Recovery For Whom?

As the first Democratic primary debate is tomorrow, expect to hear at least one presidential candidate extol the greatness of the Obama recovery.  This is a common message among Democrats eager to defend the entirely lackluster record of Obama’s economic policies.  Comedian and political commentator Bill Maher defends the economic “recovery” with the same misleading statistics repeated ad nauseam by uncritical liberals.   Watch one of his more recent segments here:

For those who don’t want to want to watch, I want to focus on these two figures Maher cites:

  • Unemployment went from 7.2 percent to 5.1 percent.
  • The Dow Jones average went from 10,365 to 16,000

Let’s take a look at the facts.

The Unemployment Numbers Are Skewed

Democrats most often cite the allegedly lower rates of unemployment as a sign of economic recovery.  For obvious reasons, this is generally correct.  More people with jobs is a better state of affairs than mass unemployment.  However, it is widely recognized by even mainstream Keynesian economists that the official rates of unemployment used by the Bureau of Labor Statistics (BLS) are inaccurate at best.

For the official rate (U-3), BLS counts people as unemployed “if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.”  However, this is an inadequate measurement of unemployment.  According to the Economic Policy Institute, the official rate excludes “missing workers”, i.e. those “potential workers who, because of weak job opportunities, are neither employed nor actively seeking a job. In other words, these are people who would be either working or looking for work if job opportunities were significantly stronger.”  EPI’s own measurement of unemployment includes missing workers which puts their rate of unemployment at 7.4% for September 2015 — more than 2% difference from the official rate.

The U-3 rate purposefully excludes from the ranks of the unemployed those who are “involuntary part-time workers, discouraged workers, and others without jobs but willing to work if offered a job.”  These are included in the much broader and fuller U-6 rate of unemployment that BLS also collects (Jack Rasmus, Epic Recession, 27).

Comparing the two rates will allow us to see just how different an economy can look depending on what numbers are publicized.  Between 2008 and 2015, the official unemployment ranges from 7.3% in December 2008 to 5.1% in September 2015, with a high of 9-10% from April 2009 to September 2011.  The U-6 rates for the same period show unemployment ranging from 13.6% in December 2008 to 10% in September 2015.  The high period of unemployment from April 2009 to September 2011 hovers around 16-17%.

The usage of U-3 as opposed to U-6 rates masks the fragility and weakness of the real situation of unemployment in the United States.  While more jobs have been added to the economy since the high period of unemployment throughout much of 2009-2011, if one tenth of the labor force today cannot be characterized as having an adequate employment situation, is this really a successful recovery?  Is it not obvious that the official unemployment numbers are purely political?

We have further reason to believe the government fudges the numbers of even its already inadequate official estimation.  Since 2010, Gallup Poll has been conducting its own unemployment survey using the U-3 measurement for unemployment.  The following chart compares BLS data to Gallup Poll data:

Tim McMahon, writing for Unemploymentdata.com, says:

In the beginning of this jumble it is hard to determine whether the BLS numbers are providing the True Unemployment Rate or not. We can see that the Gallup numbers start out higher at the beginning and are also higher frequently throughout but there are also a few points where they are actually lower so it is hard to determine whether the BLS is fudging or not. But as time goes on the BLS numbers appear to get further and further from reality.

[…]

First of all, we find that out of 69 data pairs the BLS number was higher only 17 times and the Gallup number was higher much more often at 50 times and only two times were the results the same. This definitely sounds like the BLS numbers are lower for some reason other than random chance. Next, we look at the average variation and we see that when the BLS is higher the average variation from the Gallup numbers is only 0.318% but when Gallup is higher the average difference is 0.632%.

So not only do the Gallup numbers come out higher more often, the amount of difference is higher as well. From the table we can see that when you add up all the negatives with all the positives the difference is 26.2 percentage points. If the methods were equivalent you would expect the positives to cancel out the negatives and the total would be zero.  So the BLS has underestimated the Unemployment rate by a cumulative total of 26.2 percent compared to the Gallup numbers from 2010 through the present.

It is in the interests of governments and capitalists to skew the unemployment statistics lower.  For governments, it provides false evidence to support the notion that they are ruling well and in the interests of the many.  Supporters and critics of the administration’s policies then take up these numbers uncritically.  This limits the range of discussion about policy, as, in the age of soundbites, it can be hard to explain in 30 seconds or less why the unemployment rate is really twice as high as reported.  Inaccurate numbers benefits capitalists as well.  Fictions of economic recovery and substantially lower unemployment numbers push the fault from systemic problems of economic stagnation to blaming individual workers for their own unemployment.

Moving Beyond Unemployment Numbers

The economy is more than just rates of unemployment.  It is misleading to quote lower rates of unemployment without stating anything about the quality of jobs added to the economy.  Are these good paying, full-time jobs with benefits?  Are they mostly low wage, part-time work?  As I said elsewherethe jobs being added to the economy are consistently the lowest quality, lowest paid jobs.  We can see this in the increase in the ratio of part-time workers to full-time workers.

It should not come as a surprise then that wages still continue to stagnate or decrease since the Great Recession.  A study by Claire McKenna and Irene Tung shows that “most workers have failed to see improvements in their paychecks.”  Their study states:

In fact, taking into account cost-of-living increases since the recession officially ended in 2009, wages have actually declined for most U.S. workers. Inflation-adjusted or “real” wages reflect workers’ true purchasing power; as real wages decline, so too does the amount of goods and services workers can buy with those wages. The failure of wages to merely keep pace with the cost of living is not a recent phenomenon. The declines in real wages since the Great Recession continue a decades-long trend of wage stagnation for workers in the United States (Gould 2015a).

