Two Tales of “A Tale of Two Economies”, Daily Kos, August 2, 2010, by Bob Swern, used with permission, quoted verbatim:

“It’s called the American Dream because you have to be asleep to believe it.”
–George Carlin

Over the past few days, I’ve been looking at some of my earlier diaries, and it’s been a bit of an upsetting experience (then again, there are people that tell me just reading my diaries makes them upset), and I’ll explain why, down below. For the moment, however, I want to focus upon a few of the weekend’s stories of note, starting with Edward Luce’s outstanding piece in Friday’s edition of the Financial Times,  entitled: “The crisis of middle-class America.”

Luce visited with four middle class American families and provides his readers with masterful corollaries between his subjects’ individual experiences and recent, transcending socio-economic trends throughout our society, as a whole. (IMHO, it’s a must read.)

The author explains how Americans had been suffering through a “personal” recession long before the effects of the Great Recession took hold of our country in late 2008. In fact, as Luce tells us, the Great Recession merely exacerbated our personal recession(s). (Again, I strongly urge you to read his entire article. But, here’s a small excerpt.)

The crisis of middle-class America
By Edward Luce
Financial Times
July 30 2010   17:04…Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973–having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income.  Now the multiple is above 300.

The trend has only been getting stronger. Most economists see the Great Stagnation as a structural problem–meaning it is immune to the business cycle. In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 the first ever instance where most Americans were worse off at the end of a cycle than at the start. Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.

Alexis de Tocqueville, the great French chronicler of early America, was once misquoted as having said: “America is the best country in the world to be poor.” That is no longer the case. Nowadays in America, you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy–even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe.

Combine those two deep-seated trends with a third–steeply rising inequality–and you get the slow-burning crisis of American capitalism…

And, it was shortly after reading the Luce article that I started looking at a few of my diaries from last year. Here’s the one I wanted to share with you tonight, from almost exactly a year ago (more precisely, a little over 49 weeks ago). What’s so upsetting to me, tonight, is that this is a year old, and–aside from a few details–I could’ve just as easily written this today, and it would still be (almost) as precisely pertinent now as it was then: “A Tale of Two Economies.” Our unemployment rate is slightly higher than it was a year ago; and, some of the issues I brought up then–with some of those issues never having been discussed within the DKos community up until that point–are now considered to be widely accepted facts.

FROM AUGUST 2009…

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A Tale of Two Economies
by bobswern
Daily Kos
Thu Aug 20, 2009 at 11:47:04 PM EDT

‘The Wealthy Will Save Us!’

There is much talk of an impending economic “recovery” these days. Over the past week, I’ve noticed a series of stories coming from sources as disparate as Simon Johnson over at Baseline Scenario, Tyler Durden at Zero Hedge, the LA Times and even Bloomberg that are all pretty much telling us the same thing, and it’s best summed-up by Simon Johnson’s post over at Baseline Scenario, today: “The Two-Track Economy.”

The similarities of these stories–considering their varied sources–gives me great pause. To some degree, one could say I’ve had a bit of an awakening in the course of reading these pieces, or, at the very least, on a snarkier note, I’d call it “a lightbulb moment.”
Intro
You must enter an Intro for your Diary Entry between 300 and 1150 characters long (that’s approximately 50-175 words without any html or formatting markup).

Yes! There will be a recovery…for a few of us. And, that is “the recovery” that others on this blog are referencing these days. I believe what’s inferred in their words is: “Have no fear; the wealthy will save us!”

But, realistically, what are the odds of that really happening? (Heh. If you believe that, I’ve got a couple of bridges I’d like to sell you.)

Here’s Johnson’s clarity:

“The Two-Track Economy”
Simon Johnson
Baseline Scenario
August 20, 2009…are we seeing the emergence of a two-track economy: one bouncing back in a relatively healthy fashion, and the other really struggling?

Think about this in terms of individuals and the households in which they live.  Some people have lost their jobs and are finding reemployment very difficult; many will exhaust their unemployment benefits soon.  Others find that what they owe on their mortgages far exceeds the value of their home.  And many find they have been cheated by financial products, particularly home loans and credit cards — which is why we need effective consumer protection for finance, and in a hurry…

–SNIP–

…The overall numbers on outcomes by groups can get complicated (here’s a partial guide), but the simple version is: the top 10% of people are going to do fine, the middle of the income distribution have been hard hit by overborrowing, and poorer people will continue to struggle with unstable jobs and low wages.

Can the richest people spend enough to power a recovery in overall GDP?  Perhaps, but is that really the kind of economy you want to live in?

