Depression Conditions That Demand A New Deal Response

The economy that conservatives until a few weeks ago were calling "fundamentally sound" is actually, in many respects, in the worst shape it's been in since the Great Depression, according to a report [1] by economist Charles McMillion. While the report primarily focuses on Michigan's "eight-year depression," it also presents a picture of the broader U.S. economy that explains why radically different economic policies are so desperately needed.

Among the findings in the report:

• The total number of U.S. jobs increased by only 4.1 percent from July 2000 to July 2008, the weakest eight-year period of job growth since 1930-1938. The loss of 3.8 million manufacturing jobs, a decline of 21.9 percent, is the worst on record.

• Total U.S. gross domestic product from the second quarter of 2000 to the second quarter of 2008 grew by only 18.8 percent, the weakest eight-year period of economic growth since World War II demobilization from 1945 to 1953, when growth was just 16.4 percent.

• Ratios of federal and household debt to GDP, to disposable incomes, net worth and every other financial indicator, have soared to far above any past levels even during World War II.  Total federal debt soared by $4 trillion ($9.7 trillion) while household debt, including mortgages, rocketed by another $7.2 trillion (to $14.6 trillion). This combined $11.2 trillion in new debt stimulated just $4.4 trillion in nominal GDP growth and just 5.1 million in new U.S. jobs—or $2.2 million per job.

• Along with record debt levels, total U.S. household savings from current after-tax income have virtually disappeared. The total savings rate over the past eight years is just 1.3 percent; less than half the 2.9 percent average rate from 1929 to 1937. Over the past four years, the average savings rate is just 0.5 percent, about one-third of the 1.4 percent average rate even during the worst four years of the Great Depression.

These trends are magnified in Michigan, where offshoring in the automotive industry has led to the loss of 489,000 jobs in the state since 2000. Average annual compensation per job in the state has declined 33 percent, as manufacturing jobs have been replaced by lower-paying service jobs. The state has lost $8.6 billion of annual production to China.

McMillion concludes:

"Michigan’s worsening eight-year depression, the weakest overall U.S. economy in 55 years, and the unprecedented mountain of unsustainable debt accumulated in recent years demand forceful and immediate measures on the scale of those undertaken in 1933. Continued failure of political leaders to address these urgent matters with appropriate industry and trade policy actions could have lasting consequences for Michigan, for the U.S. and for the world economy."