The Reality Behind Economic “Recovery”

Mid-August, 2009, was a peculiar time in the US economy.   Wall Street, big banks, and the media were mostly celebrating “economic recovery.”  Meanwhile, average Americans were suffering record levels of unemployment, job insecurities, home foreclosures, personal debt anxieties, and the upsets, tensions, and angers that inevitably result.  One economist referred to the US as “one nation, two national economies.”   Two particular sets of August economic data reveal the deepening economic divide behind the “recovery” talk.

The first set of numbers came from the US Department of Labor’s Bureau of Labor Statistics.  They showed some remarkable facts about (1) US workers’ productivity — the physical quantity of goods and services produced per employed worker, (2) the compensation paid to US workers, and (3) the hours they actually worked.  These numbers showed how the economy had changed from the first quarter (January-March) to the second (April-June) of 2009.  The average number of paid hours worked per employee fell by 7.6 per cent, but the total output fell only 1.7 per cent.  That was because the workers who had not (yet) lost their jobs were fearful, so they worked harder and faster doing some of the jobs previously done by laid-off workers.  With fewer employed workers doing more, the BLS reported a gain of 6.4 per cent in the productivity of US labor.

For their harder, faster, and thus 6.4 per cent more productive labor, those still employed saw their money wages rise by only 0.2 percent from the first to the second quarter of 2009.  When the BLS took into account the rising prices workers had to pay, their real wages (the goods and services they could actually buy) fell by 1.1 per cent.  Taken together, these numbers show that employers got a huge increase in output from each employee, while what they paid to their employees imposed on them a decrease in the goods and services they could afford.

No wonder the second quarter of 2009 was celebrated as a “recovery” by business and thus politicians and the media; the workers only watched and worried.

Yet the productivity numbers tell us more.  They show a widening of the inequality between employers and employees in the US.  Employers getting 6.4 per cent more output to sell per hour of paid worker’s labor enjoyed about 6.4 per cent more sales revenues flowing to them per paid labor hour.  However, their remaining employees, working harder and faster, got paid hourly wages that enabled them to afford fewer goods and services than before.

Employers’ responses to the current economic crisis (lay-offs and speed-up) thus worsen the gap in incomes and standards of living between employers and employees.  Keep that in mind the next time you hear business or political leaders speaking about how “we all need to tighten our belts” or “make equal sacrifices.”

Rising inequality in the distribution of income between employers and employees usually widens political and cultural inequalities, too.  Employers will now have relatively more resources to shape politics than workers will.  Employers will have more to use to enhance their cultural amenities (their families will enjoy greater access to educational, artistic, recreational activities while workers will find such access increasingly difficult to afford).  Growing economic, political, and cultural inequality since the 1970s helped to provoke the current crisis.  Now the crisis is worsening that inequality.  Recovery?

Rising inequality also threatens any “economic recovery” that might actually begin.  This is because employers generally save more and spend less of their incomes than their employees do.  The crisis-ridden US economy gets a beneficial “stimulus” from workers spending almost all of their earnings.  That stimulus is reduced when income flows more to employers and less to workers.  In an absurd twist of our contradictory economic system, just as the government spends more to “stimulate” our depressed economy, business practices leave workers with less to spend.  This is a self-defeating combination that undermines the real recovery everyone needs.

The second set of numbers was collected and published by the US Federal Reserve; that set concerns “capacity utilization.”  Roughly, these numbers measure the proportion of the nation’s capacity to produce that is actually being used for production.  In July 2009, the US capacity utilization proportion in all manufacturing was 65.4, or roughly two thirds.  Over one third of the tools, machines, equipment, factory and office space, etc. in manufacturing was idle.  By comparison, the average rate of manufacturing capacity utilization from 1972 through 2009 was 79.6.  The crisis is thus increasing our economic system’s huge waste — failure to make use — of a very significant portion of our nation’s productive resources.  Idle capacity usually means deteriorating capacity.  And this after a year of Bush and Obama “economic stimulus packages.”

Consider the meaning of this waste.  Side by side with today’s 15 million unemployed people (not to speak of the underemployed), we have one third of our industrial capacity unemployed as well.  Meanwhile massive social needs go unmet (rebuilding center cities, providing daycare, healthcare, and eldercare to millions, repairing decades of damage to the environment, and so on).  The way this economic system works, we are supposed to wait until private enterprises see profits from rehiring the unemployed and utilizing the available capacity.  Until then, we are supposed to watch and accept this system’s inability to combine unemployed people with unemployed resources to meet obvious social needs.

The two sets of numbers released this August reveal the reality behind all the talk of “recovery.”  The vast majority of people live and work (or don’t) in that “other” national economy not experiencing the “recovery” we are supposed to applaud.

Rick Wolff is a Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York.   He is the author of New Departures in Marxian Theory (Routledge, 2006) among many other publications.  Check out Rick Wolff’s documentary film on the current economic crisis, Capitalism Hits the Fan, at  Visit Wolff’s Web site at, and order a copy of his new book Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It.