Yes, Johnson talks of a recovery that will have absolutely miserable overtones for most of our society (i.e.: Main Street) for many, many years…perhaps even longer than that. But, the Wall Street folks (i.e.:  the upper class) will continue to hum along.

Two days earlier, along the same lines as today’s post, Johnson wrote this on his blog: “United States Inequality In The Recovery Period.” In it, Johnson went into even greater detail on this line of thought:

United States Inequality In The Recovery Period
Simon Johnson
Baseline Scenario
August 18, 2009…There’s a general assumption that, to whatever extent historically record-high inequality is present, it will almost certainly be gone post-recession. But what if it isn’t? What if this recession, and the recovery, will cement inequality in the United States even further? From them:

Johnson then quotes a piece from the LA Times, ”The consumer isn’t overleveraged — the middle class is.‘

‘The consumer isn’t overleveraged — the middle class is’
Tom Petruno
Los Angeles Times
August 14, 2009What’s more, on the asset side, BofA Merrill says the middle-class has suffered more than the wealthy from the housing crash because middle-class families tended to rely more on their homes to build savings through rising equity. Also, the wealthy naturally had a much larger and more diverse portfolio of assets — stocks, bonds, etc. — which have mostly bounced back significantly this year.

And, more from Johnson…

There are a lot of moving parts going on with the interaction between the top percents and the middle class, inequality and collapse, but it isn’t hard to see a story where the stock market picks up, housing is in decline for a decade, and we have a jobless recovery. I’m not sure how that would effect our quantitative measures of inequality, like the gini coefficient, but we could end up with much more inequality, and inequality that stings a lot harder than it did during the boom times.

Johnson then references a piece I must’ve read three times if I’ve read it once (and that was well before I read Johnson’s piece tonight, too), from this past Saturday, by the folks over at–of all places–Zero Hedge. (NOTE: Johnson and Zero Hedge do not have a whole hell of a lot in common, politically.)

“A Detailed Look At The Stratified U.S. Consumer”
Tyler Durden
Zero Hedge
August 15, 2009…It is probable that the dramatic increase in savings as disclosed previously, is an indication that at long last the richest 10% of America may be finally feeling the sting of a collapsing economy. Yet estimates demonstrate that even though on an absolute basis the wealthy are losing overall consumption power, the relative impact has hit the lower and middle classes the strongest yet again…

The main reason for this disproportionate loss of wealth has to do with the asset portfolio of the various consumer strata. A sobering observation is that while 90% of the population holds 50% or more of its assets in residential real estate, the Upper Class only has 25% of its assets in housing, holding the bulk of its assets in financial instruments and other business equity. This leads to two conclusions: while average house prices are still dropping countrywide, with some regions like the northeast, and the NY metro area in particular, still looking at roughly 40% in home net worth losses, 90% of the population will be feeling the impact of an economy still gripped in a recession for a long time due to the bulk of its assets deflating. The other observation is that only 10% of the population has truly benefited from the 50% market rise from the market’s lows: those better known as the Upper class.

And to add insult to injury, the segment of housing that has been impacted most adversely in the current downturn, is lower and middle-priced housing: that traditionally occupied by the lower and middle classes. The double whammy joke of holding a greater proportion of net wealth in disproportionately more deflating assets is likely not lost on the lower and middle classes.

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Yes, the wealthy aren’t exactly going to have to worry about our “new normal,” are they? (See: “America’s bumpy journey to a new normal.“)

Then again, the wealthy don’t really have to worry too much about working or unemployment benefits vaporizing. (See “Weekly Unemployment Claims Increase, Workers Exhausting Extended Benefits.“)

The wealthy don’t have to worry about health insurance (See: 85% of the other diaries on this blog right now.)

The wealthy don’t have to worry about things like foreclosures continuing to escalate, either. (See:  ”MBA Forecasts Foreclosures to Peak At End of 2010.“)

And, we all know the wealthy don’t have to worry about those weekly paychecks, either, now do they? (See: “Why The Austrian, Keynesian, Marxist, Monetarist and Neo-Liberal Economists Are All Wrong.“)

Why The Austrian, Keynesian, Marxist, Monetarist and Neo-Liberal Economists Are All Wrong
Served by Jesse of Le Café Américain
Naked Capitalism
August 20, 2009US Personal Income has taken its worst annual decline since 1950.

This is why it is an improbable fantasy to think that the consumer will be able to pull this economy out of recession using the normal ‘print and trickle down’ approach. In the 1950′s the solution was huge public works projects like the Interstate Highway System and of course the Korean War.

