A New Harvard Study Shows Serious Economic Problems

Concept about problems and frustration at work

Although many Americans have long suspected it, until recently, hard evidence of the progress of the U.S. economy being not as rosy as the administration of President Obama has trumpeted was scant. However, a new study by Obama’s alma mater, Harvard University, shows in nine charts that the myth of the post-2008 “Obama recovery” is just that — a myth.

According to the study, the economy continues to show a “lack of economic strategy, especially at the federal level” as well as a “political system that was once the envy of many nations” but which now has “become our greatest liability.”

The study concludes that the country’s economic performance roughly peaked in the 1990s and even prior to 2008, investment, job growth, productivity growth and economic growth were all falling.

A closer look at the study’s data shows the figures for workforce participation peaked in 1997 and since then have declined to 1982 levels, where they remain currently. It’s true that since the 1980s and 1990s, more women are participating in today’s workforce, but if you remove women from the equation, the drop off in participation is even more severe.

The number of non-farm jobs being created today is roughly one-quarter of what it was in 2000 and actually stayed negative for about a year six years ago. Trends show this figure has plateaued for about the last two years and is not improving.

Despite spiking in the years between 2000 and 2005, productivity growth has decreased trend-wise and is very close to zero at the present time, its lowest level since the beginning of the 1980s. The Obama administration has projected that anyone making less than $20 per hour currently stands an 83 percent chance of losing their job to automation in the future.

Since the late 1990s, per-capita income for the country has declined steadily. Between 1999 and 2014, the only geographic areas of the U.S. that have experienced real income growth have been areas where new oil and gas production (usually related to fracking) has expanded.

Since 1999, real incomes have stagnated across virtually all levels, except at the extreme top end. Although median household income technically gained slightly in 2015, it remains well shy of its peak 17 years ago, adjusted for inflation.

The Harvard study also showed that limited job prospects have affected lower-skilled and lower-income Americans disproportionately, leading to far greater income inequality; ironically, it’s those people at the bottom of the income scale who Obama often claims he cares about the most. But in fact, the poorest 15 percent of the population are even poorer than they were in 1989, according to the latest numbers released by the Census Bureau.

Not only have all of these figures declined, but Americans’ optimism in the future has also been shattered. The percentage of people who “trust the federal government always or most of the time” has declined from a high of 78 percent in 1964 to under 20 percent today.

Amongst Harvard alumni, pessimism about the U.S. economy was prevalent. Half of all business leaders surveyed said they expected American competitiveness to decline while only 30 percent foresaw improvement.

The study blamed most of the bad news on the federal government’s lack of a comprehensive economic strategy, as opposed to accommodative policies set by the Federal Reserve and other bodies. Specifically, the study called the country’s current political system “broken,” and said it is “no longer delivering good results for the average American.”

It went on to say that “Americans no longer trust their political leaders, and political polarization has increased dramatically… Independents now account for 42% of Americans, a greater percentage than that of either major party… Numerous indicators point to failure to compromise and deliver practical solutions to the nation’s problems. Political polarization has especially made it harder to build consensus on sensible economic policies that address key U.S. weaknesses.”

Under Obama, government entitlement spending on Obamacare, children’s health, Medicaid, Medicare and Social Security has soared while investment in infrastructure has continued to fall. The two dollar amounts switched places in the early 1970s when each comprised about 25 percent of the government’s total expenditure.

Entitlement spending currently is at almost 50 percent and projected to rise to nearly 55 percent by 2021. Public infrastructure spending has fallen below 15 percent and is expected to fall to 10 percent by 2021. The study specifically blamed Obama’s major policy initiatives, including Obamacare, higher taxes and greater government regulation, for these multiple failures.

A four-quadrant chart showing initiatives that were “weak and deteriorating” included health care, the nation’s political system, the national tax code, the country’s logistics infrastructure and the K-12 educational system.

One political candidate who’s well aware of these numbers is GOP presidential nominee Donald Trump. “Don’t believe those phony numbers when you hear 4.9 and 5 percent unemployment,” Trump said earlier this year. “The number’s probably 28, 29 . . . in fact, I even heard recently 42 percent.”

Even The New York Times was forced to acknowledge that Trump was probably right, according to data from the Bureau of Labor Statistics; the number of underemployed, unemployed and those who have given up seeking work totals more than 40 percent of all Americans. Future Obama (and possibly Clinton) initiatives such as the Transpacific Trade Partnership (TPP) free-trade agreement will make those numbers even worse.

Nicholas Eberstadt, author of the book “Men Without Work: America’s Invisible Crisis,” says no end is in sight. “It’s astonishing to me that this 7-million man army of prime-age [unemployed] guys has been allowed to be invisible,” Eberstadt says. “I don’t think decision-makers, pundits, prognosticators or people in power know anyone in the bottom half. They don’t really know what’s going on in their lives.”

As a recent New York Post article noted, there is a real danger of a “new, permanent underclass” being created in the country. According to Ryan Avent, author of “The Wealth of Humans: Work, Power and Status in the Twenty-First Century,” the outlook isn’t good.

“The longer picture’s pretty grim,” he admitted. “It’s not a case of, ‘Stuff we’ve tried in the past is going to work.’ Technology and globalization have changed the world that workers are facing . . . Is this whole segment of the population going to go off in this direction and become isolated?”

Avent believes the key to Trump’s appeal is that he understands this group. “[Trump] flouts the norms of Washington and New York — he says, ‘Conventional wisdom is bulls**t and we’re not gonna play by those rules anymore. For a lot of people who’ve been treading water for 15, 20 years — that Trump’s willing to address their concerns is a positive.”

Regards,

Ethan Warrick
Editor
Wealth Authority

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