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Economic Growth?

In spite of claims of a recovering economy, GDP growth in the United States decreased to 1.9 percent in the fourth quarter of 2016. New job creation has also disappointed, consistently coming in lower than predicted. And although recent figures are higher, many, if not most of these jobs are low-paid, often part-time or seasonal work. If we look at GDP in particular, we can see that a few industries have in large part driven the minimal national growth reported. Meanwhile, the economy continues to be supported by unsustainable household debt.

 

With the advent of fracking, domestic oil production in the Midwest was responsible for the more favorable reports we saw in 2014. That industry has since contracted with the lower price of oil, as result of intentional oversupply by the oil producing states. And while the IT industry continues to increase California’s GSP, as well as national GDP, mainly through private investment and speculative stock valuations, it produces few jobs and drives up housing costs in California. Although the unemployment rate has dropped to the mid 5 percent range, much of this reduction is the result of people leaving the labor force altogether largely due to a lack of good jobs (at just 62.9 percent, labor force participation in the United States is at its lowest since 1978), and the increase in on-demand jobs where companies hire more part-time staff to work shorter (hourly) on-call shifts, tailored to demand. Finally, if we look at consumer spending, we see that it remains low, ostensibly because people are saving their money and paying off debt.

 

While household debt to GDP has dropped to just below 80 percent (from 90 percent in 2011), it is still unsustainably high. Some people are paying off debt, but the lack of consumer spending is primarily the result of low wages and high rents that leave most with little disposable income at the end of the month. Meanwhile, students have been saddled with growing student loan debt, making the 2015 graduating class the most indebted in American history, which prevents students from buying a home. And unlike housing debt, student loan debt can’t be defaulted on, although delinquencies are increasing.

 

In spite of the fact that subprime mortgage lending destroyed the world economy, banks and other industry lenders have essentially tried to continue the subprime mortgage lending party with auto loans. Citizens are increasingly taking out larger car loans with longer repayment schedules, encouraged by lower interest rates and lax lending standards in the industry. As a result, auto loan debt has ballooned, increasing from around $700 billion in mid-2010 to just under $970 billion now, according to the Federal Reserve Bank of New York.

 

Car debt payments, and the cost of maintenance and operation, are yet another drain on citizens’ income, in a built environment where a car is essential to get to work. Given that the automobile is a principal status symbol in our society, citizens are increasingly buying cars they cannot afford and choosing to lease instead of own. This is an extension of the premature obsolescence business model that underpins much of the modern economy. Just as citizens want a new mobile phone every few years (another key status symbol), they also want a new car, when they could certainly keep both until they needed to be replaced, saving a fortune in the process. Not surprisingly, leasing is most popular with luxury models, and was at its previous peak prior to the economic collapse when many citizens were leveraged to the hilt and living beyond their means.

 

In coastal California, and in Los Angeles and San Francisco in particular, as well other major cities in the United States where the majority of jobs are located, the stagnant economy is exacerbated by the fact that, in addition to unsustainable debt, people are spending too much on rent relative to wages, which prevents them from spending on goods and services, which would stimulate the economy. More importantly, it prevents them from buying their own homes, investing money in their own business ventures, and pursuing personal interests, goals, and hobbies, from which many a good business and community benefit has been born.

 

Furthermore, as The Economist reports:

 

“High housing prices force workers toward cheaper but less productive places. According to one study, employment in the Bay Area around San Francisco would be about five times larger than it is but for tight limits on construction. Tot up these costs in lost earnings and unrealized human potential, and the figures become dizzying. Lifting all the barriers to urban growth in America could raise the country’s GDP by between 6.5 and 13.5%, or by about 1 trillion – 2 trillion.”

 

Add in the cost of transportation in long commutes from outlying areas and you can see how making ends meet becomes increasingly difficult for many, if not impossible for some.

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