COMMENTARY | COLUMNISTS | STAN SEWITCH

We could be way ahead of the game

Well, we’re right on track.

Economists projected soon after the Great Financial Crisis (or as I like to call it, the Greater Fool Crisis) that recovery from the ensuing and massive global recession would be a long slog. It was a balance sheet recession, wherein we (nations, states, businesses and households) all needed to digest the massive losses and write-downs of value. By most expert accounts, that digestive process would take six to seven years. A measure of progress in the United States is GDP growth, of course, and unemployment.

Flawed though the unemployment statistic may be, it has been consistently flawed since its inception in 1948, so at least we’re using the same slightly crooked ruler for all subsequent measurements. At the rate of job creation over the last few years, and the rate of people leaving the labor force because of retirement and the aging out of the baby boomer generation, we will return to the employment levels prior to 2008 in 2014-2015. The timing is dependent on the rate of job creation. If we add 200,000 jobs per month, we pull up to 2007 levels of employment by the spring of 2014. If we add 125,000 jobs per month, we don’t return to that employment rate until the fall of 2015.

Unemployment in the United States as of December 2012 is 7.8 percent, with 155,000 new jobs created. For the last few years, the rate has fluctuated between 125,000 and 175,000 jobs added per month. My guess is that we’ll achieve 2007’s ending unemployment level of about 5 percent by the end of 2014, and we’ll possibly achieve 6.0-6.5 percent by the end of this year. Even with a relatively anemic 2 percent GDP growth rate, that seems to be the consensus of those who are paid to estimate.

That’s the good news, of course. The troubling news is that income disparity continues to segregate our country into two classes, with the middle class losing the most ground. This comes at a time when the world’s nations agree that a strong middle class with rising real income is a key to prosperity for all, and for social stability.

The Gini coefficient is a special measure of income inequality used by academic economists, global banks, governments and nongovernmental organizations. Developed by the Italian statistician and sociologist Corrado Gini and published in a 1912 paper on “Variability and Mutability,” this ratio measures the variability of the frequency distribution of income. A Gini coefficient of zero equates to every person receiving the exact same income. A Gini coefficient of one describes a situation in which all the wealth of a country is owned by one person.

For the late 2000s, the United States had the fourth highest Gini coefficient reflecting income inequality of OECD countries, after taxes and transfers were accounted for. Globally, the coefficient has been rising steadily since 1820. The Gini index isn’t sufficient to understand what’s going on by itself, of course, because income distribution can be quite different in two countries with the same Gini value. When you look at the proportion of households in the United States earning particular income levels, the story is a bit clearer.

Between 1979 and 2010, U.S. households earning less than $100,000 in annual income dropped as a percentage of the population. Those earning more than that figure grew significantly. Our Gini coefficient rose more than six points in the same period. Our GDP per capita is still the highest among large industrialized nations, but we’re not growing at the same rate in that metric as rapidly developing regions like China, India and Africa. The United States has reached a plateau of growth, and our societal solution is precipitating into two ingredients — a few who are doing well and rising, and most everyone else who is standing still or going backward.

These are systemic issues that are both natural and adjustable. Growth is not a linear curve. Expansion and contraction are fundamental behaviors of any living thing or system. All growth ends at some point, replaced by stagnation and even decay. Then new life comes out of the ingredients of the old life, and the cycle continues. No big deal, when you look at it from the largest perspective and longest time horizon.

The dynamics are indeed adjustable, however. We can return to growth. We can decide whether we want to again attempt the meteoric rise that likened our country’s economy and social structure to an annual, fast-growing weed. Or we can decide on longer-term objectives of slower, more sustainable advancement that matches our demographic realities, in an integrated world where no country is able to thrive without global interdependency. And by “longer term,” I mean thinking about the next century.

Or two.


Sewitch is an entrepreneur and business psychologist. He serves as the vice president of global organization development for WD-40 Company. Sewitch can be reached at sewitch1@cox.net.

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