Tuesday, May 24, 2011

GDP: America's New Misery Index? May 24, 2011

Truthout published an article today that is well worth a read in its entirety. Mark Provost in "Why the Rich Love High Unemployment" argues that the "jobless recovery" is not a fluke, rather high unemployment has been a boon to the super rich. Political focus on the GDP and corporate profits as the sole measure of economic health have made jobs a low priority. While the U.S. has the second largest GDP growth from 2008-2010 (after Canada) of the G-7 countries, it has the highest unemployment. Provost writes:

A JPMorgan research report concludes that the current corporate profit recovery is more dependent on falling unit-labor costs than during any previous expansion. At some level, corporate executives are aware that they are lowering workers' living standards... Call it the "paradox of profitability." Executives are acting in their own and their shareholders' best interest: maximizing profit margins in the face of weak demand by extensive layoffs and pay cuts. But what has been good for every company's income statement has been a disaster for working families and their communities...

In the first Great Depression, President Roosevelt created an alphabet soup of institutions - the Works Progress Administration (WPA), the Tennessee Valley Authority (TVA) and the Civilian Conservation Corps (CCC) - to directly relieve the unemployment problem, a crisis the private sector was unable and unwilling to solve. In the current crisis, banks were handed bottomless bowls of alphabet soup - the Troubled Asset Relief Program (TARP), the Public-Private Investment Program (PPIP) and the Term Asset-Backed Securities Loan Facility (TALF) - while politicians dithered over extending inadequate unemployment benefits...

Proponents of labor-market flexibility argue that it's easier for the private sector to create jobs when the transactional costs associated with hiring and firing are reduced. Perhaps fortunately, legal protections for American workers cannot get any lower: US labor laws make it the easiest place in the word to fire or replace employees...

America's labor market depression propels asset price appreciation. In the last two years, US corporate profits and share prices rose at the fastest pace in history - and the fastest in the G-7. Considering the source of profits, the soaring stock market appears less a beacon of prosperity than a reliable proxy for America's new misery index.