Reply #2: Is This Really A Recovery? by John Finger

[ozymandius]

Since the fall of 2003, we’ve received a mass of good news about the economy. First-time jobless claims have fallen and are consistently below the 400,000 per week threshold which is considered the dividing line between an expanding and contracting labor market. Housing starts in 2003 were at 1.8 million, a level not seen since 1986. Worker productivity has increased substantially. The unemployment rate has dropped to 5.7%. The stock market was on a tear in 2003: the S&P 500® gained 26%, while the Nasdaq tacked on 50%.

With all this good news, what’s the problem? If you’re one of the 2.7 million people who lost his job over the past three years, you’re not seeing the benefit of this recovery. The Labor Department released a very disappointing jobs picture for December, noting that the economy created only 1,000 net jobs that month. Economists had anticipated a jobs increase of 150,000. My guess is that most of those 1,000 jobs went to economists: they, along with meteorologists, are the professions where people make six figures a year for being wrong all the time. But that’s a story for another newsletter. During the final 5 months of 2003, according to Stephen Roach, only 278,000 jobs were added by non-farm businesses. That may sound okay, but nearly all of the jobs came in three areas: temporary staffing, education, and healthcare. Temporary staffing is comprised mainly of low-paying jobs, while education and healthcare are shielded from foreign competition.

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Much of the present boom is brought to you by the U.S. government: more than $1 trillion in income tax cuts and sharply increased federal spending has made its way into the economy. History shows that tax cuts do benefit an economy in the short-run. But this comes at an unsustainable price to America’s future, as our huge national debt will reach a point where it either can’t be paid (i.e., a default by the U.S. government on its obligations) or the currency will be hyper-inflated to such a point where repayment is meaningless. Total debt is now $34 trillion, or $119,442 for every man, woman and child in America. Could it be that the current economic expansion has been funded with a credit card?

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