A President in Denial
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The economy had to be a major theme of President George W. Bush’s State of the Union address. In the weeks leading up to the speech, the message he’s been repeating, over and over, is while there are “storm clouds” over the economy, “the fundamentals are strong.”
Say what? Bush says the United States has “had strong growth” because “we’re competitive,” have got “flexible workplaces,” and have “kept taxes low.” Let’s take a closer look at America:
Image has not been found. URL: http://www.washingtonindependent.com/wp-content/uploads/2008/08/politics.jpgIllustration by: Matt Mahurin
World’s largest debtor. Hemorrhaging manufacturing jobs. Dollar sinking. Banks on auction block. Middle class struggling to stay above water. Basic family security – from health care to affordable education – eroding. Vital public infrastructure collapsing, from the bridge in Minneapolis to the levies in New Orleans. No wonder the elites that gathered at Davos last week were bemoaning America’s economic weakness, not celebrating its strength.
Globally, the United States is in a financial hole that is getting deeper. 2008 will be the ninth consecutive year that the U.S. economy has grown at a slower rate than the world. In the first seven years of this century, under the Bush administration, the United States has run up a staggering $4.3 trillion in trade losses — more than $3 trillion in manufacturing alone.
We now run a trade deficit not simply in lead-painted children’s toys but in advanced technology products. The United States has lost the lead it once enjoyed in the green technologies of the future. We’re increasingly dependent on foreign oil, feeding the coffers of the petro states.
America is now the world’s largest debtor. Washington is sending more interest payments to lenders abroad than it is getting from investments abroad. Vaults of foreign central banks are stuffed with dollars. Understandably, the dollar is losing value, and its role as the world’s common currency is eroding, as countries diversify their reserves into euros.
China alone holds $1.5 trillion in foreign currency reserves — much of it in dollars. Foreign sovereign investment funds – led by China, the Asian tigers and the oil exporters – are buying up U.S. companies and banks at firesale prices. For European tourists, America is a cheap date.
The United States continues to boast of its “robust” financial markets. But the lack of sensible regulation, exposed at the beginning of Bush’s term with the Enron implosion and at the end with the subprime and related banking debacles, leaves investors wary. The Securities Exchange Commission seems toothless, and the conservative majority on the Supreme Court has now ruled that banks and accountants can create schemes to defraud investors without worrying about civil liability.
London has benefited from all this. It is taking over, once more, as the world’s leading financial center for stock listings.
Here at home, the populist rhetoric of the presidential campaigns is, if anything understated. Incomes for working families have stagnated while costs of basics – health care, gas, home heating, college tuition – have soared. To put it in economists’ terms, median household real incomes have fallen from 2000 to 2006 (the last year data is available).
Americans are working longer hours than workers of any other industrial country –including Japan — only to run in place.
Instead of widely shared prosperity, America is experiencing the most extreme inequality since the Gilded Age. More than half of the rewards of economic growth over the past 30 years have gone to the top 10 percent of families. In 1980, CEOs earned, on average, 42 times what an average worker made; now that ratio is estimated at 364 times average pay. The concentration of wealth and income has reached levels not seen since the eve of the Great Depression.
The Bush tax cuts have contributed to this — illustrated by the hedge fund billionaires who pay a lower tax rate than their secretaries. At the same time, the number of children in poverty and families without health care is rising. Half of the country’s workers have no retirement savings plan at work. Barely half have any paid sick days.
One result have been the racking up of staggering and, as we have seen with the burst of the housing bubble, unsustainable debt. In the past seven years, U.S. household debt has almost doubled. Struggling families have ran up credit card debt and borrowed against the equity in their homes to stay afloat. Now, with home prices declining, that option is over for most people. So last year’s record rates of foreclosures and bankruptcies are certain to be surpassed.
Yet, this unsustainable level of borrowing has failed to generate rapid growth. Consider the “recovery” from the 2000 recession, in the wake of the bursting of the dot.com bubble. The Federal Reserve pushed interest rates to the lowest levels in memory and held them there. Bush’s tax cuts and military buildup generated record deficits. Chinese and Japanese lenders helped keep inflation down and the dollar up — lending us the money we needed to buy the goods they were producing with the jobs our global corporations took to them.
Yet with all this fuel, the United States witnessed the weakest seven year job growth and one of the weakest periods of real gross domestic product growth since the Great Depression. Less than 6 million new jobs were created — which the economist Charles McMillion estimates cost about $1.8 million of debt per job. During this time, manufacturing lost 3.2 million jobs, or nearly 20 percent. These were replaced by new jobs in private education and health-care bureaucracies (3.3 million) and new service industry jobs in restaurants and bars (1.5 million). The United States is going from the industrial and technological capital of the world to a tourist theme park.
Worse, Washington spent the money the government borrowed largely in tax cuts for the wealthy, military buildup and of course, the Iraq quagmire (nearing $1 trillion and counting). The result is a dated and crumbling public infrastructure that makes America less and less competitive. The United States is lagging in everything from high-speed trains to broadband to failing public schools. The post 9-11 backlash has even eroded America’s longtime edge in advanced education, with foreign students increasingly looking to Europe for their education.
The broken health-care system leaves the United States behind in virtually all measures of public health. Shelve the Horatio Alger myth, our divided education system provides this country with less mobility than enjoyed in Europe.
So what fundamentals, Mr President? The world’s largest debt. A hollowed out manufacturing center. A declining middle class. Glaring inequality. A banking system on the auction block.
With a $13 trillion economy, the United States is still a wealthy country. Its military, roughly half the world’s military budget, is without rival — the strains of the Iraq occupation notwithstanding.
There is, as Adam Smith wrote, a lot of ruin in an economy. With the dollar decline, U.S. exports should rise. But it’s hard to figure what the president means when he says “the fundamentals are strong?” No wonder he has little patience for those mired in “reality based” thinking.
Robert L. Borosage is the president of the Institute for America’s Future and co-director of its sister organization, the Campaign for America’s Future. He has contributed to The Washington Post, The Los Angeles Times and The American Prospect magazine. He is a regular commentator on TV and radio, including Fox Morning News and National Public Radio.