Abstract Economic Growth


A recent Zogby poll about the economy suggest that the American citizen is not quite as optimistic about our economic growth as the Bush Administration or the Republican Party. I've noted in previous posts and comment sessions that the guages which we use to determine the economic growth in our country are misleading. For instance, according to the Economic Policy Institute, the unemployment rate does not accurately measure tightness in the labor market. The unprecedented 26-month decline in new jobs from March 2001 to May 2003 in addition to the sluggish job growth since has caused many people simply to withdraw from the labor force. These people are no longer counted as unemployed.

The employment rate, that is the ratio of employed workers to the country's working-age population, is more indicative of a better measuring tool to the sustainability of the labor market for the 227 million people now of legal age to work. The employment rate in this category fell from 64.3% in early 2001 to 62.8% in late 2005. If the employment rate had recovered to its March 2001 level, an additional 3.4 million people would be employed today.There is also sluggish job growth compared to historical standards. Last year's 2 million new jobs represented a gain of 1.5%; this is far below historical norms.

In fact, it is less than half of the average growth rate of 3.5% for the same stage of previous business cycles that lasted as long. At that pace, the average growth rate, we would have created 4.6 million jobs last year. Despite the fact that 2005 marked the fourth year of an economic expansion characterized by strong productivity growth, the inflation-adjusted wages of most workers' fell last year. The median worker's wage fell by 1.3%. The decline was even greater for those at the very bottom end of the wage scale, who saw their real wages fall by 1.9%. Only those at the very top of the wage scale had wage growth that outpaced inflation. Also the cost of health care has consistently outpaced the rate of wage growth for the past several years. (Source)

And then there are the tax cuts, over 700 billion in tax readjustment since 2000 yet we see little evidence that the tax giveaways provided any significant economic growth or stimulation. In fact, tax cuts, dividend returns and corporate profits do little to create jobs in our economy. What creates jobs is demand, innovation and risk. Demand for a product, innovation to provide the product and the risk to get the product to market. The majority of small business which largely stimulate our economy and provide jobs for the masses were not started with large amounts of capital. Most small businesses are started at a deficit, on credit cards, with mortgage equity loans, personal savings or government loans. In 2005, small businesses received nearly 100,000 U.S. Government small-business loans, according to Small Business Center. Many of our successful large businesses (Microsoft, Macintosh, and Cisco) stared this way – small ventures with high risk. The key motivation is demand, not profit. Profits generate capital, demand creates new jobs. Washington doesn’t seem to understand this dynamic. Our representatives continue to deliver a model (Trickle Down Economics Theory) which has failed to deliver a significant amount of new jobs, innovation or new industry.

What is the cause of the disconnect between the government’s and citizen view of the economy? The lives of millions of working Americans have been affected by the negative side effects of Globalization, corporate downsizing and lack luster economic growth on a personal level - our citizens have negative savings accounts and high consumer debt.
Additionally there are other disconnects which are causing Washington to seem “out of touch” with the average American’s perception of real world- kitchen table economics. Slow job growth, lack of good paying jobs, tax cuts which produce little stimulation and a high cost of living for the majority of working Americans, ie. fuel, health care, energy, etc. The American people are growing tired of supply-side Trickle Down Economics. If our politicians are truly interested in knowing how our economy is performing, perhaps they should ask the average citizen consumer, not the wealthy investor how things are going.

Joke: An "acceptable" level of unemployment means that the government economist to whom it is acceptable still has a job.