The “Feel Bad” Richest Nation on Earth

Adam Seitchik

November 2003

There is a lot of fear around, and it is not just about terrorism.  Surveys show that consumer confidence in the present situation has declined precipitously since peaking in the summer of 2000.  Why the angst, when the US is the wealthiest nation on the planet and as rich as it has ever been?  Why does the economy top the list in all national polls as the biggest problem facing the country, bigger than Iraq, terrorism, health care, crime, education or the environment?

I know it doesn’t always feel this way, but the US is a phenomenally rich country.  When the economy peaked in 2000, we were generating $7.9 trillion of national income, or $28,000 per every man, woman and child in the country.  That’s a lot of cash, over 100 grand for a family of four.  No wonder the average square footage of new housing construction has skyrocketed despite smaller families.  Or that there are 12 million “leisure and hospitality workers” in the United States.  Or that the number of children taking luxury cruises each year has doubled since 1998, to one million.  This country is so rich we can now afford to have 13 million more cars than drivers.

Ah, but that income data is for 2000.  Hasn’t the economy deteriorated terribly since then?  Well, no.  Today, after several years of supposedly bad economic performance, national income has actually risen to $8.6 trillion, or almost $30,000 per person, an increase even after adjusting for inflation.  On average, we are richer now than in 2000, and at least 30% better off on average than other wealthy countries such as Germany, France, Japan and Britain.

Clearly, some of the stress about economic conditions comes from how our national income is parcelled out.  While we are very well-off on average, America’s form of capitalism generates wide disparities, with almost 8 million millionaire households and a whopping 34 million people below the poverty line.  In good years or bad, there are always many who are struggling to make ends meet.  This is an unfortunate constant, unrelated to the ebb and flow of the economic cycle.  When you aren’t making a living wage, pocketbook issues dominate.

But this doesn’t explain why more people today are concerned about the economy than in 2000.  The sense that things have deteriorated relates not to poverty or income, but to job security.  Among the wealthy nations, economic security is a uniquely American problem.  Compared to Europe with its vast safety net, employee rights and layoff restrictions, or Japan with its 1950s-style corporate paternalism supporting the male breadwinner, US workers bear more of the risk of both losing their jobs and dealing with the consequences.

Ever since the Great Depression of the 1930s it has become clear that the United States cannot tolerate a shortage of jobs, since there is no back-up plan.  It is easy to get rid of workers in the US, and jobless benefits typically run out after six months.  Rising unemployment leads to economic insecurity, and almost always a change in the party holding the highest office.  Weak periods of job creation during prior Republican administrations helped elect John Kennedy, Jimmy Carter and Bill Clinton.

Politically, it is not enough to create a few jobs.  There has to be enough job growth to both soak up the growing labor force and get the unemployment rate down to comfortable levels.  In fact, the worst presidential record on post-war job creation was the second Eisenhower administration, and there was actually job growth (but only of 1.4%).  The second worst was George Bush the elder, with jobs up only 2.4% in four years.  Our current president risks being the first since the Great Depression to actually preside over four years of job losses, as there are almost two million fewer workers today than when he took office in January 2001.

With national income up and employment down, we now have fewer workers producing more.  In other words, productivity has skyrocketed.  From March 2001, when the economy went into recession, to this past summer, overall business output per worker hour increased by a phenomenal 12%.  Data for specific economic sectors is only available through 2001, but the 1999-2001 results suggest that the trend of squeezing more value out of workers is pervasive, including not only manufacturing, but a broad swath of the service sector including clothing stores, drycleaners, specialty food stores, even fast food.

It is no coincidence that health care, a massively inefficient industry with the fastest-rising prices in the country, is adding employees at a rapid clip.  The health sector has grown by more than one million workers since the recession began in March 2001.  Ironically, “controlling health care costs,” an oft-repeated political promise, would have made the job situation even worse.

If Americans continue to generate 3% productivity growth every year, the economy will grow 3% without adding one new job.  With the US labor force expanding about 1% per year, we need 4% economic growth just to maintain current employment levels and absorb new workers.  If in fact we want to soak up all of the recent jobless and move the unemployment rate lower, it will require more than 4% GDP growth for many quarters to come.

To lower the country’s anxiety level going into next year’s election president Bush doesn’t just need economic growth, he needs a boom.  If he wants to get re-elected, he better hope that the 7% economic growth rate last summer wasn’t a fluke.  Modest growth will keep unemployment high and his chances for re-election low.  No wonder he’s proposing even more tax cuts to juice the economy, despite the shockingly large fiscal deficit.  Despite our riches, without job growth virtually everyone is just one layoff away from a family crisis.