Wall Street ≠ Economy, Part II

I have said here repeatedly over the last four years that the so called Bush "Recovery" was a smoke and mirrors sham and that the vast majority of Americans didn't see it. (most recently here). Well Barbara Ehrenreich has also come to similar conclusions and they gave her some white space over at the Washington Post.
The Boom Was a Bust For Ordinary People

It begins to sound a bit naughty -- all this talk about the need to "stimulate" the economy, as if we were discussing how to make a porn film. I don't mean to trivialize our economic difficulties or the need for effective government intervention, but we have to face a disconcerting fact: For years now, that strange stimulus-crazed beast, the economy, has been going its own way, increasingly disconnected from the toils and troubles of ordinary Americans.

The economy, for example, has been expanding, at least until now, and growth is supposed to guarantee general well-being. As long as the gross domestic product grows, World Money Watch's Web site assures us, "so will business, jobs and personal income."

But hellooo, we've had brisk growth for the past few years, as the president has tirelessly reminded us, only without those promised increases in personal income, at least not for the poor and the middle class. According to a study just released by the Economic Policy Institute, real wages actually fell last year. Growth, some of the economists are conceding in perplexity, has been "decoupled" from widely shared prosperity.

Please note the key words here, disconnected and decoupled. The boom was felt on Wall Street but not on Main Street.

I first began to sense this in the boom years of the late 1990s, when I was working in entry-level jobs for my book "Nickel and Dimed." While the stock market soared and fortunes were being made in the time it takes to say "IPO," my $6-to-$8-an-hour co-workers lunched on hot dog buns because that was all they could afford and, in some cases, fretted about whether they could find a safe place to sleep.

And about that productivity:

Growth is not the only economic indicator that has let us down. In the past five years, America's briskly rising productivity has been the envy of much of the world. But again, there's been no corresponding increase in most people's wages. It's not supposed to be this way, of course. Economists have long believed that some sort of occult process would intervene and adjust wages upward as people worked harder and more efficiently.

We like to attribute our high productivity to technological advances and better education. But a revealing 2001 study by the consulting firm McKinsey & Co. also credited America's productivity growth to "managerial . . . innovations" and cited Wal-Mart as a model performer, meaning that our productivity also relies on fiendish schemes to extract more work for less pay. Yes, you can generate more output per apparent hour of work by falsifying time records, speeding up assembly lines, doubling workloads and cutting back on breaks. That may look good from the top, but at the middle and the bottom, it can feel a lot like pain.

Productivity gains have been made on the backs of the average Americans who have been working more for less or seen their jobs outsourced. It was never a recovery for them but it seemed like it for awhile because of cheap easy credit. But a recovery based almost entirely on debt cannot be sustained. I'll once again refer to Eric Englund's piece from 2005.

As Murray Rothbard explains, in The Austrian Theory of the Trade Cycle, America’s debt-driven "prosperity" is a mirage built upon the opiate of easy credit. Alan Greenspan’s multiple interest rate cuts, as Dr. Rothbard conveys, is nothing new in the field of central banking:

… the point is that the credit expansion is not one-shot; it proceeds on and on, never giving consumers the chance to reestablish their preferred proportions of consumption and saving, never allowing the rise in costs in the capital goods industries to catch up to the inflationary rise in prices. Like the repeated doping of a horse, the boom is kept on its way and ahead of its inevitable comeuppance, by repeated doses of the stimulant of bank credit.

As Ehrenreich points out that's what we have seen here.

For years now, we've had a solution, or at least a substitute, for low wages and unreliable jobs: easy credit. Payday loans, rent-to-buy furniture and exorbitant credit card interest rates for the poor were just the beginning. In its May cover story on "The Poverty Business," BusinessWeek documented the stampede to lend money to the people who could least afford to pay the interest on it: Buy your dream home! Refinance your house! Financiamos a todos! It wasn't just the bottom-feeders that joined the unseemly frenzy to lend to the poor; big companies, such as Wells Fargo and Countrywide Financial, plunged right in. But somehow, no one bothered to figure out where the poor were going to get the money to pay for all the money they were borrowing.

When personal finances are squeezed hard enough, you have the possibility of a genuine recession. People buy less, so growth declines to the point where even the economic overclass has to sit up and take notice. We saw the beginnings of that in the last Christmas season, which even Wal-Mart survived only through perilously deep discounting.

Not that we hadn't been warned. A century ago, Henry Ford realized that his company would only prosper if his own workers earned enough to buy Fords. But, like Wal-Mart, too many of our employers today haven't figured out that their cruelly low wages would eventually curtail their own growth and profits.

It was indeed a recovery that never was.