It's All About How You Look At It

One of the things I think we need to radically change, and this is in Andy Stern's book A Country That Works as well, is to rethink what metrics we use to monitor the economy, so that we get a picture of how it is working for ALL Americans and not just a handful of wealthy plutocrats.

For example, today we read that the economy grew 3.5% in 2006, a higher-than-expected rate, and that this is proof that the economy is booming and everyone should get off George Bush's back. On top of that, there's a much more damning statistic, one that has for more vast consequences for all Americans, and one that goes a long way to explaining why Americans aren't agreeing about how strong the economy is.

People once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago.

The Commerce Department reported Thursday that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Great Depression.

In fact, one has to do with the other, as the main reason for the growth in the economy can be attributed to consumer spending. People are spending all their money in an increasingly insecure world, where their health care and retirement safety net is unraveling. The spending is happening at a time when real wages are largely flat and only now beginning to go up. And the stratification between rich and poor is a prime reason for the disconnection between the supposedly "great" economy and all the people struggling to understand it.

The President, according to this headline, addressed income inequality yesterday (he said the words, which is important, I'll grant), while at the same time supporting the right of CEOs to make billions of dollars based on performance (which is not how it works, by the way, entry in the CEO club is usually enough to extort whatever you want from the handpicked board). The President doesn't see any real problem, he thinks the economy is strong and he's just got to sell it better.

That's wrong. We have to measure the economy properly so we understand how it effects working people and not just the investor class. We have to measure household debt and how much savings people have (63% have less than $100,000 for retirement) and the average age of the workforce. If we do, the problems with the economy become obvious.

UPDATE: By the way, Bush was promoting the education myth, saying that education is all we need to bridge the income divide. Given that high-tech jobs are increasingly moving overseas because anyone with an Internet connection can do them, this strikes me as, um, completely wrong. Education is important but not the only way we're going to provide opportunity for 300 million people.