of disposable income increased from 68 per cent to 116 per cent.” The data is irrefutable that Americans are suffering financially in ways they never before imagined. While the rich get richer, they get relatively poorer and ever more dependent on debt and government handouts. No press conferences like the one on April 27 by Mr. Bernanke, or government propaganda, will convince suffering Americans that the ‘system’ has not been rigged against them, or that there is the possibility for any substantive improvement ahead. It is no wonder that most Americans believe that the US is still in recession—or worse! Copyright alrroya.com