The Sham Recovery.

Are we finally in a recovery? Who’s “we,” Ke-mo sah-bee? Big global companies, Wall Street, and high-income Americans who hold their savings in financial instruments are clearly doing better. As to the rest of us – small businesses along Main Streets, and middle and lower-income Americans – forget it.

Business cheerleaders naturally want to emphasize the positive. They assume the economy runs on optimism and that if average consumers think the economy is getting better, they’ll empty their wallets more readily and – presto! – the economy will get better. The cheerleaders fail to understand that regardless of how people feel, they won’t spend if they don’t have the money.

The U.S. economy grew at a 5.9 percent annual rate in the fourth quarter of 2009. That sounds good until you realize that GDP figures are badly distorted by structural changes in the economy. For example, part of the increase is due to rising health care costs. When WellPoint ratchets up premiums, that enlarges the GDP. But you’d have to be out of your mind to consider this evidence of a recovery.

Part of the perceived growth in GDP is due to rising government expenditures. But this is smoke and mirrors. The stimulus is reaching its peak and will be smaller in months to come. And a bigger federal debt eventually has to be repaid.

So when you hear some economists say the current recovery is following the traditional path, don’t believe a word. The path itself is being used to construct the GDP data.

--Robert Reich

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