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What Happened to the “Feel Good” Economy?

Even though this video is from December (hat tip Philip Pilkington), it gives an informative and nuanced explanation of the rise in income inequality and consumer debt levels, and how they play into our unimpressive “recovery”. The interview of Steve Fazzari and Barry Cynamon by Marshall Auerback discusses how the rise of inequality has many drivers, but the biggest appears to be financialization which is so pervasive and well-protected politically as to make it hard to roll back. It also put focus on key metrics that often get lost in conventional coverage. For instance, inflation and productivity adjusted wages would now need to be over $20 to match the levels of the 1960s.

From the overview at the INET website:

One of the conundrums in regard to the recent US midterm elections is the apparent disconnect between the improvement in the unemployment rate—which has dropped below 6 percent—and the fact that so many Americans continue to feel so disillusioned about the economy. In reality, this election was not about the unemployment rate per se or what any economist says about how the economy is doing. Rather, it was about how Americans feel the economy is doing. The fact is that most Americans do not believe the economy is doing better. Specifically, they do not think their personal economy has yet recovered.

Why is this the case? According to Professor Steve Fazzari and Barry Cynamon of the St. Louis Fed, prevailing trends towards greater inequality continue to skew the benefits of a growing economy to a smaller and smaller number of people. Indeed, Fazzari and Cynamon go further: Rising inequality reduced income growth for the bottom 95 percent of the income distribution. This is not a new trend. It began around 1980, but that group’s consumption growth did not fall proportionally. Instead, most accumulated more debt in order to sustain their lifestyles and prevent further erosion of their living standards. The rise in debt coincided with three other causal trends. First, the suppression of real wages which meant that consumption expenditure could really only be maintained by accessing credit; second, the rise of the financial engineers and their elaborate and usually fraudulent or misleading marketing schemes, which forced more debt onto the naive households; third, the increasing tendency for national governments to pursue fiscal surpluses, which further squeezed private purchasing power and promoted the credit binge.

All of these factors help to explain why the Great Recession was so devastating for so many people, as well as providing a sound rationale as to why these inequality trends persist in its aftermath. Income inequality has a snowballing effect on the wealth distribution: top incomes are being saved at high rates, pushing wealth concentration up; in turn, rising wealth inequality leads to rising capital income concentration, which contributes to further increasing top income and wealth shares. Which leaves much of the population with an ability to generate adequate demand, thereby explaining why the economic recovery remains relatively tepid and why the “feel good” factor remains so elusive.

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30 comments

  1. Jef

    “For instance, inflation and productivity adjusted wages would now need to be over $20 to match the levels of the 1960s.”

    Exactly what I have been trying to point out wrt the wage increase issue. Increasing wage minimums simply allows for more extraction by financialization, taxation, insurance, expenses.

    1. Ben

      yep – if they increase wages because housing and education is financialised as demand outstrips supply (at the right quality) it will all be soaked up by usurers.

      Regulation is the only way out of this impasse.

      1. LifelongLib

        I recall renting a room in the summer of 1977 for $10/week, so 4 or 5 hours work at minimum wage could pay for a place to hang your hat at least. Is there anywhere in the U.S. now where you could rent a room for $50/week, which is what the discussed (not even available) $10/hour minimum wage would get you? Minimum wage now won’t get you a room of your own. At best it gets you a big screen TV in your parents’ basement.

  2. Generalfeldmarschall von Hindenburg

    I don’t believe the unemployment situation is improving. They use the wrong figures and routinely fluff the numbers. So that needs to be borne in mind when discussing why Americans don’t think the economy is improving.

        1. ScottB

          Agree, Shadowstats is off target. U-6 is better, but still short: it only includes people who have been in the labor force in the last year. That’s okay for garden-variety recessions, but not for the current one. Labor force participation rate is good (as jrs suggests) but requires a variety of judgement calls about the long-term trends for different demographic groups.

          Regardless, thinks still suck.

  3. Llewelyn Moss

    why the “feel good” factor remains so elusive.

    That is a joke right? How about the fact that Corporations own the US Govt and all its puppets and are further rigging the system with every bill they pass. And that the Govt has lost its Moral Authority to the point that anyone who is truly paying attention thinks of it as Illegitimate. US is turning more Fascist with every passing week.

