Dow might be up, but small businesses still struggling

The Dow Jones Industrial Average reached a record-breaking high yesterday, which according to the Wall Street Journal, means that we’ve finally overcome the huge losses caused by the Great Recession. While many are breathing a sigh of relief and are expressing a cautious optimism about the economy, it should be noted that the Dow is not the only measure that matters. The Daily Intel points out that it is just one of many indicators of the health of our economy– and most of the others are still looking bleak.

First of all, as the Daily Intel put is, “the Dow’s all-time high doesn’t mean that actual Americans are reaping the befits.” In fact, household income continues to decline, which is a big factor in the recent discussions we’ve had about growing wealth inequality in the U.S.  Which leads to the second point– that this economic recovery is significantly slower than recoveries from previous recessions. Again, this relates back to the political inequality and disparate political priorities between the wealthy and general public, which we blogged about yesterday. There are fewer good jobs available, and while unemployment and underemployment remain persistently high– higher and for longer than previous recessions and recoveries– public policy debates have been focused on other things such as deficit reduction:

This disparity is primarily due to the fact that politicians in Washington are more concerned with deficits than unemployment, and that federal, state and local governments have been cutting back on spending just at the time when it’s needed most.

From: http://nymag.com/daily/intelligencer/2013/03/five-charts-that-matter-more-than-the-dow.html

While large corporations are seeing their stock prices rise, small businesses are yet to benefit from the rallying stock market. Without an uptick in consumer demand, sales remain weak, and many small businesses still cannot access the capital they need to start up and expand. As both the Los Angeles Times and Politico report, unemployment has remained high because small businesses– key job creators– continue to face barriers.  Demand for small business loans are up, but accessing these loans is still difficult.

In sum, the Dow is just one measure of our economic strength, and it largely indicates the health of our biggest corporations. It is certainly a positive sign that these companies are rebounding from the incredible blow dealt by the fiscal crisis. However, there are many other indicators that, together, enable us to analyze where our greatest weaknesses lie. Clearly, we need to address the issue of declining wages and increasing inequality. But we also need to consider the needs of small businesses and allow them to flourish and create jobs.

As policymakers continue to grapple with how we get our economy growing again, small-business leaders, lenders and owners are coming together to encourage them to remember what works, what doesn’t work and to not cut off the fuel to the engine of economic growth they so love to praise.

 

Political inequality fuels economic inequality

Yesterday we posted a video that illustrated the huge problem of wealth inequality in the United States. We have blogged before about the growing divide between the wealthy and the poor, between urban and rural, and between big business and main street.  Now, Demos has published a report looking at one of the main things fueling these troubling trends: the rise in political inequality. While this has been implicit in many of our blog posts, Demos has done a good job explaining how political power and access undergird the policies and systems that perpetuate growing inequality.

The report explains that the political priorities of the wealthy diverge significantly from the general public in regard to a range of issues, including taxes, trade and globalization, business regulation, social safety net programs, and the role of government. While the general public favors policies that would level the playing field and begin to reverse some inequality, the wealthy are generally less in favor of these policies.

Demos reports that while these groups do not disagree on everything, the biggest divergence occurs in areas of economic policy. For example, while most Americans are concerned about job creation, the wealthy place a higher priority on deficit reduction. One of the reasons that is cited for this difference is that the affluent have not been as affected by the economic downturn and the rise in unemployment.

Back in August, we had discussed that because the affluent and the political elite had not experienced the severity of Great Recession, as compared to the majority of Americans, their priorities do not align with what most Americans need.  The findings of the Demos report provide more support for this argument. Lower-income Americans have significantly less influence on public policy outcomes. They participate less in civic life (such as in voting– low-income voters turn out at far lower rates than higher-income voters), are under-represented among elected officials, and do not contribute as much to political campaigns. As a result, their priorities are not reflected in policy outcomes.

Most importantly, the Demos report makes the point that political inequality and economic inequality are mutually reinforcing:

Growing economic inequality is typically blamed on structural changes in the economy, such as globalization. But it is becoming ever clearer that the tilted playing field of U.S. politics, with affluent voices speaking most loudly, is itself a driver of inequality.

The report also lays out three solutions: reduce economic inequality, reduce the influence of big money in politics, and encourage more civic participation by ordinary Americans.  As the report points out,  those that are in most need of government programs and services, and those who are most impacted by public policy decisions, are the ones whose voices are least heard. People from all walks of life and all income levels should be educated and encouraged to participate in civic life. There’s a role to play for all of us in reversing this trend and allowing all voices to be heard in our political process.

