Gallup Poll Shows Americans Most Pessimistic About the Economy in 30 Years
It is no secret that Americans have developed a very critical approach toward the economic status quo. The average taxpayer is not only dissatisfied with the performance of the economy but has also become increasingly skeptical about the capacity of the government to meet its obligations in the future, such as the unfunded Social Security and Medicare liabilities. However, recent numbers play against such an obscure backdrop. In fact, the rising stock prices of publicly traded companies suggest a true recovery, which raises the question: why are Americans so unhappy?
One can value that question as highly subjective (and that wouldn’t be so far from the truth). Be that as it may, subjectivity per se does not prove bias. In fact, the latest Gallup Poll suggests that Americans are indeed dissatisfied with an economy that — despite its downturns — is showing a real recovery and fairly positive numbers. According to the survey, "Fewer than four in 10 Americans (39%) rate the current status of the U.S. at the positive end of a zero to 10 scale."
Today, Americans enjoy from the most influential and dynamic economy of the world and yet, words like freedom and liberty can only retain a romantic value. As an outsider, I must argue that such disenchantment with the greatest economy that humanity has ever produced is quite unfair, pretty ironic, and truly intriguing.
So, how could economic agents lose confidence in such a society? What has actually happened? Have politicians lost credibility? Have corporations lost integrity? Strange as it may seem, this puzzle is actually not so hard to decipher.
The answer lies, by and large, on what I would call a refined Third Wave, i.e., an updated version of the “information society,” a sophisticated internet-based generation that has managed to reduce the gap between genuine evidence and propaganda. Thanks to new and refined information technologies, (e.g. our very own PolicyMic platform) the average taxpayer can better recognize the true forces shaping our economy today. Alvin Toffler coined the term “Third Wave” over 30 years ago; thus, the information-society as concept is quite old. Yet, it was not until very recently that this “Third Wave” has proved to reach full integration. We are indeed more empowered and aware than ever before. In other words, we can finally understand to a greater extent the way the cookie really crumbles.
And the proof is in the pudding: how many actually bought the initial propagandistic approach of this article? How many agreed with the valuation that the American economy is indeed in such great shape?
The truth of the matter follows: during 2008 — and shadowing the burst of the largest bubble in history — Americans have begun to understand the true costs of misallocating resources for decades, both from the public and the private sector. The crush was dramatic and still hurts, but the average taxpayer has learnt the lesson. August 9, 2007 will prove to mark an inflection point between naivety and skepticism.
A refined Third Wave is breaking through and America is its first-row witness. It is no longer about one political candidate versus the other, but about the unintended consequences of their promises and actions. This new wave is able to recognize and comprehend the economic burden of running a military empire through undeclared wars. Thanks to the new technologies of information, the average American has now a voice to debunk propagandistic media. Moreover, these new e-platforms can provide universal and free access to renowned scholars, such as Prof. Antony Davies, who have revealed — among many other things — how far in debt the U.S economy really is.
But there are other variables that will also help explain the American disenchantment. A refined Third Wave is probably the most significant ingredient of the pie, but surely not the only one. Drawing upon recent statistics will help us get there. A fundamental element that ought to be explored is our good old comparative analysis: How are we today with respect to the year 2007 (the dawn of the meltdown)? Official data suggests that even when the economy is recovering, Americans are worse off than five years ago, as indicated in these two charts:
Source: U.S. Bureau of Labor Statistics
Source: St. Louis Federal Reserve
Up until 2007, the economy was indeed in much better shape. People enjoyed from a flourishing age, yet it was unsustainable in the long-term. That golden age was based on false pretenses, i.e. a housing bubble that was bound to burst, due to an artificial increase in its demand:
As a result, the average taxpayer is witnessing a huge dichotomy between financial economy and real economy (while the stock prices of publicly traded companies are indeed raising, the American household’s daily taste is one of decreasing real wages (through inflation), decreased home equity (due to capital depreciation), and what is worse: increasing unemployment rates).
I guess by now it would be quite wise to converge on the fact that home equity has suffered the most impressive boom and bust in American history; however, a brief inquiry into the nature and causes of this meltdown may prove quite useful to understand why Americans are disenchanted today. The notion that everybody deserved his or her own house was one of much populist flavor. But let’s agree that this idea was intrinsically rational and philosophically fair. (I must admit I totally subscribe to that ideal.) Yet, the shape and the implementation of such well-intended policies planted the initial seed and greased the wheels of the Great Recession of 2008.
The main mechanism was a universal regulatory access to housing, even to the non-worthy/subprime customers. The main flaw in this populist measure was that it worked in conjunction with financial innovation practices (creation of ghosts instruments such as collateralized debt obligations [CDOs] and Credit Default Swaps [CDS]), all of which triggered quite perverse incentives, not only to commercial banks but also to institutions such as Freddie Mac and Fannie Mae. In short, all risk was cleverly transferred to investment financial elephants that knew little (if nothing) about those toxic mortgage-backed securities. These agents where spread all over the world: international banks, international pension funds, investment portfolios from every corner of the planet earth, they all hopped onto the wagon of American financial innovation. Everybody bought these hot potatoes and the global contagion took off. But all this wouldn’t have been so terrible had these well-intended policies (of housing for every American) been backed by the open signals of the price system. In other words, the collateral would have been worth its book value, even after default. But they were not, and key ingredient that poisoned the spiral was the artificial price manipulation from the Federal Reserve.
Both policies together (low interest rates and credit for everyone) fueled the bubble through a dual channel: Firstly, by sending mixed signals (i.e. that economic agents kept allocating resources and investing in business that clearly weren’t profitable) and secondly, by coercing an increasing demand for housing (to the extent that many speculated and acquired a second house, based on biased expectations). Another classic example of how the best of the intentions could generate devastating unintended consequences.
The rest of the story is well known and the price to be paid has been fairly significant, but there is great news: the information-society is gaining momentum and knowledge. The lessons from the Great Recession may very well become the new embedding that Americans needed to effectively reengineer the social democratic Western capitalist model.
Be that as it may, today’s America represents a vivid example of how a world economic hegemon may still come to an end. Even the world’s most dynamic economy can eventually pay the consequences of conspicuous consumption, malinvestment, populist reforms, and most importantly, running a trillion-dollar-a-year empire that little has to do with the precepts of liberty and freedom.
Fortunately, our new information society has the power of knowledge thanks to new technologies of information such as internet and Policymic. We are living a crucial moment in history and the “Refined Third Wave” know it to a tee. It is up to us to seize this opportunity and choose well.