    So no, no “feel good” factor here.

  4. RUKidding

    Now I’m supposed to “feel good” about being massively ripped off by Wall St, the Banks, and various other corporate entities, not to mention the thieves in the District of Criminals? Look I may be a worthless prole, but I’m not stupid.

  5. JTMcPhee

    Hasn’t it been nice of us ordinary people, who do the work, who unload the trucks and pick the tomatoes whip up the lattes and stock the shelves and provide the care and build and maintain stuff and otherwise keep the foundations from crumbling under the effing ever-more-erectile Corporate Phalluses and Residential Towers, has it not been nice of us to let the Vampires suck almost all the blood out of us, again and again? And then with stoic aplomb, humor even, in the face of necessity, to just keep us and our kids from starving, we just eat the lower and lower wages, and tuna fish that comes 3 1/2 ounces in what used to be a 6 ounce can and orange juice (an infrequent luxury) that comes 59 ounces to the (64 ounce until recently) “half gallon,” und so weiter, as we try to replenish our circulatory fluid volume and hemoglobin from privatized water systems plumbed into our financialized rental units? And yet we are hopeful (even though we have been indoctrinated, by clever use of our own uglier traits, to be fearful and hence submissive, and learned how to touch the knuckle to our forelocks as the brocaded Seigneurs promenade or blow past us), hopeful still out of ancient wiring that, like the iCloud, our Betters have learned to program against us and our sad little ordinary needs and desires.

    The Betters, I believe, know that in their insatiability they are setting up a massive collapse, this time maybe orders of magnitude worse (for us ordinary mopes) than previous excess-induced “dislocations.” http://tradicionclasica.blogspot.com/2006/01/expression-aprs-moi-le-dluge-and-its.html But they know what the financialists know and say out loud, “I’ll be gone, you’ll be gone, and the mopes can’t touch us now, can’t defend themselves or re-formulate the flows and forms of commerce now, and after we Special People are dead, what are they going to do? Dig up our bodies, or try to vacuum up our ashes, and dishonor them?” For a little hahahaha, lookie here: http://blogs.worldbank.org/publicsphere/ill-be-gone-and-youll-be-gone

    Major disconnect: the species goes on, for an indeterminate but very long period, but the Vampires’ concern horizon is limited to their active lives of limbic-system self-pleasing, from maybe late grade school to a decline and death that many of us ordinary people will be paid a pittance to soften and comfort and gently assist and support. Not in Medicaid “nursing homes,” part of the financialized system to extract the last full measure of any wealth or value from ordinary people’s lives: “Reforming For-Profit Nursing Homes: The drive for nursing home profits ensures poor care and continuing horror stories,” http://www.thestreetspirit.org/Mayreal2006/nursing.htm, and “Medicaid Estate Recovery, Latest Obamacare Horror Story, Was Backed By ALEC,” http://www.huffingtonpost.com/2014/01/27/medicaid-estate-recovery-program-alec_n_4674277.html

    In the meantime, smart people can be kept busy either inventing towering, sugar-and-fat-laden logical pastries to justify the exsanguination, or arguing among themselves whether Austerianism and/or Neoliberalism and/or fiscal policy and/or MMT, et cetera, is/are/should be the “correct” lenses and diffraction gratings to visualize, describe and provide ammunition for arguing what to do and how to do it when it comes to slurping the lifeblood of the “political economy” that us ordinary mopes keep valiantly and apparently idiotically and futilely regenerating. Our “duty” is to “recover,” so we can be bled again? And God keep us from getting to that point of depression and despair that has us saying, finally, enough of us, “Just burn the effing thing down! Maybe we can find something to eat and feed to our kids in the ashes.” Say what, agin?

    One might find some interesting insights in the themes of popular TV series and movies. Shall we join the Walking Dead? or comfort ourselves with the propaganda of “Blue Bloods,” or the hopeful turn to extra-legal vengeance and repair in “White Collar” and “Leverage?”

