Our 'Real' Economy

Business reports have been referring to the 'real' economy in attempts to lessen the worries we have about the lack of value of our financial sector's investments. It seems like a strange reference, but this morning I read a good use of it, in talking about the kinds of programs the government needs to establish to raise income prospects for the American worker, or consumer, who is the basis for any sound economy.

At The Sideshow this morning, Avedon has comments that reflect on the unreality of our financial sector's conception of money. "When the Fed 'comes up with' money, it literally creates it out of thin air."

Housing prices rose to heights that were artificial in our recent bubble, divorced from actual value, in the buying binge that led to rollovers and investing rather than real housing. The loss of homes is also loss of equity, or savings. It is also in some measure a loss of jobs, in the real estate market, furnishing and construction among others.

After the depression reduced our economy to rubble in the 1920's, CCC camps were brought into play, teaching skills and bringing building projects to the unemployed, producing income to help individuals and the economy as a whole. It worked then, and there is no reason it couldn't work now.

Manhattan's culture of conspicuous consumption and conspicuous collapse has been on display in recent days as it has not since 1929. Now, as then, an edifice of shaky credit is toppling. Now, as then, what we took to be prosperity turns out to have been a bubble.

The key lesson Americans need to learn from today's troubles is how to distinguish faux prosperity from the genuine article. Over the past hundred years, we've experienced both. In the three decades after World War II we had the real thing. Led by our manufacturing sector, productivity increased at a rapid clip and median family incomes rose at a virtually identical rate. The value of the American work product grew significantly and that value was shared with American workers.

But we've had other periods of apparent prosperity that were based not on broad increases in personal income but on the inflation of assets. So it was with stocks in the late 1920s, a time when most Americans lacked substantial purchasing power. So it was with the dot-com bubble of the late '90s. And so it was with the rising value of American homes in recent years.

In the broadest sense, the American economy over the past three decades has been powered by ever more ingenious extensions of credit to a people whose incomes were going nowhere, unless they were in the wealthiest 10 percent of the population. There were some limits, as a result of New Deal regulations, on how old-line banks could extend credit, but investment banks and other institutions not legally obliged to keep a certain amount of cash in reserve operated under no such constraints. The risk was that one day, burdened by debt and static incomes, American homeowners would have trouble making their payments and the house of cards would come tumbling down. But what were the odds of that?

Pretty good, it turns out. And out of this debacle emerge two paramount lessons for our highest-ranking policymakers: Regulate the American financial sector, which is now turning to the government for a bailout. And commit the government to doing all in its power to generate broad-based prosperity, through laws enabling workers to bargain collectively, through a massive public commitment to projects "greening" the economy, through provision of universal health coverage and affordable college educations.

(Emphasis added.)

The discussion at Eschaton has suggested this kind of improvement in our economy more than once, and it's good to see that responsible pundits are bringing it up. Our business sector has gotten so removed from reality that they have neglected the basic need for a consumer class that they can sell to. Under a new administration with actual thinking and planning brought back into government, the betterment of our working class can be brought into play for the good of all the sectors.

Our economic prospects show little promise without the creation of income.

OECD [Organisation for Economic Co-operation and Development] chief economist Jorgen Elmeskov said the Bank of England should be cautious, given the solid growth and worries over inflation.

The research group said the US economy is, "essentially moving sideways, if not contracting outright."

The OECD, which represents the 30 most advanced industrial countries, now expects the US economy to grow just 0.1% in the first 3 months of this year, down from its original 0.3% forecast.

In the second three months, it reduced its forecast to zero growth, down from 0.4%.

Our financial sector ignored the simple fact that it needs wealth in order to use that wealth, and playing with money is not creation of 'real' wealth.

Today's job report shows the increase in unemployment of 22,000 since last week, at 378,000. Those are people who will not be able to support our economy. They, and we, need government devoted to making the jobless plight of workers into a prospect of jobs, and income.