[Reprinted from Southpaw, the lefty blog that sends flowers!]
Yesterday's underwhelming jobs report, showing an addition of 1,000 jobs in December while the labor force shrank by 309,000 as people simply gave up, speaks to the precarious current position of our economy. For over twenty years, I've been ranting that the unchecked concentration of wealth in this country would finally cause our economy to collapse; I think the moment of reckoning is much nearer than most people are willing to face.
What the "recovery" of the last three years, and especially the last six months, has shown us is that the mechanics of capital flow within our economy have broken down to the point that it now is quite possible to grow the GDP by over 7% in one quarter without any of the money that generates finding its way to the working classes. We now demonstrably are so top-heavy that only the upper class participates in economic growth. The economy really is that hollowed out.
As bracing as that may be, though, it doesn't necessarily predict imminent catastrophic collapse, right? Bear with me a moment.
We are in the third year of GDP uptick -- the traditional barometer of recovery. Yet, after three years of growth, we still have zero or negative effective job growth, flat factory orders, and declining consumer confidence. Further, due to Republican looting of the public till, we now are back running an enormous budget deficit that threatens to become permanent. The dollar is in steady decline, and exportation of professional jobs to Asia causes negative wage pressure here. Finally, consumer debt as a percentage of income is at an all-time high.
How long can a recovery sustain itself absent jobs and upward wage pressure? Three years is a pretty average life expectancy for a sustained growth uptick, and that's under normal conditions where jobs are added, factory orders increase, etc. Three years of jobless recovery may be all we can squeeze out of this economy. Or, if I'm wrong, the anemic nature of the recovery may make it more sustainable, assuming that business cycles simply have slowed down, for reasons unexplained. But let's assume that GDP growth predicated on record worker productivity, such as we saw in Q3 2003, cannot be sustained. What happens if the leading economic indicators soften amidst an already-dreary job market?
Here's where the downward wage pressure discussed earlier stands to wreck the economy altogether. Downward wage pressure tends to produce downward price pressure, and downward price pressure means deflation. With real interest rates already at zero, deficit spending already at $500 billion/year, and a record percentage of our economy leveraged as debt, deflation would be both very difficult to stop and utterly devastating. In a deflationary economy, debt effectively increases while ability to pay it off decreases. This leads to massive defaults, which in turn leads to bank failures, which in turn leads to...
...March 1933, redux.
This is how close we are to depression, I think. We are one bad quarter away from knocking over the first domino. The others already are in place. Twenty years of Reaganism have brought us here. What will get us out?