The (Social) Recession Is Real

Charles Hugh Smith comments on the “social recession” via his blog:

Is something that isn’t measured (for whatever reason) still real?  In economic terms, if it isn’t measured, it doesn’t exist. That explains why the nation can be mired in a 5-year social recession that goes unrecognized and unexamined.

If we base our either/or assessment of whether the U.S. economy is in recession on statistics such as the gross domestic product (GDP), we conclude the economy is “growing” tepidly and therefore cannot be in recession.

But suppose this “growth” is concentrated in the top 5% of the populace, the thin slice whose incomes are still rising while the household incomes of the 95% are continuing to decline (down 7% since 2009 when adjusted for inflation). If the top 5% are earning and spending more, that could push aggregate “growth” into the positive even as the financial situation of the lower 95% continues to decline.

That’s only one facet of statistical legerdemain:  “median” or “average” doesn’t tell us much about how the bottom 95% are doing if income/wealth inequality is extreme. 

Even more intriguing is to ask, “what statistics are not even collected?”  For example, what percentage of student loans are used as a substitute for income, i.e. used to pay basic living expenses? Anecdotally, there is plentiful evidence that a great many people are signing up for one class at the local community college in order to get a student loan that they will use not for education but to live on.

This could part of the reason why student loan defaults are soaring.

Is an economy of people obtaining student loans they have no way to service as the only available means to get enough money to keep themselves off the street a healthy economy?  What yardsticks would we use to measure a social recession, i.e. a recession in opportunity, income and lifestyle?

Correspondent B.C. recently sent some statistics on housing and the Millennial Generation’s jobs/work/earnings prospects. 

Age 20-34:

Headship rate: 36% (percentage who are heads of households)

Full-time employment: 44%

Unemployment: 8-13%

Persons per household: 2.72

Participation rate: 76% (the number of people who are counted as participating in the economy)

How many people 34 and under qualify for a non-subsidized home mortgage?  That is, how many qualify under traditional rules (income = 3 to 4 X mortgage payments, 20% down payment in cash, etc.) Is an economy in which people in their 30s cannot afford to buy a house a healthy economy, a non-recessionary economy? 

Clearly, using broad (and easily gamed) yardsticks of “growth” do not measure social recession or the health of the economy in terms of affordability, income, opportunity, economic mobility, etc. for the lower 95%.

Just as clearly, the U.S. has been in a social recession since 2008, if not earlier.  Creating “growth” by boosting income/wealth inequality via speculative credit bubbles  is not widespread or healthy growth.  It is merely statistical legerdemain.

Three books speak to the financial rot at the heart of the current “growth” and the decline of opportunity and upward mobility for the 95%:

Down the Up Escalator: How the 99 Percent Live in the Great Recession

Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead