I’m generally an optimistic person — I’ve kept my retirement accounts invested in stocks through all the downturns of the past 30 years — but readers, I think we are entering a scary time in our world and I’m not talking about ISIS.
Financially, we are looking into the headlights of an oncoming freight train. If the past seven years or so have been rough, our economy could become dramatically worse. Economics is a precise enough tool for predicting what will happen, but just not when. Five years ago, if you had asked me whether we could run the annual budget deficits we have without triggering inflation I would have doubted it, but then the Eurozone got into trouble and now China has. Relative to the crises in Europe and China, the U.S. economy hasn’t looked so bad.
Since World War II, the American economy has had an economic downturn about every eight years. In each case, the economy rebounded and rose to a new height and higher standard of living for Americans. The last downturn began about 2008. The recovery since then is the absolute worst on record. I will use myself as an example.
A state employee in the North Carolina university system have since 2008, I received a 1.2 percent raise in 2012 and a $500 raise last year. We are slated to receive a one-time payment of $750 in 2015. These increases are far below even the low rates of inflation we have experienced and can’t begin to cover the soaring expenses I’ve experienced at this stage of my family’s life with health care premiums increasing, three sets of braces and three teenagers needing auto insurance.
Very few people have benefited financially since 2008. Consequently, the average wage has not improved, which means that those of us who had jobs that whole period have still lost ground.
People who were unemployed and now have jobs have definitely benefited, but they represent an extremely small percentage of the overall population. Job growth since the recovery began has not even accounted for the increase in population over that period. This is not true job growth.
It is ironic that President Obama, who has spoken out about the injustice of income inequality, has depended almost exclusively on the Fed’s program of quantitative easing to keep the economy afloat. This strategy has propped up the stock market, which mostly benefits the wealthy. In another grand irony, the primary industrial development that has helped the economy in recent years has been the enormous volume of natural gas created by fracking, a technology the current administration opposes.
The Federal Reserve Bank has also kept interest rates at close to zero, which has had a devastating effect for those who depend on interest payments for their livelihood — such as retirees — and greatly benefited borrowers. Generally, we want saving to be rewarded.
With this foundation, our economy is in no condition to handle the next economic downturn. Our standard of living has already dropped; a large percentage of the population is already receiving federal assistance such as food stamps through the SNAP program; the Fed cannot reduce interest rates further; our budget deficits in recent years — although declining — are already the highest in the country’s history; and we are already at bottom, or near bottom for labor force participation. The tools and remedies that we normally rely upon to get our country through an economic downturn will not be available to us.
It is also a scary time because it is hard to know what is real. The definition for being “employed” is having done any work at all for pay during a week. The advertised unemployment rate is far lower than what people commonly understand unemployment to be. The actions of the Fed are analogous to someone keeping their foot on the scale when you are trying to weigh yourself.
Just as the number the scale would show is distorted, we don’t really know what the level of house prices or stock prices will be when we have “normal” interest rates.
I see bad omens on the horizon. Let’s just hope the faint images I see won’t materialize for 200 years, instead of in the next few.
Eric Dent is a business professor at Fayetteville State University who lives in Lumberton.