Opinion: U.S. economy is great, or is it?
At the end of August, things looked pretty good on Wall Street. The S&P 500 (prices for selected industrial stocks) increased by 7 percent for the month, and that was the best August since 1986. As we entered September, all three major stock indices showed significant gains for five consecutive months after the devastation of the initial impact of COVID-19 cases in February and March.
During that time, while the nation reeled from the effects of the pandemic, the S&P zoomed upward by 35 percent, its greatest five-month percentage gain since 1938. It was followed by the Nasdaq Composite (9.6 percent) and the Dow Jones Industrial Average (7.6 percent). But, according to the Wall Street Journal, “U.S. debt has reached its highest level compared to the size of the economy since World War II and is projected to exceed it next year….”
How can our economy look so good and so bad at the same time? The likely explanation is that we have a two-tiered economy, reflecting the growing division between Corporate America and all the rest of us. Here’s how it works.
As people sell off stock because they need the money, or they’re worried about an unstable political atmosphere, or they’re concerned about the short-term and long-term effects of a global pandemic, corporations are buying back their own stock at inflated prices in order to increase the value of their enterprise. And, it works. For example, Amazon’s stock now sells for more than $3,500 per share, increasing the wealth of Jeff Bezos (president of the corporation) to more than $200 billion. But, the countervailing effect is that the average American can no longer afford to buy stock in the company. And, Amazon is not alone in this regard.
The nation, as a whole, suffers as well. How can that be? Well, our tax laws favor the wealthiest individuals and our corporations, many of which pay little or no tax. Yet, as the gap between rich and poor increases, the government is pressed to provide more services with less money. So, it has to borrow, and this is what causes annual deficits in the economy.
As each year’s deficit is added to the preceding cumulative deficits, the national debt rises. Currently, that debt (money owed to various other countries, like Japan and China, or to domestic organizations, like the Social Security Trust Fund) is now approaching $27 trillion. Most of us can’t really understand the concept of “trillion.” It’s a thousand billion, and a billion is a thousand million.
Having a public debt of $27 trillion converts to a debt of $81,000 for every adult and child currently alive in the United States, or $324,000 for a family of four. And, of course, the money we owe generates interest on the loans. So, this year we’ll pay $338 billion in interest. There are about 144 million workers in the U.S., which means that each worker will pay about $2,375 just for his or her share of the interest on the national debt; for a family of four, that’s roughly than $9,500. (Those last numbers are somewhat exaggerated because we have some non-working wealthy people who receive taxable income from interest and dividends and many retirees who receive taxable income from pension funds.)
Moreover, we are adding to that debt at the rate of $4 trillion per year. This dramatically impacts our Debt-to-GDP Ratio. (GDP, or gross domestic product, is the sum total of the value of all goods and services produced domestically.) In 1960, our Debt-to-GDP Ratio was 52.48 percent; in 1980 it was 34.65 percent; in 2000, 56.53 percent. At the end of August, our national debt was 100 percent of our GDP, and by the end of the year it will be 134.67 percent.
Meanwhile, jobs are disappearing. Many promises have been made during the past couple of decades to “bring back” those well-paying factory jobs. Ain’t gonna happen. The high point in U.S. factory jobs occurred during the 1950s. By 2,000, the nation had 17 million such jobs, and by 2020, only 12 million. As I’ve pointed out in previous columns, automation and cybernation are replacing labor-intensive manufacturing.
As a matter of fact, the U.S. workforce as a whole is shrinking. In 2000, 158 million Americans participated in the workforce; in August, 2020, that number decreased to 144 million. Because our budget partially relies on payroll taxes, this dearth of workers drawing salaries and wages stresses the entire system. And this has ramifications at every level. For instance, in 2000, there were 361,000 bankruptcies. That number has increased to 849,000 this year so far, and we don’t really know how many small business that were forced to shut down because of the pandemic will be able to reopen.
All of this data explains why the U.S. economy appears to be healthy and strong from one perspective but ailing and weak from another. Unfortunately, the vast majority of us live in the second perspective.
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Jim Glynn is a retired professor of sociology. He may be contacted at firstname.lastname@example.org.