America: One Nation, Two Economies

President Obama and the American media are celebrating the economic recovery. Stock prices are rising and profits are gushing in. Meanwhile, former Labor Secretary Robert Reich sees the majority of Americans still in crisis.

America’s role as the leading power and shining beacon to the world will be decided by coming economic developments. That is why especially strong efforts are now needed, and that is also why President Barack Obama appealed to the patriotism of his fellow Americans on Jan. 25.

His State of the Union address also gave everyone an unintended insight into his own and Wall Street’s views of what constitutes economic recovery and prosperity. Obama pointed out that two years after the worst recession in the nation’s recent memory, stock prices had risen tremendously, as had corporate profits.

The economy, he said, was growing once again. Apparently, Obama thinks economic recovery and prosperity are synonymous with strong profits for entrepreneurs and stock market speculators.

But what of the nearly 10 million people who lost their jobs in the crisis, and for the most part have yet to find new employment? Their view of the situation is alien to Obama and the political multi-millionaires who make up much of Congress and his own inner circle.

One of the few exceptions is Robert Reich, who served as Labor Secretary under Bill Clinton. In a scathing analysis, he recently described the United States as a divided country, with two de facto economies.

According to Reich, one economy is made up of rich Wall Street and Washington insiders who profit from the current bull market as they sit on a mountain of more than $1 trillion in cash made available to them by the Federal Reserve practically interest free — or as the man in the street would put it, for nothing.

The other economy is the one a majority of Americans are familiar with. These people continue to suffer, because for them the crisis is nowhere near over. These are the people who hoped by the millions that business would create new jobs at the same time businesses and investment houses continued exporting jobs to developing countries. According to Reich, that is how they have been able to increase their profits so greatly.

The Department of Labor raised hopes at the beginning of February by announcing a surprisingly strong drop in unemployment figures. Although only 36,000 new jobs were created in January, the unemployment rate fell from 9.4 to 9 percent, affecting some 13.86 million people. Strange, because in order to explain the 0.4 percent decline it would have been necessary to create some 600,000 new jobs.

On Feb. 4, the economic news agency Bloomberg provided a peek at the statistical manipulation going on behind the scenes by reporting that the sharp reduction reflected in the January figures was due to an unexpected drop of 590,000 unemployed. But how was that possible if only a total of 36,000 new jobs had been created?

One answer is that those reported out of work for more than 99 weeks are purged from the unemployment rolls every month since they are no longer eligible to receive benefits.

The Bloomberg report goes on to say, “A 162,000 drop in the size of the labor force also helped push down the rate.” So those no longer officially looking for work are removed from unemployment rolls. Population growth alone accounts for 125,000 new job seekers per month. Those individuals are also not included in the unemployment statistics.

But that does not deter American politicians and their press flacks from citing a supposed decrease in unemployment as proof of a robust economic revival. The truth is the number of Americans who want to work but cannot find employment continues to rise. The fact that the average hours worked per week by private employees fell from 34.3 to 34.2 in the U.S. does not indicate an economic recovery.

The only recovery is in corporate profits. Productivity is rising, showing that workers are being squeezed for more output even as their numbers are decreasing.

The crisis Reich describes in America’s second economy, i.e., the world of clerks and laborers, is far from over. Consumer spending may have risen in the past few months, but that was due mainly to the fact that Americans are saving next to nothing and going deeper in debt with their credit cards.

The American spending binge was largely financed by credit secured with second and even third mortgages during a period of astronomically rising home values. That is no longer possible in the face of rising foreclosures and decreasing home values in today’s economy.

The much-vaunted recovery in consumption in “the world’s largest economy,” as America likes to call itself, may be little more than a flash in the pan. At the same time, there are increasing indications that a period of long-feared inflation is gradually getting legs, although the official government statistics concerning price increases are being fudged even more than the unemployment figures.