HONG KONG — Sometimes I find it hard to understand “Mr. Market” — if I may presume to call and poke fun at the combined wisdom of investors in stock and other markets. Immediately after announcement of a modest rise in U.S. employment numbers, the Dow Jones Industrial average rose, triggering a general rise in stock markets around the world.
The dollar gained, the price of oil reached a 2 1/2-year high,and so-called market pundits chattered happily that this could be the start of something really good.
All this was because the United States added 216,000 jobs in March, and the unemployment rate fell to 8.8 percent, the lowest since March 2009. If this is the good news, we should be worried that markets are so easily cheered.
There is too much to be pessimistic about. Just to continue with the March employment numbers, there are still 13.5 million unemployed in the U.S., of whom the long-term unemployed, meaning out of work for 27 or more weeks, are 6.1 million, or 45.5 percent. Average hourly earnings were flat at $22.87, and year-on- year earnings were up 1.7 percent, lagging the rise in consumer prices rising by 2.2 percent.
All this means that there is some hope that this may no longer be a jobless recovery, but it is still a wageless recovery, which is dangerous for long-term hopes. Some economists contend that real unemployment is still more than 10 percent if you add those people who have become discouraged and stopped looking for work. Even if you accept the official unemployment figures, the U.S. has lost so many jobs that it needs to add 200,000 jobs every month from now until 2016 to reduce unemployment to 6 percent.
Economist and professor Robert Reich, secretary of labor in President Bill Clinton’s administration laments: “Why aren’t Americans being told the truth about the economy? We’re heading in the direction of a double-dip, but you would never know it if you listened to the upbeat messages coming out of Wall Street and Washington.”
He is worried about declining consumer confidence. The Reuters/University of Michigan survey showed a 10 percent decline in March, while a separate publication by the Conference Board of its index of consumer confidence showed that it had fallen to a five-month low. Rising fuel and food prices, now totaling 23 percent of the average person’s income, plus static or falling wages, and falling house prices are taking their toll on expectations.
The U.S. economy is expected to grow by between 2.5 and 2.9 percent this year, but Reich contends “that’s even less than peanuts. The deeper the economic hole, the faster the growth needed to get back on track. By this point in the so-called recovery we’d expect growth of 4 to 6 percent.”
He points out that in 1934, emerging from the Great Depression, the U.S. grew by 7.7 percent and followed this was 8 percent and then a whopping 14.1 percent in 1936.
But there is no sign now of that sort of growth, and the ending of the government stimulus means the prospect that the economy will begin to slow as the government economic booster rockets are being removed. American state and local governments are cutting spending by $110 billion, while the federal government will cut $30 billion from the budget, or more if the Republican have their way.
Economists who are firmly in the center are also worried about the growing imbalances in the U.S. economy. The Dow Jones is rising and Wall Street is optimistic because U.S. corporate profits have been good, and rose to a record $1.678 trillion annualized rate in the fourth quarter of last year, according to the commerce department. Profits jumped by 29.2 percent in 2010, the largest annual gain since 1948.
Critics also complain that big nonfinancial conglomerates are increasingly making more money abroad and paying little U.S. taxes on it. In contrast to falling consumer confidence, the Business Roundtable’s economic outlook index, surveying the views of 142 chief executives, is at its highest point since it began in 2002.
How long can the U.S. go on with the growing disparities is the $14 trillion question, which is the size of the U.S. gross domestic product, and also the size of U.S. debts.
The obvious reason why President Barack Obama is keen to encourage the good news and to hide the bad is that he wants to be re-elected as president and to admit economic problems would be halfway to defeat. But it is a perilous path, especially if the bad news catches up before November next year. The president has also surrounded himself with well-heeled advisers with strong connections with business. Indeed, the appointment in January of former commerce secretary William Daley from JPMorgan Chase to be Obama’s chief of staff was a message that the White House was open to business and that the president was ditching any liberal-schmiberal tendencies.
At the end of March the Obama administration received a rebuke from one of the key players in the attempt to sort out the last financial crisis by bailing out the banks. The government declared “mission accomplished” on the bank bailout or the Troubled Assets Relief Program, claiming that it had been remarkably effective “by any objective measure.”
Neil Barofsky, who had the ringmaster’s job as the special inspector general of TARP from 2008 until the end, immediately retorted that he strongly disagreed with the government’s self-congratulation. In an opinion article in the New York Times he wrote that the glowing assessment was warranted from the perspective of the largest financial institutions, which were brought back from the brink of collapse and “now enjoy record profits and the seemingly permanent competitive advantage that accompanies being deemed ‘too big to fail.’ “
But TARP had broader goals than trying to prevent a financial meltdown, Barofsky contended, “including protecting home values and preserving homeownership.” On this score, the U.S. treasury failed, he claims. He excuses his own part in any failures, saying that he only had power to make recommendations to the Treasury, and not to bring about changes.
His damning conclusion is that “the Treasury’s broken promises have turned TARP into little more than a giveaway to Wall Street executives.”
Kevin Rafferty is editor in chief of PlainWords Media, a group of journalists interested in economic development issues.