Recession Over? Depends on Who You Ask
When the Labor Department announced that a quarter million jobs were lost in July, the news was greeted with cheers and backslapping on Wall Street. One week later the Federal Reserve declared the worst was over—we were on our way out of the recession.
Almost as an afterthought, the Fed also predicted that unemployment would stay close to 10 percent until the end of 2010.
If the jobless won’t get a break for more than a year, what explains the sighs of relief from Washington and the celebrations on Wall Street? How is the recession over?
OUR PAIN, THEIR GAIN
Recovery, it turns out, is in the eye of the beholder. And the government’s statisticians—together with most of the media—put a lot more weight on the corporate bottom line than on workers’ day-to-day. To make matters worse, our pain has been their gain.
Productivity rose 6.3 percent economy-wide between April and June. This means fewer people were doing more work, which helps explain why companies from Ford to Caterpillar to IBM reported healthy profits.
Businesses got back in the black by shedding workers, cutting hours, and eliminating everything from vending machines to health benefits. Employers have also used the lousy job market—and the fear and uncertainty that creates—to wring more work out of the workforce, often for less pay. Nothing reminds someone he’s over a barrel like the threat of being fired during the worst economy in living memory.
According to a recent poll by The Economist magazine, one in six U.S. workers have taken a pay cut. Last month close to 26 million workers were unemployed, when you include those forced to work part-time instead of full-time or those who’ve given up looking altogether. Sixteen states report double-digit employment, with a half dozen others close behind.
Meanwhile, the financial giants who needed nearly $2 trillion in taxpayer bailouts are flying high again. In July Goldman Sachs bagged the biggest quarterly profit in the company’s history: $3.4 billion. Even AIG—the insurance giant turned basket case—showed its first profit in more than a year. No wonder the stock market has climbed 45 percent since March.
And Goldman Sachs is partying like it’s 1999, not 2009. The company has already set aside more than $11.4 billion for bonuses this year, although corporate bigwigs warned employees “to make sure that we’re not being seen living high on the hog,” as one exec told the New York Post.
MORE TO COME
Meanwhile, workers are worrying about whether there’ll be money coming in this year, not how to spend it. There’s little good news on the horizon.
Even though profits are up, there’s little hope for a near-term burst of hiring. Managers will wait as long as possible to see if a rebound is really taking root.
And today’s technology—from supply chain management software to digital payroll records—allows companies to add workers “just in time.” In the past, firms hired in anticipation of an uptick; now they wait till new orders or higher sales are in hand. But with consumers grappling with mounds of debt, new spending and consumer confidence are still in the tank.
This is especially bad news for the long-term unemployed, workers who’ve been out of a job for more than six months. Last month more than a third of all unemployed workers fell into this category, the highest level since 1948. Moreover, close to half a million will exhaust their unemployment benefits by the end of September, and perhaps as many as 1.5 million by the end of this year.
SAME OLD, SAME OLD
So what will turn recession into a recovery for the rest of us?
For most of the last generation the economy worked according to a simple formula. The rich took the lion’s share of economic growth, while the rest of us made ends meet through easy credit and by working longer hours.
Whenever recession threatened, the Federal Reserve lowered interest rates and bankers were more than happy to prime the pump by peddling more debt. Our economy stayed aloft thanks to credit cards and the stock market and housing bubbles.
But by 2000 Ronald Reagan’s infamous trickle-down had completely dried up, and most workers stopped seeing even the meager gains of the 1980s and 1990s.
In fact, every bit of economic growth in the 21st century has gone to the top 10 percent—those earning at least $109,000. Two-thirds was captured by the top 1 percent—folks earning more than $400,000.
Today’s Great Recession should have been the curtain call for an economic model that has left most workers with less buying power than they had in the mid-1970s, swelled the ranks of the uninsured to 46 million, created income inequality not seen since the Great Depression, and left most of us drowning in debt.
But apparently no one in Washington got the memo. The government’s top economists have been preoccupied with nursing Wall Street back to health so that the speculators can continue on their merry way unchanged. Goldman Sachs’ top financial officer confirmed the back-to-business mentality, telling the business press, “Our model really never changed, we’ve said very consistently that our business model remained the same.”
There was outrage, yes, when the government fattened the fat cats with our money, but it wasn’t enough. So we’ll keep hearing well-paid pundits crow about “recovery” as if 255 million working people didn’t even exist.