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Stagnant/Declining Economy

We now turn to the fifth stage in the cascade of effects, a stagnant economy:

 

Without demand to drive it, the economy goes stagnant and declines.

During 2012, 2013, and 2014, U.S. Gross Domestic Product has grown at annual rates of 1.6%, 3.1%, and 2.4%, respectively.[i]

However, even this relatively anemic growth was not being realized by typical American households.  In September of 2014 the Census Bureau reported:

Median household income was $51,939 in 2013, not statistically different from the 2012 median in real terms, 8.0 percent lower than the 2007 (the year before the most recent recession) median ($56,436), and 8.7 percent lower than the median household income peak ($56,895) that occurred in 1999. [2013 dollars.  Citations and footnote omitted.][ii]

 

[i] Bureau of Economic Analysis, Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product, March 27, 2015.  http://bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=1

[ii] Carmen DeNavas-Walt and Bernadette D. Proctor, “Income and Poverty in the United States: 2013,” Current Population Reports, U.S. Census Bureau, September 2014, 9.    https://www.census.gov/content/dam/Census/library/publications/2014/demo/p60-249.pdf

 

The stagnant economy causes a slack job market, and we repeat the cycle of cascading effects.  It’s a race to the bottom, except that the bottom is never reached – rather, it is a vicious circle that keeps repeating itself.  As we have seen, each decade and each recession brings another round of job losses from which we do not fully recover, starting the cycle all over again.  So the pattern really looks more like this:

 

 

We have referred to a recent Reuters article that considered the cause of Mexico’s economic stagnation despite the robust growth of its manufacturing section, and concluded that an oversupply of labor due to population growth was driving down wages, preventing consumers from spending enough to fuel the economy. [i]  This article could just as well have been written about the United States, except that in the U.S. case, the oversupply of labor is due to offshoring jobs (many to Mexico), not population growth.  In fact, we invite you to substitute the U.S. for Mexico, and re-read the findings:

  • Between 1992 and 20122012 and 2013, the economy grew by an annual average of only 2.8 2.4 percent, although exports were up 8.6 .54 percent annually. 
  • Worker pay is a large part of the problem, with pay per capita household income falling six eight percent from 2005 to 20122007 to 2013.
  • Lower wages means lower consumer spending, which accounts for more than two-thirds of the economy. 
  • Spending by the wealthy helps, but falling wages among the poorest half of the population is putting a drag on retail sales, which are basically flat. 
  • A government economist attributes the stagnation to the failure to create enough high quality jobs and over reliance on abundant cheap labor. 

These developments have occurred against a backdrop of other, interrelated economic and social trends, which have worsened their effects. These trends include the closely related trends of commoditization of workers, “financialization” of the economy and corporations, “short-termism” in the operation of public companies, globalization, and rising inequality of distribution of income and wealth.

We have noted that even the modest recent gains in GDP have not been realized by typical American households, with the median household income having gone flat after years of decline.  Emmanuel Saez, Professor of Economics at the University of California, Berkeley, has calculated that the top 1% of households captured 91% of the income gains in the first three years of the recovery from the Great Recession.[ii]

While the current situation is working for a few, millions of Americans are experiencing a hollow economy in which they are marking time at best, or slipping out of the “middle class,” and fear for even worse for their children.  And so we must consider, what does the future hold?

GO TO What does the future hold?

 

 

[i] Christine Murray, “Mexico manufacturing surge hides low wage drag on economy,” Reuters, June 2, 2014.

http://www.reuters.com/article/2014/06/02/us-mexico-economy-analysis-idUSKBN0ED20H20140602

 

[ii] Emmanuel Saez, “Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2013 Preliminary Estimates),” January 25, 2015. http://eml.berkeley.edu/~saez/saez-UStopincomes-2013.pdf.

News and Events

May 15, 2014, Ontario, CA - MIAA's founder, Jim Stuber, delivered the keynote address at the 20th annual World Trade Conference sponsored by the U.S. Department of Commerce and the California Inland Empire District Export Council in Ontario, California.  To view the conference agenda, click here:

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May 7, 2015, Radnor, PA.  MIAA's founder, Jim Stuber, appeared as the guest of host Richard J. Anthony, Sr. on The Entrepreneur's Network TV at Radnor Studio 21.  The program featured a discussion of the problems caused by offshoring manufacturing and white collar jobs and how consmers can solve the problem with their spending decisions. 

Studio 21 has made the program available for viewing here:

https://youtu.be/UIOwBD6-1pk

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