Economic Recovery

At the beginning of the financial crisis in 2007-2008 median household income was about $54,000 annually while unemployment nationwide had declined to a low of about 4.5 percent for the decade. Steadily unemployment grew to about 10 percent at its apex in 2010, by 2011 net household income had steadily declined to about $50,000 net. At about the same time the government continued its attempts to lower expenditures without raising taxes. These practices were deflationary and were opposed by the Federal Reserve Bank’s (FED) Quantitative Easing Program which countered to Congresses deflationary policies. The FED would buy U.S. treasuries in the attempt to both shore up stocks and keep bond interest rates at low levels. This program was quite successful in that it allowed the value of equities to climb considerably over the subsequent two years. Not all stocks rose at the same levels, but enough did to slowly stimulate increased hiring. Also, many people nearing retirement experienced a rebuilding of their retirement accounts which had fallen precipitiously in 2008. Those at or near retirement age may have once again felt able to retire — this was not the case in 2008. In addition, the value of housing which had fallen by about 40-50 percent (and more in some areas) recovered by about 20 percent during the 2012-2013 quantitative easing programs initiated by the FED. By late 2013 median household income had risen back toward 2007 levels to $52,000 and by early 2014 unemployment has fallen to 6.6 percent and within another year or so should fall to near 2004 levels (near 5.5 percent).

With the steady but still slow rate of job growth of about 150,000 non-farm payroll jobs per month, many suggest that decline of the unemployment numbers is artificial, in that it suggests some are simply giving up their job search and dropping out the official ranks of the unemployed. At least some of those may be taking retirement that may now be feasible because — as noted above — the value of their retirement portfolio may have increased sizably from where it had fallen in 2008-2009, and the value of their homes may have increased at least to where they are no longer underwater. They had not recovered, but they were getting there.

However, many may still be unable to retire officially but may be able at least to cut expenses, and with a little help make it through the next several years until they can officially retire. Until then they may work part time, and take up residence with others or with relatives possibly in remodeled or refurbished quarters. The young may be living with the old or the old may be living with the young. The situation for others may be still more desperate, but many will find their way.

In addition, the creation of the Affordable Care Act (ACA) may in both the short and long run create more flexibility for the least affluent among the lower part of this group. The reorganization of the health care system may give many a chance for more flexibility. They may not have to stay in the same job, and may be able to make it with part time work or even near full time work that won’t pay as much. We can’t know the answers to these questions for the next year or more. Some will take a very sensible route while for others the situation may not be as clear.

We cannot expect new jobs to increase at rates in excess of the levels they are increasing now. New job rates may pick up a bit, but we can’t bank on that. Further, if the Republican attitudes toward immigration reform prevail, we could see a net decline in the total immigrant population in America, and that would be costly. Immigrants get jobs, create their own jobs often by creating there own businesses. They also pay taxes. In addition, given the economic decline since since 2008 young people have become discouraged. They are finding it more difficult that others as they are looking for entry level positions. Business is not creating these new jobs at the level we might have expected given the quatitative easing stimulus created by the Federal Reserve. Many businesses have invested profits not in jobs but in automating to rebuild and create more capital intensive and less labor intensive shops. Further, new businesses are increasingly capital intensive. New small businesses are often one-man shops, and they can be. Just given a smart cell phone and certain special applications, you may be able to make an adequate living. Of course, this process can often create a self-sustaining business for someone who cannot find a job and thus has dropped out of the ranks of the unemployed. Obviously, such individuals may be doing fine with the jobs they have created for themselves, but for now we are not counting them in a positive way — they’ve just dropped out of the lebor force. We may not know to count them until they pay their taxes.

Both members of the government as well as commentators don’t see any of this very clearly. Nevertheless, as things proceed we may be able to emerge from our present condition closer to where we need to be than we can imagine at present.

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