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Posts Tagged ‘GDP’

Why Has the U.S. Economy Been Doing So Well?

Monday, June 3rd, 2019

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This question immediately invites a couple of additional questions: What does it mean to say the economy has been “doing so well”? And: Has the U.S. economy really been doing so well?

Long and Slow

The most widely used measure of how well an economy is doing is the growth of gross domestic product (GDP). On the one hand, GDP has been growing for an unusually long time. Since the economic expansion began in June of 2009, it has continued for 118 months, as of April 2019. If the expansion continues into the summer, it will surpass the longest expansion on record, which lasted for 120 months in the 1990s.

On the other hand, it has been an historically slow expansion, with GDP averaging about 2.24% per year. In the two years since Trump took office, GDP grew 2.22% in 2017 and 2.86% in 2018, the latter almost as fast as the 2.88% in 2015. This is quite slow compared to the 3.6% rate in the 1990s, and the 4.8% rate in the 106-month expansion of the 1960s. (All figures are adjusted for inflation.) It is remarkable that, in spite of this comparison with the rates of growth in other long expansions, media reports frequently refer to the economy as “roaring” or “sizzling.”

The employment situation also has its positive and negative aspects. On the one hand, the unemployment rate has fallen almost steadily since its 2009 peak at 10% during the Great Recession. And the rate has been at the historically unusual rate of less than 4% for the past year. Relatively few people who want jobs are unable to get them. On the other hand, in spite of the low unemployment rate, wages have risen quite slowly. Between mid-2009 and today, the average hourly rate for all private employees on private payrolls has gone up by only slightly over 4%; about half of that increase has come in the last two years.

Even with many more people employed than at the time of the Great Recession, the very slow increase in wages has meant a rise in income inequality. In 2007, the average income of households in the top 5% was 25 times as great as the average income of households in the bottom 20%. By 2017, the average income in the top 5% was 29 times that in the bottom 20%. (These figures are for pre-tax income. The after tax distribution was slightly less unequal, but changed in the same way. Moreover, the tax cut at the end of 2017 surely has made the after-tax distribution of income more unequal.)

Perhaps the combination of the slow increase of GDP and the rising income inequality can be summarized as: The economy is doing well, but the people aren’t.

What Keeps the GDP Growing?

In the spring of 2019 it appears that the growth of GDP is slowing. Still, even if the economy tanks soon, the current expansion will be the longest on record. A record requires some explanation. Part of the explanation, ironically, is that the expansion has been so long because it has been so slow. Because growth was slow and the unemployment rate, while falling, came down slowly, wages have risen very slowly. This limited the extent to which wage costs were cutting into firms’ profits.

Another factor, also easing cost pressures on profits, was that commodity prices fell and remained low—that is, prices of basic raw materials, everything from copper and oil to soy beans and corn. In 2017, the Bloomberg index of commodity prices was only 43% of its 2011 peak. While it has gone up and down in recent months, at the beginning of April 2019 the index was still only 46% of its 2011 high. These price changes were partly affected by the large increase of U.S. production of oil, but also by the slowdown in the growth of demand in the United States, relative stagnation in Europe, and even weakening of the Chinese economy. Still another factor keeping businesses’ costs down and the recovery growing, however slowly, was the low interest rate policy of the U.S. Federal Reserve. From the Great Recession until 2018, the real interest rate at which banks could borrow was effectively zero, or even negative. (The “real” interest rate is the nominal rate less the anticipated inflation rate.)

These factors affecting firms’ costs kept the economy growing. However, the government provided only limited stimulus to demand, so the growth has been slow. The federal government provided some stimulus in the American Recovery and Reinvestment Act of early 2009. The Act did help boost the economy out of the recession, but was neither large enough nor lasting enough to sustain strong growth in subsequent years.

Now and Going Forward

The large tax cuts put in place by the Republicans at the end of 2017 do appear to have had some stimulatory impact, as people spent the gain they received. But the tax cut greatly favored the very rich, and the rich tend not to spend at a high rate. So the growth impact was limited. Also, while the Republicans promised that the tax cut for corporations would lead to a surge of investment, the surge never materialized. Instead, major corporations used their windfalls from the tax cut to buy back large amounts of their stock, an action which enhanced the incomes of their executives and other stockholders, but has had created no lasting stimulus for the overall economy.

