Hans G. Despain: Many Americans are facing economic distress and it's likely to get worse
The Biden administration is stumbling over itself to deny the economy is in recession. U.S. Treasury Secretary Janet Yellen recently told "Meet The Press" the nation's economic conditions are unique and it's "not a recession" when you're "creating almost 400,000 jobs a month.” Following Yellen’s comments, a furious online editing war broke out on the Wikipedia page for the term “recession.” Editing the page was temporarily suspended.
Yellen is correct: there is no simple way to identify a recession.
And I am certainly not suggesting that Yellen has “alternative facts." Rather, some data suggest a weakening economy and some data suggest a strong economy.
I am simply employing the term “recession” to acknowledge the majority of Americans are in economic distress.
Princeton economist Paul Krugman contends the “discrepancies in economic data” are so wide, that economic pundits “have unusual freedom to believe whatever they want to believe. Just pick and choose the numbers that tell you what you want to hear and glue them together.” Hmmm?
Yellen is correct we will not know for several more months whether this period is officially a recession until economists at the National Bureau of Economic Research (NBER) fully scrutinize the data and make the holistic determination.
My unequivocal statement that the U.S. economy is in recession is not because I have any certainty regarding the NBER’s analysis. Rather, it is because the data is unambiguous, the majority of Americans are suffering economically.
Call it what you want, this economy is misfiring.
The degree of freedom to believe whatever you want is far more narrow thanKrugman would have us believe. In other words, although it is true that a pundit can choose economic data making this economy appear strong, this does not change the fact the majority of Americans are in economic distress.
In October 2021, I emphasized three flashing-red economic weaknesses in this column.
First, the labor markets are far weaker than the 3.5% unemployment and job creation would suggest. This still remains true. Most jobs being created are not what most Americans call “good” jobs. Too many of them are low-income and inconsistent employment.
Second, capital utilization remains a sluggish 80%, meaning 20% of capital is unemployed and sets idle.
Third, and most problematic, income and wealth inequality is massive and increasing.
Weekly median wages have persistently and consistently fallen since October 2021. Inflation-adjusted average weekly earnings were $402 in May 2020, and $378 today. But this merely gestures to American worker distress. It may be more accurate to say low-income American worker distress, but that is redundant because the vast majority of Americans are low-income.
Sixty percent of American workers make $37,499 or less per year. It often shocks people to learn that 47% of American workers make less than $27,000.
Harvard economist Raj Chetty provides impressive data on his website regarding American workers' post-pandemic shutdown.
While nationally employment has increased by 1.3% for jobs with annual income between $27,000 and $73,000 since January 2020, for jobs paying less than $27,000 per year national employment remains 25% below where it was in January 2020.
In Worcester County, middle income jobs have returned, but employment for jobs below $27,000 are down a staggering 35%. In Berkshire County,low income jobs are down 58% since January 2020.
Bluntly put, the majority of Americans are struggling to find employment to pay basic bills.
Government debt, rising to a nearly all-time high of 137% of Gross Domestic Product (GDP), has received warranted attention. However, the more serious problem is private debt. American household and business debt is 235% of GDP.
This means that as the Federal Reserve increases interest rates to combat inflation, American businesses and households will suffer more distress. Economic research shows that 16% of American businesses are “zombie” firms, meaning they are unable to service their current debt. As interest rates rise, millions of zombie firms will go bankrupt, destroying millions of American jobs.
It is hard to imagine the scenario where we avoid an official recession. I predict inflation continues to lower disposable household income. This will curtail both consumption spending and residential investment. Increased interest rates will further decrease household spending and decrease private business investment.
The Inflation Reduction Act will push back against these weaknesses, but it is unlikely to be enough to avoid negative GDP growth for both the third and fourth quarters of 2022.
Perhaps following four quarters of negative GDP growth the Biden administration will be willing to use the “R” word and acknowledge the economic distress of Americans.
Call it what you want, most American are in economic distress now — and it is likely to get worse.
Hans G. Despain, Ph.D., is chair of the economics department and the honors program at Nichols College.
This article originally appeared on Telegram & Gazette: Hans G. Despain: Many Americans are facing economic distress and it's likely to get worse
