Over last weekend, Econintersect issued its October 2012 economic index. The October index value had dropped precipitously - the largest one month drop since January 2009. However the index was not (yet?) indicating Main Street was in a recession. One reader offered an observation:
….that the middle class (say the middle 30 percentiles) have been in recession even while the economy has grown because of disparities in growth in income and the relative proportions of financial/business assets owned by the top say 10% compared to home values in 2006.
To understand the suffering/loss of many people a patchwork analysis is required. Totals (particularly without being on a per capita basis and by industry, employment type, education/skill level or age ), averages and medians (without quintile breakdowns) are meaningless to such large swathes of the population as to be meaningless in the "new normal", "patchwork" economy.
To me, it seems that there is a lack of concern for a significant portion of the population enduring massive hardship, so long as the top level figures of GDP, S&P and employment are showing some growth in total (not by the author, but in the US as a gross generalization based on 4 years of generally intense reading of US centric blogs.)
A construction worker might have been at the 50th percentile in earnings before the recession, and now likely has fallen into the lower percentiles. Yet it is difficult to demonstrate this kind of issue with the data commonly looked at. Joe's income seems relatively unchanged since the beginning of the Great Recession.
Per capita inflation adjusted income of employee compensation and transfer of payments
As the above graph removed rental & asset income, and did not adjust for taxes - the graph below is presented for comparison which is real inflation adjusted per capita disposable income. Your takeaway should be similar - Joe is about in the same place as before the Great Recession.
Now let us remove transfer payments (social safety net items such as social security, unemployment insurance payments and medicare) from Joe's Income:
Per capita inflation adjusted employee compensation
With this view, Joe looks a lot worse off than before the Great Recession. Is it really the average Joe worse off - or is it specific Joes?
Indexed per capita inflation adjusted income for employee compensation (blue line) and Indexed employment population ratio (red line)
Note: above graph prepared before Friday's BLS jobs report.
Likely our averaged and homogenized data is missing the point - the USA economy is screwed up because 8% of the pre-recession workforce has been vaporized (the red line on the above graph is currently at 92% of the pre-recession peak).
If one is on social security, in some other social safety net, employed, or the 0.001% - the new normal may not that bad. You may pity the jobless, but you may be missing the reality that 8% loss of jobs caused the economy to lose 8% of its prime driver - Joe "the consumer" Sixpack. With over 2/3rds of the economy consumer driven, the solution is obvious - create 24 million jobs.
Since the end of World War II, the economy has not been faced with such a large employment slack.
Fed Chairman Ben Bernanke sees this as the economic headwind which is causing terrible growth, and the stated reason for QE3. This author doubts that quantitative easing on top of a zero interest rate policy can have any effect on employment. It seems like a "hail Mary" play stemming from a lack of fiscal policy stimulus from Congress - and even a Hail Mary pass with no receivers downfield, if you will.
Any solution to stimulate employment is in fiscal policy and regulation - and possibly a revisit to policy utilized post WWII to create jobs for the returning soldiers.