Our Conflated Economy
From March 2021 to March 2022, wages for the American worker grew by 5.6%. Juliana Kaplan and Madison Hoff of Business Insider state, “Over the past year, wages have been skyrocketing as employers try to staff up…”
For the week ending March 19, jobless claims fell by 28,000 to 187,000. According to Matt Ott of the Associated Press (AP), that is “the lowest since September of 1969.”
On April 12, AP business writers Paul Wiseman, Anne D’Innocenzio and Mae Anderson noted that in 2021, employers “…added 6.7 million jobs, the most in any year on record. In addition, job openings are near record highs, layoffs are at their lowest points since 1968 and the unemployment rate is just above a half century low.”
The American economy is strong, right? It all depends.
On Tuesday, April 12, the Bureau of Labor Statistics said that the Consumer Price Index which is used to measure inflation rose 8.5% in March compared to a year earlier. Wiseman, D’Innocenzio, and Anderson note that this was “the sharpest year over year increase since 1981.”
They go on to point out that “In February, after accounting for inflation, average hourly wages fell 2.7% from a year earlier. It was the 12th straight monthly drop in inflation-adjusted wages.”
The American economy is weak, right? It all depends.
The truth is the American economy is conflated. Depending on which indicators you bring together, it can appear strong, weak, or mixed. This also holds true depending on whether you are looking at the economy writ large or from a micro standpoint, and who you are listening to.
For those at the top of the economic totem pole, inflation has had little to no impact. For those at the bottom and in the middle, the effect has already been substantial.
Using data from the Penn Wharton Budget Model, Megan Leonhardt, writing for Fortune, notes that wealthy Americans continue to do well as inflation spirals upward, “However, those earning less than $20,000 weren’t as fortunate and even those in the lower middle struggled…” She continues, those in the lowest income households, “…saw an average annual increase of $578 in 2021, but costs for expenses rose $1,837…”
This gap between the wealthy and those of lesser circumstance is nothing new. As we observed in a blog posted in July of 2021, “It has been going on four more than four decades.” An Equilar study released on April 18 showed that the median total compensation of the CEOs at 100 of the largest U.S. companies went up a “whopping 30.8%” in 2021 to a record $20 million. This compares to median earnings for these CEO’s in 2020 of $15.5 million, which was 1.9% lower than their median earnings in 2019.
Studies done by the RAND Corporation and Economic Policy Institute show that income distribution was relatively equal across all levels of pay before 1974. Since then, equity has disappeared.
The RAND analysis shows that if the distribution had stayed relatively comparable to the post World War II period:
· Workers at the 25th percentile would be earning $61,000 instead of $33,000
· Workers at the 75th percentile would be earning $126,000 instead of $81,000
· Workers in the top 1 % would be earning $549,000 instead of $1.2 million
The Economic Policy Institute revealed that if wages had tracked with hourly productivity, the average American worker would be earning $10 more per hour.
The inequality and wealth gap is even greater when race and gender are taken into account. The gender pay gap in 2020 for the median hourly earnings of women was around 84 cents for every dollar earned by men.
The gap is even greater for Black Americans. The National Urban League released its annual report on the State of Black America on Tuesday, April 12.
Michael Warren of the Associated Press comments that the report’s “…findings are grim. This year’s Equality Index shows Black people still get only 73.9% of the American pie white people enjoy.”
Warren goes on to observe. “Black couples are more than twice as likely as their white counterparts to be denied a mortgage or a home improvement loan, which leads to just 59% of the median home equity white households have, and just 13% of their wealth.”
These increasing inequalities by income level, gender, and race are always troublesome. They are especially so as inflation persists and it appears that there is a very real possibility of America going into a recession in the not too distant future.
Speculation about a potential recession has become a hot topic for economists and other knowledgeable observers for the past few months. On April 14, Steven Rattner, Wall Street executive and counselor to the Treasury secretary during the Obama administration, in an equivocal guest essay for the New York Times, opined:
- “Mounting evidence suggests a hard landing — in other words, a recession.”
- “I don’t believe that a recession is imminent: there’s too much capital sloshing around in the system for that.”
