The Frightening Truth About the Economy
Robert B. Reich

We're Still in Danger of Sinking

Why aren't Americans being told the truth about the economy? The report of 216,000 new jobs in March is being touted as evidence we're finally out of the woods. But in reality, we're still in the swamp and in danger of sinking.

Consumers are 70 percent of the American economy, and consumer confidence is plummeting. It's weaker today on average than at the lowest point of the Great Recession. The Reuters/University of Michigan survey shows a 10-point decline in March -- the 10th-largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board index of consumer confidence is at a five-month low -- and a large part is due to expectations of fewer jobs and lower wages in the months ahead.

Pessimistic consumers buy less. And fewer sales spells economic trouble ahead.

What about the 216,000 jobs added in March?

It's peanuts compared to what's needed. Remember, 125,000 new jobs are necessary just to keep up with a growing number of Americans eligible for employment. And the nation has lost so many jobs over the last three years that even if we continued producing new ones at the rate of 216,000 a month, we wouldn't get back to 6 percent unemployment until 2016.

But isn't the economy growing again -- by an estimated 2.5 percent to 2.9 percent this year? Yes, but 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 the economy to be growing by 4 percent to 6 percent.

Consider that back in 1934, when it was emerging from the deepest hole of the Great Depression, the economy grew 7.7 percent. The next year it grew over 8 percent. In 1936 it grew a whopping 14.1 percent.

Add two other ominous signs: Real hourly wages continue to fall, and housing prices continue to drop. Hourly wages are falling because with unemployment so high, most people have no bargaining power and will take whatever they can get.

Housing is dropping because of the ever-larger number of homes people have walked away from because they can't pay their mortgages. But because homes are the biggest asset most Americans own, as home prices drop most Americans feel even poorer.

There's no possibility government will make up for the coming shortfall in consumer spending. To the contrary, government is worsening the situation.

State and local governments are slashing their budgets by $110 billion this year. The federal stimulus is ending, and the federal government will probably end up cutting some $30 billion from this year's budget.

Doesn't anyone remember what happened in 1937, when the economy was assumed to be out of the woods and government spending was cut too soon? The economy fell off another cliff.

In other words: Watch out. We may avoid a double dip, but the economy is still in bad shape, and the booster rockets are disappearing.

So why aren't we getting the truth about the economy?

For one thing, Wall Street is buoyant -- and most financial news you hear comes from the Street.

Wall Street profits soared to $426.5 billion last quarter, according to the Commerce Department. (That gain more than offset a drop in the profits of non-financial domestic companies.) Anyone who believes the Dodd-Frank financial reform bill put a stop to the Street's creativity hasn't been watching.

To the extent that non-financial companies are doing well, they're making most of their money abroad. Since 1992, for example, General Electric's offshore profits have risen $92 billion, from $15 billion (which is one reason it pays no U.S. taxes). In fact, the only group optimistic about the future are CEOs of big American companies. The Business Roundtable's economic outlook index, which surveys 142 CEOs, is now at its highest point since it began in 2002.

Washington, meanwhile, doesn't want to sound the economic alarm. The White House and most Democrats want Americans to believe the economy is on an upswing.

Republicans, for their part, worry that if they tell it like it is, Americans will want government to do more rather than less. They'd rather not talk about jobs and wages, and put the focus instead on deficit reduction (or spread the lie that by reducing the deficit and firing more people we'll get more jobs and higher wages).

I'm sorry to have to deliver the disturbing news, but it's better you know.

Robert Reich, former U.S. Secretary of Labor, is professor of public policy at the University of California at Berkeley and the author of the new book Aftershock: The Next Economy and America's Future.