Until the median wage improves relative to the cost of living, there will be no recovery. And by cost of living we do not mean the chimerical US Consumer Price Index.

The classic Austrian prescription is to allow prices to decline until the median wage becomes adequate. Given the risk of a deflationary wage-price spiral, which is desired by no one except for the cash rich, the political risks of such an approach are enormous…

Boldface type is diarist’s emphasis.

So, I ask: Just who will benefit from a credit-less, revenue-less, jobless “recovery?” On what planet do these people that talk of a “recovery” in the next few months spend most of their time?

It sure doesn’t look like this is a recovery in the Progressive Democratic sense of the word.

Yes, the political risks of the so-called recovery as it’s being teed-up for us now…are enormous…

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My last sentence in this diary from approximately one year ago…

Yes, the political risks of the so-called recovery as it’s being teed-up for us now…are enormous…

BACK TO AUGUST 2010…

Unfortunately, a year later, it’s not just about Wall Street’s pillaging of the taxpayer and personal financial devastation, caused by the ongoing-and-even-greater financial disparity gap between our oligarchy and the peasants. It’s about a financial services sector that has all but abandoned Main Street–and the traditional driver of recoveries past: small business, being cast as “the poor cousin” and still very much languishing in “the” ditch–with major deflationary concerns permeating the hallowed halls of our Federal Reserve, as well.

In fact, unemployment (and I’m only talking about BLS’ U-3 Index joblessness) is greater than it was last August (9.6% now versus 9.4% then), with many millions more languishing in poverty and/or on extended unemployment; and, housing prices ($1.25+ trillion later in taxpayer-funded supports) are still falling.

So, it’s 2010, and here’s the second tale of two economic tales…

“The Tale Of Two Economies”
Contrary Investor
August 2010 Letter
(contraryinvestory.com)The Tale Of Two Economies…It simply continues, and as we see it is THE key tension in investment decision making of the moment.  It’s the tension of the macro versus the micro.  After all, isn’t this very tension exactly what has been playing out as 2Q earnings season has unfolded?  Again, the key question being, what will be more important to investor decision making ahead, the macro domestic and global economic and credit cycle backdrop or company specific earnings and forward guidance?  We’ll move through this little look at life as we know it at the moment relatively quickly as basically it only continues to validate the “tale of two economies” theme we have been discussing for well more than a year now.  But we do believe there are some very valid conclusions that can be drawn from one of the most noticeable economic divergences we have seen in many a cycle.

To the point, in recent weeks we have been treated to the quarterly Conference Board CEO business confidence survey as well as the NFIB (small business) survey for July (data through June).  As with so many business conditions surveys, the CEO confidence survey is a diffusion index.  Any reading above 50 tells us the preponderance of responses were positive, and vice versa.  Quarter over quarter the CEO survey was unchanged in the recent report and remains consistent with headline economic expansion based on historical precedent.  At least over the recent past, survey levels at 50 or above have been consistent with at least 3% year over year real growth in GDP.  Over 70% of the CEO’s surveyed expect profit growth over the next twelve months and half of the respondents expect an increase in demand to drive profitability.  Alternatively for the small business crowd, demand and poor sales is their number one concern.  In terms of the US corporate sector, large and small business conditions have been and continue to remain worlds apart…

–SNIP–

Bottom line summary.  The tale of two economies theme remains valid and intact for now.  We are seeing a huge divergence between large and small business condition outlooks at present.  A divergence we have never seen in modern historical experience. Large businesses represent the micro in terms of the positive of company specific earnings.  They are the large S&P 500 companies whose earnings are more dependent on the rhythm of the global economy as opposed to the domestic US economy specifically.  They are the large companies whose reported “operating” earnings are not falling apart, despite a few bumps in the road now and again.  Alternatively, we see the small business community representing the domestic US macro.   They are the job and ultimately personal income creators.  They are largely the service sector, the largest driver of domestic US economic outcomes.  The NFIB numbers are simply telling us of a deceleration in macro economic activity ahead. And herein lies the tension for investors.  What will be more important in decision making immediately ahead, the tone and rhythm of the US macro economy inclusive of jobs and personal income, or the micro of reported quarterly “operating” earnings of truly large and globally centric companies whose job and personal income creation activities largely lie abroad?  It’s why we need to remain focused on this “tales of two economies” theme.  Is it really going to be the case that the S&P 500 companies alone (as a proxy for large corporations) experienced a headline economic recovery in the current cycle while small businesses never even left the post recessionary starting gate?  It’s sure looking that way for now.  In terms of “counting cards” as per a potential US double dip recession outcome, the NFIB puts a checkmark in the plus column for the double dip scenario. Just keepin’ a list.