- “The much-desired soft landing that would obviate the need for more painful measures is theoretically possible, but history is not on its side.”
Rattner believes that to a large extent the possibility of a “hard landing” or a “soft landing” will be dictated by whether the Federal Reserve’s raising of interest rates can reduce demand sufficiently to prevent a recession from occurring.
He may very well be correct for the economy in general. But the sad fact of the matter, as the figures above which document the inequality of our American economy show, is that tens of millions of Americans are already experiencing that “hard landing.”
As we noted in a lengthy blog posted in April, 2020, they are victims of what we call a social and economic regression. That regression began with the economic recession of the early ‘80’s. It accelerated with the economic crisis of 1987. The Great Recession of 2007–2009 increased its speed in the second decade of this century. Then, along came COVID-19.
The COVID-19 pandemic was a flummoxing event in many ways. The uneven recovery from it, in combination with factors such as the overconsumption of goods, supply chain breakdowns, and stimulus funds unspent in some bank accounts contribute to the conflated economy and an air of uncertainty.
One thing that is certain: while there was some economic relief for virtually everyone at the outset of the pandemic, tens of millions of people still suffered throughout the pandemic and continue to do so.
Drawing upon the Household Pulse Survey the Census Bureau began producing in April 2020, the Center on Budget and Policy Priorities issued a report in February 2022 on The COVID-19 Economy’s Effects on Food, Housing, and Employment Hardships. The opening paragraph of that report reads as follows:
The COVID-19 pandemic and resulting economic fallout caused significant hardship. In the early months of the crisis, tens of millions of people lost their jobs. While employment began to rebound within a few months, unemployment remained high throughout 2020. Improving employment and substantial relief measures helped reduce the very high levels of hardship seen in the summer of 2020. Nonetheless, considerable unmet need remained near the end of 2021, with 20 million households reporting having too little to eat in the past seven days and 10 million households behind on rent. In early 2022, some 3 million fewer people are employed than before the pandemic, though steady progress has been made, including in recent months.
Those statistics tell the story within the story. They are important statistics but those stories will no longer be as readily available as they were in 2020 and 2021. The Census Bureau released bi-weekly Household Pulse Data through October 2021. It now will provide that data only on a monthly basis.
With a potential recession staring those households and the millions of others who are suffering the consequences of economic regression today, it is more important now than ever that we have data sets that can be used to go below the top line and read in between the lines.
Gross Domestic Product (GDP) is a top-line number that looks at a country’s economic growth. GDP can be defined simply as the total value of the output of a country’s goods and services.
Consumer Price Index (CPI) is a top-line number and can be defined as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”
Those top-line numbers conceal as much as they reveal. They tell us nothing about Individual Economic Well-Being (IEW) of people in different groupings. That is the data that is needed to identify individuals in need and to target policies and programs to address those needs and to correct inequalities.
We have been calling for the creation of an IEW measure for more than a decade now. In August 2018, we proposed developing a monthly IEW Index that would be the definitive source for information on the Individual Economic Well-Being of Americans.
In March of 2021, the Bureau of Economic Analysis (BEA) announced that it had “embarked on an initiative — GDP and Beyond — to identify ways to use its data resources and statistical knowledge to inform the discussion of well-being.” In the first phase of that initiative, BEA had repackaged statistics from its core accounts along with those from other agencies to develop new measures, including:
- Economic well-being measures like GPD per capita and inflation and employment trends
- Distributions statistics such as real GDP growth by industry, real personal income per capita, and the distribution of personal income across households
The announcement of that initiative more than a year ago made us cautiously optimistic that the U.S. might be on the way to developing some form of IEW Index. To date, though, we have seen no evidence of progress on such a disaggregated index.
GDP and CPI tell what is going on in the United States economic barrel but nothing about how well those at the bottom of the barrel are doing compared to those at the top. If there is a recession, it will be those at the bottom who suffer the most.
It is May 2022. The United States needs a differentiated and differentiating economic measure not for measurement’s sake. But in order to secure valid and reliable data that can be employed as input to construct an economy that is fairer and better for all, rather than primarily for the privileged few.