Then there is the developing trade war with China. All indications are that this conflict will not be resolved soon and will have a negative impact on economic growth—not only on the U.S. and China, but possibly on the global economy.

We are left, then, in early 2019, with an impending economic slowdown of an already slowly growing economy. While many things can happen in the coming months, it is unlikely that a year from now anyone will be asking, “Why has the U.S. economy been doing so well?”

 is professor emeritus at UMass Boston and a Dollars & Sense Associate.

 Arthur MacEwan and John Miller, “The U.S. Economy: What is Going On?” New Labor Forum, Vol. 27, Issue 2, Spring 2018; Census Bureau, “Income and Poverty in the United States: 2017” (census.gov); Bureau of Economic Analysis, “National Income and Product Accounts” (bea.gov); Investing.com, “Bloomberg Commodity Historical Data” (investing.com); Bureau of Labor Statistics, “Real Earnings Archived” (bls.gov).

This article originally appeared at dollarsandsense.org on May 30, 2019. Reprinted with permission.

 is professor emeritus of economics at UMass-Boston and a Dollars & Sense Associate.

Report: Immigration Reform Would Boost Economy

Wednesday, January 13th, 2010

Image: James ParksA new report shows that comprehensive immigration reform would help American workers and the U.S. economy. Reform that offers a path to citizenship for currently unauthorized workers and enforces workers’ rights would raise the “wage floor” for the entire U.S. economy and increase the total gross domestic product (GDP) by at least $1.5 trillion over the next decade, the report says.

Raising the Floor for American Workers,” by the Center for American Progress and the Immigration Policy Center, says finding a pathway to citizenship for the millions of undocumented workers is a much better alternative in this economic crisis than expanding guest worker programs or mass deportation.

The temporary worker program only generates an annual increase of 0.44 percent in the nation’s GDP or $792 billion over 10 years. It also leads to declining wages for newly legalized immigrant workers, the report says.

Mass deportation would reduce U.S. GDP by 1.46 percent annually or $2.6 trillion, not including the actual cost of deportation, the report adds. Wages would rise for less-skilled native-born workers, while wages for higher-skilled natives would drop. The deportations would lead to widespread job loss as well.

History bears out these findings, according to the report. The 1986 Immigration Reform and Control Act, which provided opportunities for citizenship, was enacted during an economic recession characterized by high unemployment. Yet it helped raise wages and spurred increases in educational, home and small-business investments by newly legalized immigrants.

Raúl Hinojosa-Ojeda, director of the North American Integration and Development Center at the University of California, Los Angeles, and the report’s author, says:

This is a compelling economic reason to move away from the current “vicious cycle” where enforcement-only policies perpetuate unauthorized migration and exert downward pressure on already low wages, and toward a “virtuous cycle” of worker empowerment in which legal status and labor rights exert upward pressure on wages.

Click here to read the full report.

*This post originally appeared in AFL-CIO blog on January 11, 2009. Reprinted with permission from the author.

About the Author: James Parks had his first encounter with unions at Gannett’s newspaper in Cincinnati when his colleagues in the newsroom tried to organize a unit of The Newspaper Guild. He saw firsthand how companies pull out all the stops to prevent workers from forming a union. He is a journalist by trade, and worked for newspapers in five different states before joining the AFL-CIO staff in 1990. He has also been a seminary student, drug counselor, community organizer, event planner, adjunct college professor and county bureaucrat. His proudest career moment, though, was when he served, along with other union members and staff, as an official observer for South Africa’s first multiracial elections. Author photo by Joe Kekeris

Philip Dine - Taking Back Labor Day

Wednesday, September 9th, 2009

(The following post is part of our Taking Back Labor Day blog series. Many people view Labor Day as just another day off from work, the end of summer, or a fine day for a barbecue. We think that it’s a holiday with a rich history, and an excellent occasion to examine what workers, and workers rights activism, means to this country. Our Taking Back Labor Day posts in September will do that, from a variety of perspectives, and we hope you’ll tune in and join the discussion!)

*****

When I hear questions about whether labor’s no longer relevant and has become a dinosaur, I have to chuckle – and then try to disabuse people or organizations of such a notion.