And more inconvenient truths upon which we were enlightened, just this weekend…

Alan Greenspan Just Told Us Our Financial System Is Broke; Drop In Home Prices Could Lead To Second Recession. (Of course, that’s assuming the first recession ever “ended.”)

Alan Greenspan says our economy is broke, and if housing prices drop much more–and the consensus is that they will–then the likelihood of our economy sinking deeper into recession is quite possible. (SEE: “Alan Greenspan: A drop in home prices could lead to second recession.”

And, if you recall Simon Johnson’s commentary, from a year ago (noted above): “…we need effective consumer protection for finance, and in a hurry.”

“Knives Out for Elizabeth Warren”

But, when it comes to getting our number one choice to watch consumers’ backs on Wall Street, Yves Smith says, “Knives Out for Elizabeth Warren.”

Folks, there is an  ongoing crisis in middle-class America!

And, we’re supposed to be okay with this? I don’t think so!

Today, Paul Krugman tells us, the “new normal” is high unemployment, for a long, long time.

“Defining Prosperity Down”
By Paul Krugman
NY Times Op-Ed
August 2, 2010…Not long ago, anyone predicting that one in six American workers would soon be unemployed or underemployed, and that the average unemployed worker would have been jobless for 35 weeks, would have been dismissed as outlandishly pessimistic — in part because if anything like that happened, policy makers would surely be pulling out all the stops on behalf of job creation.

But now it has happened, and what do we see?

First, we see Congress sitting on its hands, with Republicans and conservative Democrats refusing to spend anything to create jobs, and unwilling even to mitigate the suffering of the jobless…

–SNIP–

…the fearmongers are unmoved: fighting deficits, they insist, must take priority over everything else — everything else, that is, except tax cuts for the rich, which must be extended, no matter how much red ink they create.

The point is that a large part of Congress — large enough to block any action on jobs — cares a lot about taxes on the richest 1 percent of the population, but very little about the plight of Americans who can’t find work…

On The Horizon…

To which Yves Smith tells us these Bush tax cut myths, upon which Krugman’s railing this Monday morning, as well, are exactly that: “[http://www.nakedcapitalism.com/...
Debunking Bush Tax Cut Myths]”

On the immediate horizon…unemployment more likely than not moving higher as the year progresses, not lower;  the disparity between the haves and the have-nots growing greater than at any time since they started measuring this metric (including just prior to the Great Depression); housing prices dropping, still; our leading (and only significant) consumer advocate being thrown under the bus (while many are still in denial of this truth); small business–the leading driver of employment on Main Street–being ignored; and tax cuts for the rich more than likely being extended? (Do you really think anything other than that will be the end result?)

(And I haven’t even mentioned the word, deflation, which is being widely bandied about in the halls of the Federal Reserve as we blog now, either.)

You want to blame the Republicans for this? (Okay. That makes sense. This “mess that Greenspan made” is the result of eight years of GOP laissez-faire mismanagement. It IS their fault, of course.)

But, wouldn’t the argument (and the voters’ perceptions on these matters) for OUR PARTY be just a slight bit more compelling and believable if we actually had Democrats running our Treasury Department as well as our Federal Reserve? And, non-Rubinist Democrats advising our President in the White House?

One more time…repeat after me…and paraphrasing Barney Frank: “Things would be a lot worse” is NOT a winning campaign slogan.

And, a languishing economy–at least as far as our economy is still being perceived on Main Street–is not exactly a result to brag about in a congressional stump speech.

Fighting the good fight for major new stimulus programs is where our Party should be focused right now, IMHO. Unfortunately, as Krugman, Johnson and many others have noted
it of late, standing up for what’s right for MAIN STREET is just not at the top our party leadership’s agenda.

As noted in my diary from a year ago…

Yes, the political risks of the so-called recovery as it’s being teed-up for us now…are enormous…

Now that I read it again, I think that is the one line from last year that I would change to: “Yes, the political risks of the so-called recovery as it’s being teed-up for us now…are a TRAVESTY.”

And, as far as standing up for a second major stimulus package for Main Street’s concerned, with 100 days (give or take) left until the mid-terms, it’s not too late for our President to provide strong support for that, too.

