Jobless Recoveries and the Cancer of Debt

Clowns to the left of me, Jokers to the right,
Here I am, stuck in the Muddle Through Middle with you!
(With thanks to Stealers Wheel)

I get a lot of email from readers. I recently got an impassioned letter from very-long-time reader Bill K., who asks some very pointed questions about austerity and spending cuts. It is a rather lengthy letter, so I will only quote part of it and use it is the launching pad for this week’s letter, where we look at Friday’s employment report, but from a little different slant. This letter will no doubt anger a few other long-time readers. I argue this week for the middle, but do so as a survivalist.

While Bill starts out by saying some very nice things about me (thanks), let’s jump to the meat of the letter:

…. I would like to get something off my chest. I would like to know why you seem to side with those analysts who keep telling us that the only way we can sort out Western economies is by making the average guy suffer through austerity programs… You are a very intelligent guy – obviously. You can see how things work and what is broken. You can also see through the greed and excesses of Wall Street, and you can read the economic data which clearly shows that the wealthy continue to get more wealthy in America whilst the average Joe continues to see his standard of living going in the opposite direction. Capitalism today only works for the ‘have gots’. It’s been going in that direction for more than 30 years now. You saw the senseless and stupid greed of the derivative scheme which fueled the housing bubble which led to the meltdown which never melted because Bush/Obama handed out a huge welfare check to financial institutions that should have been allowed to fail.

“In the aftermath of all this, politicians in DC, you, and your guest pundits warn us that the world as we know it will end if we don’t somehow reduce the average Joe’s Social Security, pension, Medicare and Medicaid benefits. Oh and let’s not forget the budget, which is being argued in Washington as I type this. The line is that we have to make drastic reductions to spending on domestic programs, on our schools, on our infrastructure, on unemployment entitlements, on all the things that serve to give working people a chance at a dignified life. You’re a smart guy. You can recognize what is fair and what is greed and excess. When the nation is as troubled as it is today and yet the wealthy are living even better than they did 30 years ago, what does that say about America? I wonder if we really care about our neighbors anymore? I wonder why such a great country with such great natural resources cannot find a way to be just and generous and a beacon to higher ideals? Ike warned us to be wary of the military-industrial complex. Looks like he was right. We’re a nation constantly at war, spending trillions on defense, whilst at home we enrich the already wealthy and tell the average Joe that he has to pay for it. I wonder how you manage to rationalize all this away – if indeed you do?

Thanks and with respect, Bill

The Plight of the Working Class

Bill, you ask a very complicated question. There is not a simple black and white answer, but I am going to try and address your concerns. Let’s start with Friday’s employment numbers. We got a decent non-farm payroll number of 216,000, and 240,000 new jobs in the private sector (governments everywhere are still shedding jobs). That means over the last two months the private sector has added almost 500,000 jobs. If you take the household survey, that number looks even better. So why did all the consumer sentiment numbers in March come out so awful?

Looking deeper into the data we find that wages were once again flat, for the 4th time in the last five months. We are certainly not keeping up with inflation. The chart below shows real median household income since 1967. It is published in May of each year by the Census Bureau, so we don’t have the data for 2010, but it will not be good. Real median income, when the new data comes out, if I read the chart right, will not have grown for almost 14 years.

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