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Robert Reich: New Year’s Prediction II: The U.S. Economy in 2011

December 29, 2010

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By **Robert Reich**

From RobertReich.org.

Robert Reich.JPGWhat will happen to the U.S. 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 U.S. 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.

Whether 2011 is a great year economically depends which economy you’re in.

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 U.S., 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 fifteen dollars an hour.

Wal-Mart isn’t doing especially well in America but Wal-Mart International is booming. And Wal-Mart is hiring like mad outside the U.S.

General Electric is keeping its payrolls down in the U.S. but plans to invest half a billion dollars in Brazil and hire one thousand Brazilians, and invest two billion dollars 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 U.S. 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.

Copyright 2010 Robert Reich

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This post originally appeared at RobertReich.org.

Robert B. Reich is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written eleven books (including his most recent, Supercapitalism, which is now out in paperback). Mr. Reich is co-founding editor of The American Prospect magazine. His weekly commentaries on public radio’s Marketplace are heard by nearly five million people.

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