The Economy in Six Songs

In his book The World in Six Songs, neuroscientist Daniel Levitan of McGill University seeks to outline and explain our emotional lives and heritage in a mere six songs – songs of friendship, joy, comfort, knowledge, religion and love.  I am attempting a task no less daunting.  I hope to condense and explain our current economic condition in just six songs.

So here goes.

“You know I work all day; to get you money to buy you things.”

For the economy, the “rubber meets the road” precisely at this point. We need more people working so that they can “buy you things” for the economic climate to improve.  In other words, our primary economic problem is a lack of aggregate economic demand. As McKinsey points out, “the single greatest fear among executives everywhere is weak consumer demand for their companies’ products and services.”

The following chart shows velocity as the ratio of the money supply (M2) to nominal GDP. It rose from 1.85 in 2003 to 1.96 in 2006 but has since fallen to a current level of 1.572 as households reduced spending and increased saving while banks and businesses hoard cash. 

 Six Songs 2

Simply put, money needs to get moving again.

 

The Fed is practically giving money away in its attempts to juice the economy — essentially trying to force everyone into equities and giving capital away to try to spur growth.  But it isn’t working.  Meanwhile, savers, retirees and others on fixed incomes are being punished by the low interest rate environment in that no relatively safe yield-producing investment vehicles are available.  Because of the crazy-low interest rates, interest income is down over 30 percent since August, 2008.

Six Songs 4Money for nothing indeed.

 

On the other hand, the plutocrat class continues to outperform.  Republicans say they support equal opportunity and the entrepreneurial spirit while Democrats say they look out for the disaffected.  But pretty much everyone in office forgets their alleged principles in order to get or stay close to those with the money — perhaps to finance the next campaign.  Their principles don’t mean very much when it comes to sucking up to the rich and famous.

Six Songs 1

That’s takin’ care of business at its most crass.

 

The American economy (not to mention the American Dream) is predicated upon the idea that we all have the opportunity to get ahead. Sadly, it doesn’t seem to be working out that way today. Real wages have steadily declined and benefits continue to decline too.

Six Songs 5

It’s not supposed to be “all takin’ and no givin’.”  

 

While corporate earnings and profits are very high, employees are not sharing in that success.  Indeed, those workers with good jobs have to keep working harder and harder without being rewarded for it (see below) — even with job security.

Six Songs 6

That’s working very hard for the money indeed.

 

Even though the recession is said to have ended, the newly employed don’t seem often to have obtained very good jobs.  For example, 20-something college degree holders here in California, where I live, are still finding professional jobs extremely hard to come by more than 3 years into the alleged recovery. At 15 percent, the U-3 unemployment rate for California’s college grads under 30 is nearly twice the national rate, and the most common jobs for those who find them are retail, clerical, and food service positions — hardly dream jobs. And according to the U.S. Census Bureau,  more than half of California’s half-million degree holders in their 20’s are underemployed. In fact, the most popular job for the most populous state’s young professionals is retail store floor sales. 

They may as well be workin’ at the car wash.