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Monday, April 14, 2008

Paul Krugman: Crisis of Confidence

People are not happy about the economy:

Crisis of Confidence, by Paul Krugman, Commentary, NY Times: The Survey Research Center of the University of Michigan has been tracking American economic perceptions since the 1950s. On Friday the center released its latest estimate of the consumer sentiment index — and it was a stunner. Americans are more pessimistic about their situation than they have been for more than a quarter century.

Meanwhile, a recent Pew report found that the percentage of Americans saying that they’re better off than they were five years ago is at its lowest level in 44 years of polling.

What’s striking about this bleak mood is that by the usual measures the economy isn’t doing that badly — at least not yet. In particular, the official unemployment rate of 5.1 percent, though rising, is still fairly low by historical standards. Yet economic attitudes are worse now than they were in 1992, when the average unemployment rate was 7.5 percent.

Why are we feeling so down?

Our bleakness partly reflects the fact that most Americans are doing considerably worse than the usual economic measures let on. The ... percentage of prime-working-age Americans without jobs ... is historically high. Gross domestic product is up, but the inflation-adjusted income of the median family is probably lower than it was in 2000. ...

A major reason we’re feeling so down now is that for working Americans the boom never did come back. Job creation in the post-2001 recovery was pathetic by Clinton-era standards; wages barely kept up with inflation. Instead, corporate profits and the incomes of a tiny elite surged — sucking up so much of the economy’s growth that only crumbs were left for everyone else.

Now the boom that wasn’t has gone bust — and Americans, understandably, have lost confidence in the prospects for a return to real prosperity.

They have also, I’d suggest, lost confidence in the integrity of our economic institutions.

Early this decade, when the great corporate scandals broke — Enron, WorldCom, and so on — I expected big-business corruption to become a major political issue. It didn’t, partly because the march to war had the effect of changing the subject, partly, perhaps, because Americans weren’t ready to take a broadly negative view of the system that brought them the previous decade’s boom.

But my impression is that the subprime crisis — with its revelation that titans of finance were dealing in funny money and its tales of failed executives receiving hundred-million-dollar going-away presents — has resurrected the sense that something is rotten in the state of our economy. And this sense is adding to the general gloom.

The question is, can the next administration end America’s malaise?

Some of the causes of poor economic performance since 2000 are probably beyond any administration’s control. Raw materials were cheap in the 1990s, but in the years ahead the rise of China and other emerging economies will place increasing pressure on world supplies of oil, copper and so on, no matter what the next president does.

But reinvigorated regulation could help restore confidence to the financial system. A return to pro-labor policies could help raise real wages. Pro-competitive policies — which are not the same thing as giving powerful businesses whatever they want — could help America regain its leadership in information technology. In other words, there’s a lot that could be done to perk up our sagging confidence.

That won’t happen, however, unless the next president is someone who understands what went wrong. And right now, that doesn’t look at all certain.

    Posted by on Monday, April 14, 2008 at 12:42 AM in Economics | Permalink  TrackBack (0)  Comments (124)

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