Why would it be the case that at the very time corporate influence is becoming more centralized, more powerful and more distant, that employees can suddenly cope with all their work-related issues as individuals, with no need for representation or collective efforts? On the face of it, that makes no sense.

That’s the philosophical response. In practical terms, we now have the biggest gap between rich and poor, and the largest share of the Gross Domestic Product going to corporate profits and the smallest going to wages/ salaries that we’ve had in some 80 years. And we find the middle class under assault at the very time labor’s been in decline, just as the middle class has expanded during the periods of labor’s greatest strength. This is, of course, no coincidence.

So the question is not really whether labor’s relevant or important, but what it can do to strengthen itself so it can meet those challenges. That’s such a large issue it could be the topic of a book (come to think of it, it is) but here are a couple of thoughts.

Labor needs to improve its political strategy. Spending all its time, energy and resources providing logistical assistance to endorsed candidates allows it only to have access to friendly politicians so it can remind them to live up to their promises. Barack Obama is a terrific public leader, but he’s found enough other priorities – economic stimulus, auto bailout and healthcare reform – to have the Employee Free Choice Act land on the backburner. The labor movement needs to complement its campaign work with a strong effort to make its own issues and values part of the political discussion, something that voters hear and think about as they decide how to vote, so that labor’s agenda gets a post-election mandate of its own.
 
Related to that, labor needs to effectively communicate its message well beyond elections, and explain to people why it matters to their lives. That’s not a hard case to make (see the above about wages, middle class, and so on). People need to know that it’s harder to form a union in this country than in virtually any industrialized democracy in the world, why that’s so – and why it matters. Tell them that 16 workers are killed daily on the job every day, and that union workplaces are safer. Let them know that the deindustrialization of America is damaging to our economic and national security – and that it flows in part from the way trade agreements are written and enforced, or not enforced.
 
A big part of the reason EFCA is languishing is that labor has not done enough in this political or communications sense. As a result, labor’s left waiting for the Democrats in Washington to decide to push the legislation. Meanwhile, there’s no pressure from constituents, because the public has no idea why something called the Employee Free Choice Act is necessary. Because the broader context mentioned above has not been presented, most people are simply presented with dueling ads, pro-EFCA and anti-EFCA, that they’re expected to make sense of. That’s quite a task, and many simply decide that this is a case of labor seeking a quid pro quo for its campaign work.
 
If labor is to take advantage of the current political and economic opportunities, it needs to sharpen its strategies. If it does, not only will Labor Days in the future feature a reinvigorated labor movement, working and middle-class people in this country will benefit – and so will the economy as a whole.

About the Author: Philip Dine, a Washington-based journalist, is one of the few remaining labor reporters and his labor coverage has twice been nominated for a Pulitzer Prize. His book,”State of the Unions: How Labor Can Strengthen the Middle Class, Improve Our Economy, and Regain Political Influence” (2008, foreword by Richard Gephardt) has been called “one of the best books in years on the labor movement” (AFL-CIO); “inspiring” (Sen. Edward Kennedy); “a great book” (Bill Clinton); and “a playbook for a comeback for organized labor” (Boston Globe).The book outlines why labor is as relevant as ever, and looks at how labor can revitalize itself so it can meet the daily challenges faced by working and middle-class Americans. Dine is an adjunct professor of labor relations at George Washington University, a periodic labor columnist for The Washington Times, and a frequent speaker on labor issues. He has appeared over the past year on CNN, Fox, CNBC, MSNBC, C-Span, XM Satellite Radio and National Public Radio, and has spoken at various union conferences, Harvard Business School, the AFL-CIO, National Labor Relations Board, U.S. Chamber of Commerce and National Labor College. Dine did graduate studies in industrial relations at MIT and spent two years researching labor unions and immigrant workers in France and Germany. His op-ed pieces have been published in the Wall Street Journal, New York Times, Washington Post, Baltimore Sun, Providence Journal, Cleveland Plain Dealer and Newsday. For a decade he wrote the only weekly labor column at a metro newspaper (St. Louis Post-Dispatch). More information is available at http://www.philipdine.com and Dine can be reached at philipmdine@aol.com.

 

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