The newspapers are full of reports suggesting that the worse may be over—perhaps they are right, but I put little store in reports that rely on economic projections made by the same people that denied we had a bubble economy right up to the moment it popped, and then have been busy ever since telling us that things aren’t too bad.
There is no doubt that the US economy came very close to a complete melt down and that government action has helped break and cushion the fall. But here is the key point—our economy was not working well for the great majority even during the debt-driven speculative years before the collapse. With speculative forces now spent and the economic structure unchanged the odds are great that conditions will continue to deteriorate even after our economy does stabilize.
What we have seen so far in terms of economic trends is a slowing of the decline, not a recovery. We need a new round of stimulus spending to hurry along the recovery. But even more we need real structural changes—we need changes that will promote livable wages, workplace democracy, full employment, well funded and accountable social programs, and a sustainable and responsive use of our productive resources to satisfy domestic needs not profits.
To appreciate how important the need for structural change is, consider the quality of our last expansion. The Economic Policy Institute provides some good data for doing this in a very useful report, “A Feeble Recovery, The Fundamental Economic Weaknesses of the 2001-07 Expansion.” As the chart below (taken from the report) shows, the last expansion (and full business cycle) ranks among the weakest on almost all counts (the lower the number the better) except one: profits. And that is why business is not eager to make any real changes. But remember, our next expansion will not have the “benefit” of the stock and housing bubbles that underpinned our last expansion. Is a future of worsening economic outcomes really the best we can do?