TPM Post: Why Are the Economic Polls So Gloomy?

* 44 percent agree with the statement “I don’t have enough money to make ends meet,” up from 35 percent in 2002 (Pew Research Center).

* 35 percent describe the state of their own personal finances as “shaky” compared to 28 percent in January (LA Times/Bloomberg).

* 73 percent agree that the “rich just get richer while the poor get poorer,” up from 65 percent in 2002 (Pew); in an LA Times/Bloomberg poll from late last year, 74 percent said the income gap was a problem; that share rises to 84 percent for families with incomes less the $40,000.

* One of the most recent economic polls, from Gallup in early April shows that only 29 percent think the economy is getting better, down from 38 percent in February; 60 percent think it’s getting worse, up from 52 percent in February. The Gallup pollsters said the results reveal a “gloomy economic mood across the country.
”
* Another poll out today on consumer sentiment posted a larger-than-expected slide to its lowest level since August.

Here is a reprint of a comment by Anthony Wikrent:

I believe it is some sort of low point for a professional economist to appear in a so-called liberal blog and openly wonder why so many of our fellow citizens are gloomy about their economic prospects.

After six years of fiddling with the numbers, such as removing the “core” from the consumer price index, the economic statistics posted by the Bush regime are a joke. They’ve politicized the “occupation authority” of Iraq, they’ve politicized the command structure of the military, they’ve politicized the EPA, they’ve politicized the Dept. of Justice – you honestly don’t think or suspect they’ve politicized national account statistics?

To get a real sense of the national economy, you have to avoid large urban areas and resort areas for a few weeks. Try spending a few days in towns like Cumberland, Maryland; Zanesville, Ohio; Evansville, Indiana; Corbin, Kentucky; Boonville, Missouri; Yankton, South Dakota; Aberdeen, Washington; Coos Bay, Oregon; and you will be slapped in the face with the grim economic reality that professional economists are apparently unaware of: the industrial base of the United States has been shut down, and nothing has replaced it. Well, that second part is not quite true. Every small town is chock a block full of “antique” stores and thrift stores and second hand stores where the former workers of small town factories, mines, and lumber mills anxiously display their hand-made crafts or estate sale finds in the hopes of attracting buyers. The sense of desperation is palpable.

I have also yet to see or hear of a discussion or study of just how much the national account statistics have been skewed by the financialization of the economy. According to the latest Quarterly Report from the Bank for International Settlements, dated March 2007:

Trading on the international derivatives exchanges slowed in the fourth quarter of 2006. Combined turnover of interest rate, currency and stock index derivatives fell by 7% to $431 trillion between October and December 2006.

(see page 24)

So, derivatives trading – mostly futures contracts on interest rates, foreign currencies, Treasury bonds, etc -- is now $1,200 trillion in a year. That’s $1.2 quadrillion a year.

By comparison, U.S. GDP last year $12.456 trillion.
( Table B-1 of the 2007 Economic Report of the President.

So the entire U.S. economy of goods and services produced is traded once every two days. Assume a speculator is able to capture as profit one fifth of one percent of that $1,200 trillion a year in derivatives turnover, and that is $2.4 trillion a year. Surely such monstrous numbers are skewing averages and means significantly.

Perhaps it is not easy to get your mind to grasp what an astonishing figure this $1,200 trillion is. If you took just one percent of it, $12.0 trillion, and divided that by the 270 million Americans not in the top ten percent of income, every man, women and child would get over $44,000. Imagine how different the economy would look if every person in the United States had been given an additional $44,000 in income every year over the past few years, instead of this:

The New York Times (Bob Herbert) reported yesterday that the 93 million non-farm production and nonsupervisory workers in the U.S. saw their real earnings go up by $15.4 billion between 2000 and 2006. That's half of the Wall Street bonuses paid by just five firms in 2006.

Personally, I think that $44,000 figure is rather interesting. Because, if the percentage change in wages from 1959 to 1981, when Reagan became President, had held at 5.478% for the past 26 years, average weekly earnings for private industry today would come to $53,802 in annual wages, rather than the $29,473 we now have. Not an exact correlation, but very, very interesting. (These are my own calculations, based on Table B-47. Hours and earnings in private nonagricultural industries, 1959-2006 in the 2007 and 2004 Economic Reports of the President. I have multiplied weekly earnings found in the table to arrive at annual earnings.)

Or how about this: There are 45 million kids in the U.S. aged 5 to 15. With one percent of the annual turnover in derivatives, we could build and staff a brand new elementary school for every hundred kids in the US.

For the full post by economist Jared Bernstein and discussion of his post, click on the title above.