    Katniss Everdeen, please show us the way to go…

    1. JTMcPhee

      And for a little fun watching our Betters eff up, make fools of themselves, and generally prove that just because you (or your daddy) has a lot of dollars, that’s no index that you have any sense, there’s this schadenfreude funbit:

      “Super car driver idiots Crash Compilation #1 New 2013 In Hd (720p),” https://www.youtube.com/watch?v=GwLZ8UvN4_g Note that this is just number 1, in a series of many…

    2. James Levy

      What is curious about this particular generation of kleptocrats is that, unlike every other generation of such people I’ve ever read about, they seem to have no interest whatsoever in founding dynasties of power and privilege. Be it the Pharaohs, the Julio-Claudians, the Habsburgs, the Rothschilds, the Rockefellers, or the Kennedys, people throughout history have tried to cement their gains into a family dynasty. Not today. It’s all about me and all about now, at least among the financial and business elite. In politics you have the Clintons and the Bushs trying to ensconce the families permanently at the top, but in the world of money all I see are narcissistic grabbers. Perhaps this is the reductio ad absurdum of Western individualism?

      1. cnchal

        What is curious about this particular generation . . .
        . . . in the world of money all I see are narcissistic grabbers.

        I have wondered about the lack of outrage at all the spying going on by the government and private interest.

        In this age of narcissism, I think a lot of people are flattered and pleased that there are a myriad of ways to be monitored. At least something is looking at them.

      2. JTMcPhee

        Sounds very right to me. See, for example, the endpoint as described in that dated but so very current movie, “Soylent Green.” For the hopeful, there’s this comment from youtube:

        ” Rahul Rajaram 4 months ago
        This world will fix itself. Some of the educated people would start a rebellion soon. Millions of the poor will die in the war so that solves the population problem. And they can feel like they did something meaningful with their lives. Solent and the corrupt government would eventually fall, because the poor would simply use attrition tactics and outnumber Soylent. After soylent was gone and the population was back where it should be, the environmental problems would be solved next, probably by establishing a sustainable society. The earth would be fixed over time. This movie doesn’t show the whole story.”
        https://www.youtube.com/watch?v=9IKVj4l5GU4

      3. stephen

        This is an important point, methinks. The low birth rates among the super rich (at least among those I know personally) and the unwillingness to lock in their ill-gotten gains by changing the law to ‘divine right of rule or some such nonsense, signifies that they too know that the whole shebang is one giant Ponzi that is unsustainable. Not to mention that despite what they say publicly, they know what is coming environmentally.

        One the other hand, it seems to me that the Supreme Court would gladly hand them ‘divine right’ if it ever came up. What we could be witnessing these last two decades is a society lurching toward the return of overt aristocracy. Not a pretty show, to be sure. Especially since I am not one of them but merely a serf, at best. That is to say that the billionaires I know personally are the ones that I work for in a very humble capacity.

  6. Sluggeaux

    Which leaves much of the population with an ability to generate adequate demand…

    I think that you meant to write “inability to generate adequate demand…”

    Sadly, this explains why the Democrats are in trouble. Americans can hear the new “great sucking sound” of their savings, assets, and income streams being transferred to the Military-Financial Complex. The Clintons and Obama are cravenly part of that transfer. The atomization of collective dissent through the collapse of unions and the rise of anarchist movements such as Occupy has made the American electorate ripe for the “individualistic” propaganda generated by the Libertarian ideological takeover of the GOP, who have managed to confuse the protection of the collective good of the commonweal with the collectivization of assets. “Privatization” under the Clinton/Obama school of looting is not “collectivization,” but Libertarian ideologues and the Bush-ite National Security State have sold it as such to the former Middle Class who only know that they have lost everything.

      1. jrs

        Also of course the anarchists have very little (truthfully nothing) to do with GOP libertarians and the unions were already crushed by that point more or less (yes I support fast food etc. unionization, but less face it, it’s starting from the beginning at this point). Of course weren’t there a lot of anarchists involved in the original union movement?

  7. craazyboy

    I think someone needs to find all these economies.

    Remember the Goldilocks Economy? Not to Cool, not to Hot? Just sorta a dorky economy, but that’s ok, GWB was prez. Then a big bad bear killed Goldilocks in 2008. Makes you wonder why anyone would wanna be an economy, if we keep losing ’em like that.