Just how much does it cost for a family to live in today’s economy?  The EPI created a family budget calculator.  The results are shocking especially when comparing to official government reports on what constitutes living in poverty:

The basic family budget for a two-parent, two-child family ranges from $49,114 (Morristown, Tenn.) to $106,493 (Washington, D.C.). In the median family budget area for this family type, Des Moines, Iowa, a two-parent, two-child family needs $63,741 to secure an adequate but modest living standard. This is well above the 2014 poverty threshold of $24,008 for this family type.

$24,000 a year!  If you thought the official rate of unemployment was inaccurate and political, just read more about how the federal poverty line is calculated (which you can do at the EPI link above).

What does GDP and the Dow Jones Got to Do With Recovery?

The Dow Jones Industrial Average is a favorite number cited by politicians, some economists, media pundits, and apparently Bill Maher as a sign of economic recovery.  When you ask “has the economy recovered since the Great Recession”, you have to specify for whom.  Has the economy recovered for the working class?  Then the Dow Jones is useless for answering it. It merely measures the daily price movements of 30 large American corporations.  It says nothing about the economic reality for the majority of Americans.  Has the economy recovered for capitalists?  As a measure for that question, it does somewhat better.  As stock prices go up, shareholders make money.  But increased stock prices do not translate into increased investment with more job openings.  Stock prices can increase and stagnation can continue.  This is exactly what we are seeing today.

While the wages and job opportunities of the working class stagnate and dwindle, the rich have benefited remarkably well from the Obama recovery.  In a study of the post-Recession economy, Emmanuel Saez estimates that “the top 1% captured 91%of the income gains in the first three years of the recovery.”  In the Orwellian world of American politics, hope and change means business as usual.

Because we live in a country that purports to have democratic representation, officials make some effort to inform the citizenry of the actual state of the union.  However, their pronouncements are all masked in Orwellian terminology, inaccurate rates of unemployment, outdated poverty measurements, and useless indicators of economic success like the Dow Jones.  The true masters of this country — the owners of capital — exaggerate the extent to which the economy has recovered.  They don’t want you to realize that capitalism’s crises are really a crisis of capitalism.  For capitalists and their allies, recovery does not mean full employment with decent wages, benefits, and working conditions.  It means increased rates of profit.  We must be on guard against praises of economic recovery when we live in a country that has one of the highest rates of children living in poverty in the developed world, second only to Romania.

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3 thoughts on “Recovery For Whom?

  1. Thanks for this informative post. This underlines the importance of looking beneath headline statistics to go after a more truthful account of the economy. Here in the UK, employment growth has been strong, despite the weakest recovery in a century. Wages also stagnated for a number of years, until recently when they have begun to recover. Productivity growth has been similarly poor, leading to us falling far behind other rich countries. In the end productivity is the key to increased living standards, whether that’s increased incomes or leisure, so without it we are going nowhere. The US has been performing only moderately well, but as you say virtually all the benefits have gone to the top 1%. This is a shameful outcome.

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    • Thanks for the comment. I agree that a similar process of wage stagnation (and in many cases reduction) has occurred in the UK. Similarly, since neoliberalism with Thatcher, the UK experienced the same sort of push for privatization, expropriation of public property, and other means of class warfare the rich use against the working class that we see in the US (and truthfully, in many industrialized countries).

      I don’t know the numbers for the UK, but I disagree that “Productivity growth has been similarly poor, leading to us falling far behind other rich countries. In the end productivity is the key to increased living standards, whether that’s increased incomes or leisure, so without it we are going nowhere.”

      At least in the US, and I imagine it is similar in the UK but I don’t know the numbers, productivity has actually increased greatly. The problem isn’t a lack of productivity. It’s too much productivity. The economy is so productive that there is an overaccumulation of capital. Capital cannot find profitable reinvestment into the economy. So it’s siphoned off into all sorts of waste like the military industrial complex, the prison industrial complex, financial speculation and so on. However, these forms of waste cannot absorbed all the surplus capital, leaving other “surplus” in the forms of stagnation, which we see visibly as lack of employment opportunities, low growth, etc.

      Productivity itself isn’t the key to increased living standards. We can keep on being more and more productive. So long as the gains of productivity aren’t used to satisfy human needs in an equitable and democratic fashion, living standards won’t increase. This cannot happen in an economic system that’s run on the logic of “profit above human needs.”

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      • I don’t have access to the data, but I gather the experience of the US has been quite different to the UK since the recession. As you say, I gather that productivity has been growing reasonably well in the US, but labour force participation has been falling. In the UK, productivity has barely grown at all in the last few years, although there are some signs that it has picked up recently. Growth per capita has been positive but poor, meaning that employment has grown strongly and is now at a high rate, although the jobs created have been mainly low paid, including a huge increase in self-employment, which may partly reflect disguised unemployment rather than entrepreneurship, as the government likes to boast. I agree that the distribution of the gains from productivity are key to improving welfare, rather than the productivity itself, which if it leads to all the gains going to the top 1%, is not a just and democratic outcome.

        Regarding human needs: Marx was clear that capital accumulation creates new human needs as it progresses, which we see all around us. While it is clear that poorer countries have a greater need for growth than rich countries, needs seem also to have an evolving social and historical element.

        Finally, while the profit motive in many ways exploits the unattractive side of human nature, it has led to the advance of civilization in many ways, although I think we need reform under capitalism to better serve human needs and promote social justice as well as individual freedom. I think achieving some sort of balance between these is difficult.

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