The 'new normal' economy and place
(The poor in America face other barriers to opportunity besides physical ones.)
The Dow Jones Industrial Average is flirting with 16,000 this week, which would not only be a new milestone but also about double where it was in the early months of the Obama administration. Part of the economy, at least, is back. The rest seems to stumble upward, slowly: economic growth is running barely 2 percent a year, and the unemployment rate remains stubbornly above 7 percent.
Those of us who are optimistic by nature expect that, sooner or later, pleasant days will return. Unemployment was much lower through most of the 2000s--it was 4.5 percent in spring 2007--and maybe we could get back there? But even the six years of growth between 2001-2007 were less than optimal, as poverty rates rose, and median family income never got back to its 2000 level. For those of us with longer memories, the late 1990s had even better economic indicators: Not only did poverty decline, and unemployment dip below 4 percent for the first time since the 1960s, but the federal government reaped enough revenue from the boom that it ran surpluses for three years in a row. Of course, like the housing bubble of the 2000s, the growth of the was fueled in large part by a bubble in the technology sector. In what seemed at the time to be a wonderful numerical coincidence, the federal government ran a $70 billion surplus in 1998, the same year that St. Louis Cardinals slugger Mark McGwire set a new single-season record with 70 home runs. In a bubble economy, alas, the achievement was as phony as McGwire's androsterone-fueled power surge.
For people at the bottom of the ladder, the 1990s were at best a respite from a long sour period. A number of coincidental changes to the system in the early 1970s--including the end of manufacturing as a major source of American jobs, the end of cheap energy, the decline of labor unions--plunged the poorest third of Americans into a perpetual funk of high unemployment and low-wage jobs. Inequality soared as those at the top were able to become knowledge workers, take advantage of the opportunities offered by globalization, and in some cases work financial wizardry to great personal advantage. The share of income going to the lowest 40 percent of the population dropped from 15.3 percent in 1968 to 11.5 percent in 2012. Poverty rose from its all-time low of 11.1 percent (1973), and through good times and bad has stayed around 15 percent.
All of this has me wondering what, if anything, is economically attainable for ordinary Americans. In October, economist Stephen D. King of HSBC published a troubling New York Times op-ed in which he argued the good old days are over, both for the United States and Europe. King argues the leap upward in living standards in the years after World War II was due to a set of happy circumstances the likes of which we are not likely to see again: acceleration of global trade as tariffs were removed, innovations in consumer credit, social welfare policies ("the safety net"), the entry of women into the employment market, and an upsurge in levels of education. King concludes that what we've got now is the new normal. It's now our choice how to cushion or distribute the pains. He specifically suggests "a higher retirement age, more immigration to increase the working-age population, less borrowing from abroad, less reliance on monetary policy that creates unsustainable financial bubbles, a new social compact that doesn't cannibalize the young to feed the boomers, a tougher stance toward banks, a further opening of world trade and, over the medium term, a commitment to sustained deficit reduction."
This week economist and Times columnist Paul Krugman also addresses the end of the good old days, reporting on a presentation to the IMF by former Treasury secretary Larry Summers. Krugman notes that "our economy remains depressed" four years after the economy began to rise from the bottom, and that it wasn't going so great even before the 2007-09 collapse. To King's list of happy circumstances he adds a sixth, the rise in the working-age population after 1968 when the baby boomers hit adulthood; the current more stable population means demand grows more slowly if at all for things like houses. Household debt relative to income rose from 1985 to 2007, a trend which obviously is unsustainable, yet even with that Keynesian push the economy didn't grow all that fast. A future with stable household debt and working-age population means adjusting our expectations to the reality of "an economy whose normal state is one of mild depression, whose brief episodes of prosperity occur only thanks to bubbles and unsustainable borrowing." He advocates continuing the Federal Reserve Board's loose money policy "for a long time."
Krugman's prescription, depending on how long "a long time" is, runs up against King's desire for "less reliance on monetary policy." At the same time, while King directly addresses the realities of our common lives, I don't see where the political will is to pull off King's ideas. Which brings us to two implications for the concerns of this blog.
First, persistent stagnation is going to make living together more difficult. It will be harder for good things to be more widely distributed. The most likely political scenario has the rich fighting to keep their benefits, and those who have spent the last four decades at the margins of the economy finding their opportunities even more circumscribed. More diversity, more despair, fighting over thinner slices of pie--this is not a recipe for social harmony.
Secondly, everything I've written this year about the future of Cedar Rapids has depended on using development of downtown and surrounding areas to build connections with poorer neighborhoods. If there are no economic opportunities for poorer people, none of this works. Objections to proposals for development of "affordable housing " on the Monroe School lot may smack of NIMBYism, but they're spot on regardless. (I would prefer neighborhood-friendly commercial development, like a corner store and a family restaurant, which admittedly may not have impressed the objectors.) The stretch of Pioneer Avenue between 30th and 34th Streets already is full of cheap apartments, of widely varying conditions. Putting more poor people on that block is likely to tip it into a ghetto. Worse, there is nothing commercial anywhere near the area. Walkscore rates it 29 ("car-dependent"). The Mount Vernon Road strip, including a Casey's convenience store and True Value Hardware Store, is half a mile away. Where are these people going to work?
That's the question of the century, if King and Krugman are right: Where are these people going to work? Until that gets answered, I feel like the whole urbanism project is built on sand.
Stephen D. King, "When Wealth Disappears," New York Times, 7 October 2013, p. A23
Paul Krugman, "A Permanent Slump?," New York Times, 17 November 2013, http://www.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html?partner=rssnyt&emc=rss
Rick Smith, "Council Gives Strong Backing to Monroe Plan," Cedar Rapids Gazette, 20 November 2013, 1A, 8A [http://thegazette.com/2013/11/20/cedar-rapids-council-approves-incentives-for-two-new-projects-with-some-dissent/]