The economy is a lie

James Howard Kunstler has called it the "hallucinated economy," but Paul Craig Roberts simply calls it a lie:

Americans cannot get any truth out of their government about anything, the economy included. Americans are being driven into the ground economically, with one million school children now homeless, while Federal Reserve chairman Ben Bernanke announces that the recession is over.

You've heard of a "jobless recovery"? This is the "recoveryless recovery."

The spin that masquerades as news is becoming more delusional. Consumer spending is 70% of the US economy. It is the driving force, and it has been shut down. Except for the super rich, there has been no growth in consumer incomes in the 21st century. Statistician John Williams of shadowstats.com reports that real household income has never recovered its pre-2001 peak.

Instead of using income to make purchases, Americans began relying on home equity, credit cards, and ever-larger student loans. Every kind of debt we had access to, we took on... not that, you know, we could actually pay it back. (I'm not necessarily blaming consumers here, because many of them were told by knowledgeable-sounding suits that these debts were acceptable and nothing to worry about. Nor have most people received any education about finance or economics, which if you ask me, is by design.)

This debt party is now at an end.

As consumers no longer can expand their indebtedness and their incomes are not rising, there is no basis for a growing consumer economy. Indeed, statistics indicate that consumers are paying down debt in their efforts to survive financially. In an economy in which the consumer is the driving force, that is bad news.

Later in this piece (please click through-- it's a great essay) Roberts says that he can't see how unemployment is going to get back below 20+%, because the work has been sent overseas. The problem isn't idled factories, waiting for a pick-up in the general economy (or easier financing) so they can get back to work. The problem is a lack of factories.

Sometimes I'd like to wring the neck of whatever smug economist coined the term "post-industrialist economy." What kind of bozo thinks you can have an economy without producing anything? We might as well talk about the post-food diet.

I doubt that the US could turn to older methods of job creation, such as massive-scale works projects or tariffs and protectionism. We cannot risk further debasing the dollar by taking on massive debts to fund the next Tennessee Valley Authority. Nor can we withdraw from the WTO and piss everyone off with protectionist measures. We're far too dependent on the rest of the world to take our dollars, and to sell us oil in return for dollars.

There's a third way jobs can be created... eventually. But we aren't going to like it. A failing dollar would drive up the cost of imports, forcing us to turn back to domestic production and the rebuilding of a manufacturing sector. If we have the very best of luck, the dollar will lose half its value in an orderly manner. If we have bad luck, the dollar will plunge in value in a disorderly manner until it is worth nothing, leaving utter chaos, riots, and hungry people in its wake. I presume that if the worst happens, the next American currency will be pegged to the gold-backed yuan. Once that's settled, we'll go back to making and growing things again.

It would be nice to avoid the worst of all outcomes (total destruction of the currency), but as everyone in Washington seems to believe their own lies about the economy, I'm not too sanguine.