The U.S. Economy in 2011

Jobs in the New YearWhat will happen to the US economy in 2011?  If you’re referring to profits of big corporations and Wall Street, next year is likely to be a good one.  But if you’re referring to average American workers, far from good.

The two American economies — the Big Money economy and the Average Working Family economy — will continue to diverge. Corporate profits will continue to rise, as will the stock market. But typical wages will go nowhere, joblessness will remain high, the ranks of the long-term unemployed will continue to rise, the housing recovery will remain stalled, and consumer confidence will sag.

The big disconnect between corporate profits and jobs is likely to continue because America’s big businesses are depending less and less on U.S. sales and U.S. workers. Their big profits are coming from two sources:

  • growing sales in China, India, and other fast-growing countries, and
  • slimmed-down US payrolls.

In a typical recovery, profits lead to more hiring. That’s because in a typical recovery, American consumers head back to the malls — and their buying justifies more hires. Not this time. All the hype about Christmas sales over the last few weeks masked the fact that American consumers demanded bargain-basement prices. And the price-cutting dramatically reduced sellers’ margins. In short, profits aren’t coming from American consumers — and profits won’t be coming from American consumers in 2011.

Most Americans don’t have the dough. They’re still deep in debt, can’t borrow against their homes, and have to start saving for retirement.

The Dow Jones Industrial Average is rising because of foreign sales. General Motors is now making more cars in China than in the US, and two-thirds of its total sales are coming from abroad. When it went public last month it boasted that soon almost half its cars will be made around the world where labor is less than $15 an hour.

Wal-Mart isn’t doing especially well in America but Wal-Mart International is booming. And Wal-Mart is hiring like mad outside the US.

General Electric is keeping its payrolls down in the US but plans to invest half a billion dollars in Brazil and hire 1,000 Brazilians, and invest $2 billion in China.

Corporate America is in a V-shaped recovery. That’s great news for investors and everyone whose savings are mainly in stocks and bonds. It’s also great news for executives and Wall Street traders, whose pay is linked to stock prices. All can expect a banner 2011.

But most American workers are trapped in an L-shaped recovery. That’s bad news for the Main Streets and small businesses in 2011. It’s also a bad omen for home prices and sales, and everyone whose savings are mainly in their homes.

Home prices in major metropolitan areas sank last month, the third straight month-to-month drop. I expect home price declines to continue next year. We’re in a double-dip housing market, largely because unemployment remains so bad that millions of Americans can’t pay their mortgages.

None of this bodes well for US employment next year. I expect the official unemployment rate to remain around 9 percent.

In other words, whether 2011 is a great year economically depends which economy you’re in – the one that’s rising with the profits of big business and Wall Street, or the one that will continue to struggle with few jobs and lousy wages.

Sadly, the next Congress is unlikely to do much to reverse any of this. Most Republicans and too many Democrats are dependent on corporate America and Wall Street. Their version of tax reform is to cut taxes on the wealthy and on big corporations, and either raise them on everyone else (sale and property taxes are already on the rise) or cut spending on programs working families depend on.

Robert ReichAt some point, perhaps, the disconnect between America’s two economies will become so big and so obvious it can no longer be ignored. Progressives, enlightened Tea Partiers, Independents, organized labor, minorities, and the young form a new progressive movement designed to reconnect America.

One can always hope.

Robert Reich

Republished with permission from Robert Reich’s Blog.

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Comments

  1. Timeparticle says

    Reconnect America…?

    Progressives will find another way to win, as the money game gives illusion of promise to the majority. The young, the smart ones, are figuring this out. They are brought up in this manipulative world economy game, but it really isn’t theirs. They know it, and so do we, only more solidly. Losing isn’t an option in our world society, but playing, or not playing their game is.

    It isn’t property or stocks or bonds on the game board of the elite that we will ultimately progress to, it is our perseverance to go beyond, to do better, to envision, to create that form that our grandparents couldn’t see.

    Money systems could work with ease if corruption and greed didn’t exist. The wealthy on the top wouldn’t want us to dream of another venture, leaving them alone on top of a naked mountain. Progressives will be given no other choice but to pursue other options as the system falls apart.

    A new adventure awaits, and let the sorrow of the old ways fall aside…

  2. says

    As with Robert Reich’s previous predictions, he will fall on his face with ” joblessness will remain high, the ranks of the long-term unemployed will continue to rise, the housing recovery will remain stalled, and consumer confidence will sag.” I am saving this article to rub his nose in every time he makes another prediction in 2011.