  8. fresno dan

    “Rising inequality reduced income growth for the bottom 95 percent of the income distribution. This is not a new trend. It began around 1980, but that group’s consumption growth did not fall proportionally. Instead, most accumulated more debt in order to sustain their lifestyles and prevent further erosion of their living standards. The rise in debt coincided with three other causal trends. First, the suppression of real wages which meant that consumption expenditure could really only be maintained by accessing credit; second, the rise of the financial engineers and their elaborate and usually fraudulent or misleading marketing schemes, which forced more debt onto the naive households; third, the increasing tendency for national governments to pursue fiscal surpluses, which further squeezed private purchasing power and promoted the credit binge.”
    =========================================================================
    I believe the FED is simply a McGuffin – a movie term denoting a diversion in the story that really has nothing to do with anything, merely done to keep the “mystery” going a while longer. The FED, and its idea that a drowning man is on fire, and therefore should be doused with more water (i.e., credit) is not because the FED doesn’t know that the real problem is diminishing wages/incomes for most Americans – its the FED’s job to keep people chattering about interest rates…

  9. Fair Economist

    Well, this fits in to one of my pet peeves about the definition of “recession”. According to the standard econ definition, a “recession” is over as soon as the economy stops getting worse. To any normal person, a “recession” is over when things are as good as they were before it started. By some indicators like GDP the recession is legitimately over, but for measures that count for ordinary people like median income we still haven’t gotten back to where we were in 2007.

    Considering the severity of the drop, we’ve basically been in a depression for 8 years. Of course it doesn’t feel good, apart from for the sliver on the top which is better off from ever-more-thoroughgoing exploitation.

    1. Ben

      for economists everything is about the delta. Cut two arms and a leg off, sew an arm back on – they give you the thumbs up with it.

  10. timbers

    “What Happened to the “Feel Good” Economy?”

    Obama is the best President Republicans have ever had, and What Happened to the “Feel Good” Economy helps explain why. Democrats under Team Obama have presided over two of the largest (if not the largest) off year Republican mid-term landslides in history when you include all elected offices like state legislatures, and this is especially jar dropping given how unpopular Republicans are.

    But have Obama supporters paused to consider this and why? No.

  11. curlydan

    A few days ago my mother sent me a David Brooks column, so I decided to break one of my main rules in life and read him again. Luckily, I was able to finish it without puking. In the column, he actually advocated (in his pushy/preachy style) that the upper-classes and lower-classes inter-mingle more and cited the 1930s as an example of when this happened. Getting past the contradiction that policies instituted in the 1930s are contrary to basically everything Brooks says otherwise, I also felt that his solution for today will not happen.

    The lower-class’s “job” today is to serve as a rent extraction vehicle for the upper class. We no longer intermingle on production lines, office buildings, or schools. The poor intermingle with the rich as they serve them coffee, wait at tables, or better yet, not at all–the main intersection between rich and poor happens in credit card statements, loan statements, and health insurance premium and deductible payments. Until the financial-ization of our country is reversed, there is not intersection of classes, but merely a flow of money from rich to the poor.

    Link for those with idle time and strong stomachs:
    http://www.nytimes.com/2015/03/10/opinion/david-brooks-the-cost-of-relativism.html?emc=eta1&_r=0

  12. Jay M

    The feel good economy:
    1%, glock, benzos, endorphin junkies, positive thinking, religiosity, the duopoly polItical system
    not so good:all the other sets

  13. jonboinAR

    I don’t understand all this mystery and verbiage concerning the lower 95% ‘s continuing, increasing depression. We abandoned the labor unions and thdy sent all the factories overseas. Fer cryin out, what’s there to wonder about?! Yeah, we put off the pain awhile with credit, but that party’s over and now the piper has his hand out, the fact that a few own everything while the rest of us are having to scrabble the way our great grands did.

  14. Whine Country

    How do I feel in the “Feel Good Economy”? Like the man who drowned in a lake that averaged 6 inches deep.

  15. stephen

    The only reason to feel good about this economy is that the corrupt government has propped up my client base by bloating the ‘value’ of their assets, thereby giving me a bit more time to engineer my way out of the country. Yet in their private moments my rich clients seem to be just as depressed and also obsessed with the many conundrums that present in making an exit. Where exactly is this gated paradise where the worldwide collapse won’t matter a fig and the jackboots won’t find you? They too have read history, or at least enough of it, and know that staying to play the long game is fraught. Someday they will, despite their allegiance, get on the wrong side of whoever is the new Stalin.

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