Video on wealth distribution in America

A YouTube video has been making the rounds recently on the wealth gap in America. If you haven’t seen it yet, you should. It does a great job illustrating what Americans think wealth distribution look like in the U.S., how it should ideally be, and what it actually is.  Sadly, the reality of the wealth gap, as we’ve discussed numerous times before, is that it continues to grow.

In related news, the News & Observer reports that fewer and fewer families are saving for their children’s college education.  A recent survey by Sallie Mae found that only 50 percent of parents with children under the age of 18 were saving for college, down from 60 percent in 2010. Half of these parents said they were instead working on paying off debt and rebuilding their retirement and other savings.  In addition, many parents are falling short of the goals they set out for college savings– leaving a “savings gap” between the amount they want to have saved and the amount they actually will save by the time their children enter college.

So while the wealth gap in the United States continues to grow, the traditional avenues for advancement become more out of reach, such as college education. Not only have families’ ability to earn and save been eroded, but the cost of education has skyrocketed. These trends together mean that unless we do something to address the structural inequities build into our economy and our social, educational, financial, and other institutions and systems  we will continue to see the rich get exponentially richer while the rest of us struggle to just stay afloat. This are certainly not the ingredients for an economic recovery.

 

 

 

January saw the biggest one-month drop in personal income since 1993

CNN reports today that personal incomes saw the biggest one-month decrease in 20 years, dropping 3,6 percent or $505.5 billion from December.  There are a few reasons for this. First, the fiscal cliff negotiations at the end of last year and the rise in corporate income taxes that took place on January 1 meant that corporations paid out dividends to their shareholders before the end of 2012 so that they wouldn’t have to pay the higher taxes. This essentially inflated the Commerce Department’s personal income numbers for December.

Second, the expiration of the payroll tax, which includes the amount of income that is deducted for things like Social Security and Medicare. The Commerce Department excludes these amounts when determining personal income, so this decreased the personal income numbers for January.

These two factors together account for the severe drop in incomes between December and January. They also illustrate the dramatic effect that public policy can have on our economy. The sequester is in effect as of today, and the impact of these funding cuts will have significant and far-reaching impacts across our economy and in every community. Consumer spending, which drives our economy, is only able to increase if people have money to spend. CNN also reports that gas prices increased by 10 percent in February. So while we have an increase in costs, we are also cutting essential programs— unemployment benefits, Medicaid, child care subsidies, rental assistance  small business contracts, education, workforce training, etc– that help people gain economic security. This is especially true in difficult economies, and as we’ve  said before although we’re in a period of recovery, many communities are still struggling.

But just as public policy can incent corporations and individuals to behave in ways that do not benefit the common good, public policy can also be crafted in ways to level the playing field, provide a safety net, and encourage fairness and equity.

Severe budget cuts to kick in tomorrow

Economists are predicting that economic growth is on the rise this quarter, with the housing market doing better, hiring up, and increased consumer spending. Last week’s initial unemployment claims decreased by 22,000 from the previous week. For the past three months, employers have added 200,000 jobs per month— up from the average of 150,000 for the previous three months.

While the economy isn’t growing at a stellar pace, these are at least some signs that it is inching forward. But even these small rays of hope will be eliminated if Congress does not make a deal on the sequester, or the $1.2 trillion in spending cuts over 10 years, slated to take effect starting midnight tonight. These will be across the board, impacting programs and services from the gamut of federal agencies. So while there are some signs of our economy slowly (very slowly) improving, the sequester could send us spiraling back into recession. In addition, there is a threat of the federal government shutting down at the end of March.

As we’ve blogged about before, sequestration would have significant impacts on small businesses, particularly those that contract with federal agencies. CBS reports that 20 percent of defense contracts and 35 percent of defense sub-contracts are given to small businesses. Even though the sequester hasn’t taken effect yet, the uncertainty that small businesses have faced for months have let to layoffs and cutbacks. In total, two million jobs could be lost due to these budget cuts– and one million of those will be from small businesses.

The White House has also released state-by-state analyses of the impacts of the sequester. Although the full extent of the cuts are expected to occur over 10 years, the impacts will be felt starting this year. There are several impacts listed in the fact sheet, but some of them are:

• Loss of $5 million in primary and secondary education funding, which translates to 350 teacher and aid jobs at risk.
• 1,150 fewer work-study jobs for low-income college students.
• Loss of $83,000 in funding for job search assistance and placement, which translates to over 15,000 fewer people getting served.
• Loss of child care assistance for 1,300 disadvantaged and vulnerable children.
• Loss of over $1.5 million to provide meals to seniors.

These are just some of the impacts that will be felt in North Carolina, in addition the national impacts that will affect everyone. The clock is ticking.