Most Americans scratched their heads when the National Bureau of Economic Research declared that a slowdown in America’s economic growth started in December 2007 and ended in June 2009. You can still hear the collective “huh?” out on the streets.
It’s easy to understand the double take. Although the decrease was not substantially significant, unemployment among Black people is at 16%. The overall unemployment rate is 9.1%. Just over 6.2 million Americans have been out of work for an average of 40.5 weeks.
In addition, for those fortunate enough to be working, incomes have continued to fall since the recession. Between December 2007 and June 2009, incomes fell 3.2%. Falling incomes should be expected during a time of economic decline, but after the recession ended, incomes continued to fall. From June 2009 to June 2011, incomes fell another 6.7%.
So if consumers have been taking home less money since 2007, and unemployment has been increasing, how can Washington say that the economy is growing?
Nowadays, water cooler banter or hash tag follows for “Occupy Wall Street” eventually includes a discussion about how tight things are. As discussed before, a roughly seven percent fall in income over two years is tight. Combine that with, say, a rise in your food bill and we’ve gone from pizza night to Ramen noodles every night.
But does this mean that the economy is tight?
When we talk about the economy, we, as individuals, refer to our paychecks and family budgets. Can we go on that family vacation to St. Kitts-Nevis, or will we have to settle for the local amusement park’s wet-and-wild ride? If it’s the local amusement park, then we conclude that the economy is really bad.
Answering these questions requires taking a look at how we measure growth.
Economists are concerned about what we are consuming, and what we are producing here at home. Do we have the appropriate mix of land, labor, capital, and entrepreneurship that will allow us as a nation to produce more, thus increasing our quality of life?
Economists typically look at primary measures of growth: our gross domestic product, otherwise known as our national income. They measure how much consumers spend; how much government spends; the investments that businesses make; and whether we are exporting more goods and services to China versus buying more of their goods and services.
What is not measured – and at the heart of disconnect between consumer perception and growth in the economy – is what economists like Joseph Stiglitz and Benjamin Friedman call “moral benefits.” Moral benefits may include quality of schools; improving the environment; reducing poverty; promoting democracy; or building a more tolerant society.
A significant part of the problem with accounting for these moral benefits is measuring them. How do you measure the promotion of democracy or the building of a more tolerant society? Even if you were to determine some metric, could you incorporate it into the current equation that we use for measuring and forecasting growth?
If moral benefits cannot be measured as a variable, then crafting economic policy that includes these variables may be very difficult. Describing them accurately as problems and selling the idea that they need to be addressed by some restructure of the economy may be harder to articulate. Thus the inability of most Americans to decipher what the heck the Occupy Wall Street posse really wants.
So far the White House has been hesitant to politicize the moral benefit arguments posed by Occupy Wall Street. Last week, President Obama made remarks attempting to empathize with the frustrations felt by protesters about how the financial system works.
“We had the biggest financial crisis since the Great Depression – huge collateral damage throughout the country, all across Main Street. And yet, you are still seeing some of the same folks who acted irresponsibly trying to crack down on abusive practices that got us in the situation in the first place,” Mr. Obama told reporters. “I think people are frustrated.”
But will empathy be enough to help frustrated consumers reconcile what they perceive as a tough economy? Can that restore a sense of positive, albeit sluggish, growth in the economy and the relatively solid performance of the financial markets since March 2009? Probably not.
Is it important that post recession growth and market performance be reconciled with consumer sentiment? The short answer is yes. Given that 70% of the economy is driven by consumers, a lack of public confidence in the economy, the political system and financial markets only dampens any chance at increased output and job creation.