Comment by Paul Evans: Speaking of Bush Tax Cut Myths, there is an excellent article from today at Think Progress by Pat Garofalo:

See Rove Invents Fantasy World In Which The Bush Tax Cuts Led To The Most Government Revenue Ever, Think Progress, August 2, 2010, by Pat Garfalo, excerpt quoted verbatim:

Last month, a handful of prominent Republican lawmakers tried to advance the false claim that the Bush tax cuts of 2001 and 2003 — which are scheduled to expire at the end of the year — actually increased government revenue. “There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy,” said Senate Minority Leader Mitch McConnell (R-KY).

Republicans need to invent this fantasy world in order to justify complaining about the federal deficit while simultaneously advocating an extension of tax cuts that would blow an $830 billion hole in the budget, all for the benefit of the richest two percent of Americans. Today, Bush White House adviser and GOP operative Karl Rove appeared on Fox News, where he not only claimed that the Bush tax cuts increased revenue, but that the cuts resulted in the highest amount of government revenue ever collected:

The Bush tax cuts led to a couple of things. They led to first of all, the largest amount of revenue being received by the government. They helped encourage economic growth and grew tax revenues…At the top, half of small businesses are going to pay higher taxes because they file at the personal rate, and they’re going to get hit.

See Economists Tell the Masses: “It Could Have Been Worse, Truthout OpEd, August 2, 2010, by Dean Baker, excerpt quoted verbatim:

It is amazing that angry mobs have not risen up and chased all the economists out of the country. While the greed of the Wall Street gang provided the fuel for the bubble, the economists played an essential role as enablers. This was most directly true for economists in policymaking positions, like Alan Greenspan at the Fed.

It was Greenspan’s job to stop the housing bubble. A competent and honest Fed chair would have recognized the bubble by 2002 and taken whatever steps were necessary to rein it in. And we should be 100 percent clear, in spite of all the song and dance about how the financial reform bill will prevent another bailout, the Fed absolutely had all the tools needed to stop this disaster. They just lacked either the competence or the integrity, or both.

Comment by Paul Evans: I agree with Bob Swern 100 percent that we need to dump Summers, Geithner and Bernanke and get some actually progressive economists running the show in D.C. In fact, Obama needs for once in his life to be bold here: I truly believe that if the “terrible Trio” were fired, there would be such a roar of approval in this country that everyone but die-hard Republicans would be dancing in the streets (with attendant positive consequences for the mid-term election). Continuing in this tax matter, the United States went from World War two up until the sixties or seventies with a top tax rate of 93 percent and then introduced a second tier tax rate of 75 percent. All that time — ALL that time — our economy grew at a consistent rate of 4 percent growth per annum… consistently. (Could it be that God or Fate orders society in some way so that when a government is socially responsible, then it prospers? Is there an “economic Karma” involved?)

I don’t know where these Republicans get off and we allow them to posture like they don’t know exactly what they’re doing and there is some argument over how much to tax the rich. Forget rolling the tax rate back to 1993, roll it back to 1960′s rates. Then maybe we could pay for social services. Can anyone of sound mind reading this actually debate that the rich would be hurt so badly that the economy would collapse? No, Rove and George Will and others like them are NOT living in a fantasy world. They know exactly what they are doing, and they know exactly how much of a lie the “keep taxes low to fire up the economy” myth is. It’s not just a fallacy, it’s not just a myth, it’s a Damned lie.

As to these fine Republicans’ so-called Christianity, what part of “eye of a needle” and “camel doesn’t fit” don’t they get?? It is a False, a demonstrably false and execrable two faced hypocrisy when these people are not willing to help their fellow man in need. And it isn’t Christian. They are hypocrites and false Christians, whether they know this or not. ((And Rove knows it.)) ~ Evans Liberal Politics owner Paul Evans

Bob Swern remains my personal choice for favorite progressive economics writer. This is mainly because he gets to the root of the matter and provides documentation and links to look further into the topic. Thanks to Mr. Swern for giving Evans Liberal Politics ongoing permission to republish his articles. Email Bob Swern here.

"Karl Rove: Consumate Liar," Fox News interview where Rove falsely claims that the Bush tax cuts led to the most government revenue ever. — 2:40

Advice to avoid suffering
Don’t Consider Yourself: Just Be, and Live, Try and Feel, but don’t consider yourself while you’re doing it. It is a relief not to consider yourself while you live, very easy and nice. It can open up your mind to the world around you of which you are a part. It can be part of the process by which the false distinction you make between yourself and others falls away. And you will not suffer as much. This is actually a rather Buddhist idea, yet I find that I have no problem integrating the idea into my own Christian mindset. ~ Paul Evans

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