What will happen to the US economy in 2011? If you're referring to profits of big corporations and Wall Street, next year is likely to be a good one. But if you're referring to average American workers, far from good.
The two American economies -- the Big Money economy and the Average Working Family economy -- will continue to diverge. Corporate profits will continue to rise, as will the stock market. But typical wages will go nowhere, joblessness will remain high, the ranks of the long-term unemployed will continue to rise, the housing recovery will remain stalled, and consumer confidence will sag.
The big disconnect between corporate profits and jobs is likely to continue because America's big businesses are depending less and less on U.S. sales and U.S. workers. Their big profits are coming from two sources: (1) growing sales in China, India, and other fast-growing countries, and (2) slimmed-down US payrolls.
In a typical recovery, profits lead to more hiring. That's because in a typical recovery, American consumers head back to the malls -- and their buying justifies more hires. Not this time. All the hype about Christmas sales over the last few weeks masked the fact that American consumers demanded bargain-basement prices. And the price-cutting dramatically reduced sellers' margins. In short, profits aren't coming from American consumers -- and profits won't be coming from American consumers in 2011.
Most Americans don't have the dough. They're still deep in debt, can't borrow against their homes, and have to start saving for retirement.
The Dow Jones Industrial Average is rising because of foreign sales. General Motors is now making more cars in China than in the US, and two-thirds of its total sales are coming from abroad. When it went public last month it boasted that soon almost half its cars will be made around the world where labor is less than $15 an hour.
Walmart isn't doing especially well in America but Walmart International is booming. And Walmart is hiring like mad outside the US.
General Electric is keeping its payrolls down in the US but plans to invest half a billion dollars in Brazil and hire 1,000 Brazilians, and invest $2 billion in China.
Corporate America is in a V-shaped recovery. That's great news for investors and everyone whose savings are mainly in stocks and bonds. It's also great news for executives and Wall Street traders, whose pay is linked to stock prices. All can expect a banner 2011.
But most American workers are trapped in an L-shaped recovery. That's bad news for the Main Streets and small businesses in 2011. It's also a bad omen for home prices and sales, and everyone whose savings are mainly in their homes.
Home prices in major metropolitan areas sank last month, the third straight month-to-month drop. I expect home price declines to continue next year. We're in a double-dip housing market, largely because unemployment remains so bad that millions of Americans can't pay their mortgages.
None of this bodes well for US employment next year. I expect the official unemployment rate to remain around 9 percent.
In other words, whether 2011 is a great year economically depends which economy you're in - the one that's rising with the profits of big business and Wall Street, or the one that will continue to struggle with few jobs and lousy wages.
Sadly, the next Congress is unlikely to do much to reverse any of this. Most Republicans and too many Democrats are dependent on corporate America and Wall Street. Their version of tax reform is to cut taxes on the wealthy and on big corporations, and either raise them on everyone else (sale and property taxes are already on the rise) or cut spending on programs working families depend on.
At some point, perhaps, the disconnect between America's two economies will become so big and so obvious it can no longer be ignored. Progressives, enlightened Tea Partiers, Independents, organized labor, minorities, and the young form a new progressive movement designed to reconnect America.
One can always hope.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
ThinkFast: January 5, 2011
“Republican leaders are scaling back” their campaign pledge to seek $100 billion in budget cuts, claiming that “because the current fiscal year, which began Oct. 1, will be nearly half over before spending cuts could become law.” The cuts they seek will now be in the range of $50-60 billion.
President Obama is reportedly considering naming JP Morgan Chase VP William Daley as his new chief of staff. Daley opposed the Democrats’ recent push for health care reform and the creation of the Consumer Financial Protection Bureau. While working for the U.S. Chamber of Commerce in 2007, he championed financial deregulation and headed up JP Morgan Chase’s lobbying against financial reform.
According to ABC News, Tea Party maven Rep. Michele Bachmann (R-MN) is “seriously weighing whether to seek Republican nomination for president in 2012.” Bachmann will travel to Iowa to meet with “political forces” and “party elders close to the caucus process” before making her final decision.
President Obama will likely not issue a signing statement asserting his constitutional authority to bypass a recent congressional action barring him from bringing Guantanamo detainees to the U.S. for trial. Instead, Obama will strongly criticize the ban, but stop short of setting up a bypass, which would be an unprecedented assertion of executive authority over the Congress.
House GOP leaders are drawing fire from their political ally, the U.S. Chamber of Commerce, over their intention to cut highway and mass-transit programs. With $41 billion a year at stake, the Chamber said in a letter last week “that subjecting highway spending to the uncertainty of annual budget cuts would lead to more job losses in the battered industry.”
A small group of “unusually energized” hedge fund executives dumped $10 million into defeating Democrats before November’s elections, according to an analysis by the Center for Public Integrity and NBC News. The Wall Street moguls were able to escape initial public notice by funneling money through various third-party groups and other obscure organizations.
The Obama administration “will revise a Medicare regulation to delete references to end-of-life planning” included in the new health care law, an abrupt change because the new rule just took effect January 1. The New York Times notes that, while “administration officials cited procedural reasons for changing the rule, it was clear that political concerns were also a factor.”
An immigration bill filed by Kentucky Republicans yesterday is even stricter than Arizona’s controversial SB 1070 bill, which has been challenged in federal court by President Obama. Kentucky’s bill, which Republicans hope to pass by the end of the week, includes a provision that would allow law enforcement to arrest illegal immigrants for trespassing.
And finally: Massachusetts Lt. Gov. Tim Murray (D) is being hailed as a hero after he rescued two kids from a burning minivan, but his actions almost got him punched in the face. Murray was driving through his hometown of Worcester when he noticed smoke, called 911, and rushed to save two kids trapped in the car. However, the children’s grandmother originally thought Murray was trying to kidnap them, and said she almost punched him.
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