The Slide Into Prolonged Economic Stagnation

President Joe Biden speaks at a shipyard in Philadelphia on July 20, 2023. Biden is visiting the shipyard to push for a strong role for unions in tech and clean energy jobs. (Susan Walsh/AP Photo)

Commentary

Economic data these days are so convoluted and confusing and the interpretations so filtered through political blather that it becomes difficult to know what the truth is. Another way to put this: It’s hard to square one’s personal experience with the broader claims from the top that all is well.

To hear the Biden administration talk, you might believe that there’s nothing to worry about. They cite jobs and unemployment in particular, but a closer look shows that much of this “job creation” is really people in the existing workforce taking second and third jobs just to pay the bills.

(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)

That’s not job growth traditionally understood, and it isn’t good news!

Most striking within the jobs context is the persistence of dropouts. The dropouts have many causes but stand as an instant refutation of labor market health. But for one blip in 2015, labor market participation is back to 1977 levels with recovery from lockdowns continuing to be forestalled. The lockdowns were simply devastating to life rituals, and many have yet to recover normal patterns of work and reward.

(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)

Neither has the employment–population ratio recovered.

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(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)

What’s the statistic we can look at to gain the best possible picture of our economic health? Normally people cite gross domestic product (GDP), but that too is heavily biased by government spending. The more government spends, the higher the GDP goes.

This makes no sense. Government has no resources that it doesn’t extract from the private sector. It’s simply impossible that government spending and debt contribute to economic growth, but that’s how the data are collected and rendered.

Economist David Stockman has had a close look at real personal income minus government transfers and found what looks like the smoking gun of declining prosperity. He comes with the following alarming data:

Per annum growth of real personal income less transfer payments:

• 1960 to Feb 2000: 3.62 percent; • 2000 to Feb. 2020: 2.08 percent; • 2020 to May 2023: 0.61 percent.

This is the signal of stagnation. In other words, the feeling you have right now that you’re failing to get ahead of inflation and bills generally is felt by the whole of the poor and middle class. The rich are likely doing fine, but everyone else is suffering, and it’s happening on a scale we haven’t experienced before over this amount of time. We’ve missed out on what would otherwise have been large increases in income. Instead, this has been stolen from us.

We simply haven’t recovered from lockdowns, and there’s very little prospect that we will unless there are dramatic changes in law and institutions that encourage old-fashioned free enterprise.

(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)

Mr. Stockman commented further:

“The BEA series for real personal income less transfer payments is a pretty serviceable proxy for private market output before the impact of Washington stimmies and distortions caused by transfer payments and government borrowing. After all, earned income—wages, salaries, bonuses, profits, interest and dividends—is the payment to factors of production for output and therefore its reciprocal.

“It doesn’t take a lot of cogitation to explain this dismal trend. The US economy is freighted down with debt and it is also short of labor, riddled with non-productive speculation and financial engineering and starved for productive investment. Taken together, those malign forces were more than enough to slow the underlying growth of the US economy to a crawl.”

It seems certain to me that we will look back at the lockdowns, inspired and even dictated by policies pursued in Wuhan by the Chinese Communist Party and blessed by the World Health Organization, as having marked a decisive turning point in U.S. history. It was a turn toward economic stagnation.

This is because nothing has been done since those dreadful days to recognize and admit the error, much less to undertake policies that would come anywhere near reversing the damage.

There ought to have been huge reparations for small businesses in the form of tax cuts and deregulation. The American people should have been granted a massive and prolonged tax holiday for all they endured with the resulting inflation. The agencies that embarked on these prosperity-destroying policies should have been gutted of their power and abolished.

There should have been groveling apologies at all levels of society and ironclad promises to never do anything like that again. That would have inspired a return of confidence in property rights and basic freedoms. Instead, we all live amid grave uncertainty. People simply aren’t preparing for a bright future, as evidenced by savings rates.

Continued stimulus from the Federal Reserve can’t make up for the dramatic fall in savings. In the days of prosperity and growth, net savings as a percent of national income was commonly between 5 and 10 percent. This savings served as the basis of borrowings for investment. Today, the figure is minus 1.2 percent. Americans are living off credit cards with double-digit borrowing rates. It’s utterly unsustainable.

(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)

Something has to change and fast, or else this pit into which the U.S. economy is sinking will grow ever deeper. What’s particularly striking is that savings aren’t increasing on net despite the large increases in interest payments to savers. That indicates that there’s just not enough left over to save, which we can see based on the pathetic rates of growth of private real income.

Halting and reversing this should be among the top issues driving U.S. politics today, but it sadly isn’t. Instead, the party in power in the White House and half of Congress, backed by all mainstream media and tech companies, is plotting to convert the U.S. dollar into a central bank digital currency that can be used to intensify surveillance and control.

The United States does have leaders who see the trouble and a growing population of people who support them. It isn’t all gloom and doom: The resistance is building. But the wait for the trends to change has become excruciating.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.