What Bush and Senior Economic Advisors Don't Tell You About the Economy

Recently, Glenn Hubbard, Alan Greenspan and Ben Bernanke, current and former senior economic advisors to President Bush, all agreed with Bush's constant refrain that the economy is growing at a high rate. For them, it is the envy of the world. Labor mobility and flexibility, high productivity increases and innovative credit and financial institutions and policies, so they are telling us, reduce and manage risk and allocate resources efficiently to make us all richer.

Last year, the GDP grew by 3.6 percent, in sharp contrast to the modest l.6 percent or so of other advanced economies. Unemployment is down to 4.9 percent. These are the favorite statistics of the administration. We are all getting wealthier, so Bush keeps telling us and, no doubt, will tell us again in the upcoming State of the Union address.

Unfortunately, the following facts and statistics tell an entirely different story. They show an unadmitted and continuing relative economic decline of the majority of Americans. They are the ones Bush should address in his State of the Union speech, and they are the ones that should be used for policy formulation:

--- Much of the touted GDP growth is due to domestic population growth plus legal and illegal immigration, unlike other advanced economies which have a stable, if not declining, population. Adjusted for this, the U.S. GDP growth would also be modest. In U.S. economic history, population growth has always been unjustifiably associated with people getting wealthier.

---The U.S. has a significantly higher percentage of adult participation in the labor force whose members, on average, are now working more than two months longer each year than cohorts in advanced economies. Over a lifetime this adds up to working eight years more than workers in the European Union.

---Average wages fell behind the inflation rate last year by about 0.4 percentage points and by a shocking 1.1 percentage points in 2004, proving that impoverishment is indeed continuing, as it has for decades. In the EU, average wages kept up with inflation in '05 and in '04 fell behind far less than in the U.S.

---High productivity increases, while impressive, relate largely to the manufacturing and agricultural sectors which employ far less than 20 percent of the labor force. Few would argue that the service sectors composed of education, electioneering, legal services, law enforcement, advertisement and marketing and drug rehabilitation, etc. are showing high productivity increases.

--- Savings rates are zero and actually were negative for six months in a row last year. The last time dissavings occurred was in '98 and before that it had never shown up since the early years of the Great Depression. In sharp contrast, savings rates around the world range from 40 percent in China to 11 percent or more in most of the EU economies. This does not indicate relative wealth accumulation by Americans.

---Family/household net worth, an extremely important statistic, has not been growing for many decades relative to inflation. In fact, the ratio of family net worth to income since the fifties has worsened, oddly enough, in spite of the fact that a higher percentage of families have two breadwinners working more hours per year. Their combined incomes, had savings not collapsed, should have allowed a rising net worth to forge ahead of inflation. This contrasts severely with more positive equivalent statistics in other economies, indicating that their people are getting wealthier in spite of working less and having far fewer resources. It may also show, in competing economies, wealth accumulation across generations, which does not occur in an economy characterized too much by slum houses and trailer homes that do not store wealth.

---War costs, historically, fall due at the end of a war or in the post-war period. Nobel economist Joseph Stiglitz recently estimated total direct and indirect costs for the Iraq war to be an unbelievable 2 trillion dollars. It is doubtful that Bush will mention war costs in his State of the Union speech. During the Vietnam war, the U.S. economy, compared to others, was far wealthier. It had a massive trade surplus, was not the world's largest debtor economy, suffered no major outsourcing and had far higher personal incomes. In 1991, the first Gulf War, moreover, was totally paid for by foreign governments. All of this has changed dramatically. The war costs, on top of the huge trade and current account deficits and growing federal budget deficits, on balance, guarantee a continuing decline in relative living standards.

Essentially, labor mobility and flexibility, much touted by Bush and advisors, are being used, if not abused, by corporations for their interests and not for the well-being of the masses. Corporate mobility, flexibility and adaptability to serve the genuine interests and wealth accumulation of the people should be the objective and not the reverse. Moreover, innovative credit and financial institutions and policies, also much touted by Bush and advisors, have indebted the masses with credit card debts and inflicted billions of losses by Wall Street that have, after six years, not yet recovered. They socialized the burdens while privatizing the profits for the few whose corruption remains unabated. Both, labor mobility and innovative financial, investment and credit policies, have been active for many decades but have produced no major contribution to the wealth of most Americans. Had they done so, real net worth and the dollar would have risen. For, in economic history, all economies whose people became wealthier have always had a rising and strengthening currency--an unlikely prospect in the foreseeable future for an increasingly teeter tottering dollar.