NYTimes: Third-Quarter U.S. Growth at 4.1% Rate in New Estimate. Good News?

Underemployment BLS June 2013
Source: BLS

The economy is improving, and has been for years under President Obama.

It’s just been sluggish, and there are plenty of people out of work still. There are even more who are underemployed (above graphic is from June 2013). According to Forbes, the "official" underemployment rate does not count discouraged workers who have settled for part-time jobs, or have just given up. These people, properly tracked under what’s called the "U-6" rate, showed underemployment at 14.3% in June 2013.

So, what exactly are we to infer from the revised estimate, reported today by the New York Times, that third quarter estimates for the economy showed 4.3% growth? The NYTimes reports:

The United States economy grew at an astonishing 4.1 percent annual rate, the federal government said Friday in its third and final revision of gross domestic product for the third quarter.

The rate was the fastest in almost two years.

The Commerce Department said business spending was stronger than it originally thought, leading to the revision up from 3.6 percent. Economists had expected the final estimate of growth to be unchanged from that 3.6 percent.

According to the Times, the growth rate for quarter two was 2.5%.

So, this is good news, right?

Not so certain, given the underemployment rate and other factors. Those of us in the middle and lower are making less, therefore spending less.

Consider the rise in companies buying back their own shares of stock, to the tune of $211 billion.

Enter Robert Reich from December 17, via Facebook (emphasis added):

A big reason why CEOs are about to rake in big year-end bonuses even though their sales are lousy (after all, America’s vast middle class and poor aren’t earning enough to buy much) is CEOs been using their companies’ cash, plus whatever they can borrow at rock-bottom interest rates engineered by the Fed, to buy back their own shares of stock. This maneuver raises the price of the remaining shares, thereby giving the CEOs – whose pay is tied to share prices – huge rewards. This year, the 30 companies listed on the Dow Jones industrial average authorized $211 billion in buybacks, lifting the Dow (and CEO pay) to record heights.

This $211 billion could have gone instead to American workers in the form of higher wages – which would have come back to companies in the form of higher sales. McDonald’s, for example, spent $6 billion on share repurchases and dividends last year, the equivalent of $14,286 per restaurant worker employed by the company.

It’s a vicious cycle as long as CEO incentives are directed toward raising share prices rather than sales, and as long as the economy is organized around the stock market rather than good jobs.

Since many of our pensions were shifted to the stock market via crapshoot 401Ks, we have learned that the stock market is not a safe environment for our retirement funds to exist. Know anyone who was unable to retire because his or her 401K lost half its value or more — just when that person was planning to exit the work force?

I do. Too many, in fact.

So, yes, a 4.1% growth in the economy is good news. However, as long as the corporations are defining growth based on the stock market as opposed to job growth, most of us in America will have to wait — and work — for a paradigm shift in the outlooks of corporations.

Or, we will have to fight for it, just like we did in the early 20th century.

Let’s begin by organizing the Service Industry.

More on that to come.

The Stimulus Package Will Work

I’ve heard so many Republicans rail against the proposed stimulus package and none of them have any idea what they’re talking about.

Why not ask an economist?  A reporter for the Notre Dame Observer, Robert Singer, sat down with some economics professors to get their take.  The bottom line?  The stimulus will help, it will work:

According to Economics Professor James Sullivan, one of the major reasons why legislators are calling for an economic stimulus – a massive increase in government spending – is that widespread uncertainty has caused a decrease in overall demand. Lacking confidence about their job security, people are less willing to make purchases or investments.

“People expect the economy not to recover soon and that has a self-fulfilling prophecy to it,” he said. “If you don’t think the stock market will increase, you won’t invest in the stock market.”

While the economy probably won’t suffer indefinitely without a stimulus, a bill could significantly shorten the downturn, according to Economics Professor Nelson Mark.

“In the long run, it’s not necessary, but who knows if the long run is going to be 10 years or 20 years,” he said. “So I think the question is if the government is capable of lessening the severity of the recession and if what it can do offsets the long-term costs of doing so, then it should do it.”

If people are unwilling to spend money, then the government can do it for them by cutting taxes, sending money to states, making investments or hiring workers for public works.

“The government can jumpstart things and encourage businesses to invest to get out of this sentiment of pessimism,” Sullivan said.

So much of the economy is a state of mind, but it’s more than that as well.  Republicans have been screaming about spending in the bill, but government spending is actually a good thing, according to the real experts:

Direct government spending on infrastructure or energy investment would be fail-safe ways to increase overall demand, according to Sullivan, but tax breaks to individuals would allow them to make their own consumption choices.

“If the government spends it right away, then they spend it right away,” he said. “Consumers might choose to hold onto it, so there’s a little bit of a risk there. Ideally you’d like the consumers to spend it, because they could spend it on what they want.”

Economics Professor Martin Wolfson focused on aspects of the bill that call for more direct government spending.

“I think the best parts of the bill are the parts that directly put people to work,” he said. “Infrastructure spending, investing in green technology, those parts of the bill that keep people from losing their jobs and keep people receiving needed public services.”

I don’t trust the Republican solutions at all any more.  Niether should you.  Their don’t-confuse-me-with-the-facts mentality has failed us.  Holding on to a stubborn ideology in the face of overwhelming evidence to the contrary is not brilliance, it’s stupidity incarnate.

We can bring our economy back.  The stimulus bill will work.

That makes Karl Rove very nervous, but it should give you hope.