Millions of people who had good private sector jobs now have to depend on the government for life support.
No wonder America's inflation-adjusted, after-tax income, which is the fuel for the consumer spending that drives the economy, has barely risen in the past six months. No wonder about half of Americans believe that their real income will contract in the coming months, while only about one fifth expect it to increase.
David Rosenberg also reports that nominal per capita disposable income—$37,606—is actually lower today than it was in May 2008 when the recession was in its infancy ($37,752). When you look at the data in real terms, adjusted for inflation, the comparison is even more startling: $32,600 now versus $34,641 back then. In fact, real personal disposable income per capita is lower now than it was in November 2006! And if you strip out government subsidies and assistance, real personal income is down even more from four years ago. This appears to be the first time since the 1930s that inflation-adjusted incomes of Americans have declined.
Don't talk "recovery" to these people, especially if you pause at a gas pump. The consumer remains constrained as well by the ratio of total household debt to after-tax earnings. It was down to 117 percent last year from a peak of 131 percent, but is still above the pre-bubble rate of 70 percent. We are still in an era of deleveraging, rising savings rates, home price deflation, and squeezed real income, all of which will continue to affect consumer spending.
The private sector workweek has stagnated at about 34.5 hours, and wage growth has been tepid at best with average hourly earnings eking out a 0.1 percent monthly increase for the last five months. Over the last nine months, overall consumer spending was up just 0.6 percent, adjusted for inflation.
There is no doubt that the next presidential term will start with a rate of unemployment that is far higher than what President Obama inherited when he took office. The programs that he has put in place have failed. The U.S. economic recovery is like a person who promises much and doesn't deliver. There are not many months left for Obama to persuade the nation to measure his performance by a different mark.
What can we do to get out of this? How can we regenerate the high-paying jobs in service industries with sophisticated intellectual content such as entertainment, digital media, education, and financial services?
- Push students to a higher level of education, if necessary by mandating at least a year of higher education or vocational training at the public's expense.
- Increase the number of H-1B visas for foreign graduate students in the hard sciences. Crazily, we reduced them from 195,000 in 2003 to 65,000 today. This intellectual firepower is critical to growing industries that focus on the world of high tech.
- Revise the tax system to encourage growth, not hamper job creation.
- Create financial incentives for businesses to invest in America, rather than provoking American companies to reap greater rewards by laying off U.S. workers and outsourcing production to foreign countries that have lower environmental standards.
- Focus on the problems of infrastructure and industrial policy.
America has a history of comebacks, of pulling itself out of a hole, and it happens when we're led with energy and conviction. When we feel we are, we will build a new version of the promised land: millions restored to Life.