  3. Transparency says

    Accelerate productivity, job recovery with a management-employee loyalty partnership. Businesses, universities, public agencies worldwide are into a phase of creative disassembly. Hundreds of thousands of jobs are being shed. Even solid world class University of California Berkeley led by Chancellor Birgeneau is dismissing employees, faculty via “Operational Excellence (OE)”: 1,000 fired. Yet many continue to cling to an old assumption: implied, unwritten management-employee contract.

    Management promised work, upward progress for employees fitting in, employees accepted lower wages, performing in prescribed ways, sticking around. Longevity was a sign of good employer-employee relations; turnover was a dysfunction. None of these assumptions apply in the 21 century economy. Businesses, universities, public institutions can no longer guarantee careers, even if they want to. Managements paralyzed themselves with a strategy of “success brings successes” rather than “successes bring failure’ and are now forced to break implied contract with employees – a contract nurtured by management that future can be controlled.

    Jettisoned employees are however finding that hard won knowledge, skills, earned while loyal are no longer desired in 21st century employment markets.
    What contract can employers, employees make with each other?

    The central idea is simple, powerful: job is a shared partnership.
    • Employers, employees face financial conditions together; longevity of partnership depends on how well customers, constituencies needs are met.
    • Neither management nor employee has future obligation to the other.
    • Organizations train people.
    • Employees create security they really need – skills, knowledge that creates employability in 21st century economies
    • The management-employee loyalty partnership can be dissolved without either party considering the other a traitor.

    Let there be light

  4. George A. Crackuh says

    Well, Mr. Reich does illustrate a point, but continuing to load our economy with a heavy and complicated tax burden is exactly the wrong idea.

    What our governments should do, besides shrinking themselves drastically, is to clearly and simply structure the business landscape with incentives designed to help everyone pull together.

    You want the big, publicly traded companies to play fair? Then help them do so:

    First, for instance, imagine that a portion of every workers pay (say, 20%) was required by law to be made in the form of their employers’ common stock?

    Just like the top brass, the workers would share in the stock gains, they would have great incentive to improve the stock price, and they would have a high-earning savings account way better than anything Social Security could ever do.

    Next, decouple health insurance from the work place; make all health policies individual, so that people aren’t stuck in their lousy jobs for fear of losing it. Make this expense tax-deductible to the worker. Require insurance companies to publish their prices, and especially their performance ratings on the web, where we can see who’s serving us best, and freely choose the better service.

    Then, likewise, start rating other companies on their employment practices and pay scales, and have this information uniformly posted on the web, so all workers can see where’s the most attractive place to work, and so they can have good information on their side when they go to apply for a better job.

    These three suggestions have a common thread – they don’t involve penalties or paying money to the government, they do add incentives for companies to improve their treatment of workers, they do empower workers with savings and security and information to better survive and compete in today’s business world.

    I’m sure Mr. Reich, with his vast experience, _could_ refine and improve these suggestions or add similar ones of his own, if only he wasn’t completely in thrall to the Religion of Big Government.

    “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”
    – Thomas Jefferson

    “My reading of history convinces me that most bad government results from too much government.”
    – Thomas Jefferson

    Government cannot MAKE the economy work better. But if it is wise, it might figure out the best ways to LET the economy perform better.

    As the magnificent philosopher Lao Tse once wrote,

    “Rule a great country as you cook a small fish: do not overdo it!”

    Mr. Reich needs to turn his head around, and stop believing that government can solve all our problems. It cannot. It should only be setting up the playing field so that we can help ourselves, and each other, more effectively, more freely, more efficiently.

    Let a hundred million flowers bloom. Let the people be FREE, to help themselves and those around them.

    One more from the incomparably wise Lao Tse:

    “As for the best leaders, the people do not notice their existence. The next best, the people honor and praise. The next, the people fear; and the next, the people hate. If you have no faith people will have no faith in you, and you must resort to oaths.

    When the best leader’s work is done the people say: “We did it ourselves!” “

    • Joe Weinstein says

      Some of George’s ideas have merit – e.g. decoupling med insurance from employment. But the idea that this economy’s tax burdens are too heavy is ridiculous – just look at some foreign economies which long have been doing nicely with far heavier burdens. I agree that taxation is needlessly complex. Much of that owes to pork-barrel-type loopholes put in place by very-business-friendly congressfolk to favor their favorite contributors – persons and businesses.

    • Bill Rieken says

      How, pray tell, are you going to get corporations to give 20 percent of their compensation in stock options? How close (or far) is that a change from current stock option practice?

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