MEDIA ROOTS — Although the corporate media touts an improving economy, U.S. citizens continue to suffer cruel economic punishment and austerity.  Millions of citizens still search for employment, and the typical income of a U.S. household is less now than it was in 1997.  Why is the economy not improving?  Wall Street makes an easy target for the ire of struggling workers, but is there a deeper, more complex reason why the economy creaks, tumbles and rolls like an outdated galleon laboring in rough seas?

Economist Joseph Stiglitz offers in-depth analysis of the weakening foundation of the U.S. economy.  In the years leading up to 2008, U.S.A. lived in an easy-credit, fast-money mania, fueled by wildly inflated home values, corrupt appraisers, and financial gimmicks.  However, the integrity of the economy was compromised even before the meltdown, explains Stiglitz.  Our collective economic livelihood had been dealt a slow acting, poisonous blow long ago, as other observers such as Catherine Austin Fitts and Dr. Michael Hudson have described. 

Stiglitz draws insight comparing today with the tumultuous Great Depression, which had been well underway for years before the banking sector crashed.  What brought about the economic paralysis?  The primary cause was a quiet, but massive, transition away from an agriculture-based economy.  As food production modernized and became more efficient, less farmers were required to grow the food necessary to feed the U.S.  Suddenly, a vast portion of the U.S. workforce became obsolete through automation. 

Stiglitz argues broad changes must be made in tandem with large, concentrated investment.  As once industrious manufacturing regions of U.S.A. wither and rust, elected officials neglect investment in education, research, and infrastructure, favoring austerity cuts.  Yet, these three areas provide opportunities for healthy economic growth and future employment, as the nation struggles to adapt to the 21st century.  Addressing these needs, perhaps, U.S.A. can fulfill its promise of greatness and prosperity.

MR

***

VANITY FAIR — Even when we fully repair the banking system, we’ll still be in deep trouble—because we were already in deep trouble. That seeming golden age of 2007 was far from a paradise. Yes, America had many things about which it could be proud. Companies in the information-technology field were at the leading edge of a revolution. But incomes for most working Americans still hadn’t returned to their levels prior to the previous recession. The American standard of living was sustained only by rising debt—debt so large that the U.S. savings rate had dropped to near zero.

And “zero” doesn’t really tell the story. Because the rich have always been able to save a significant percentage of their income, putting them in the positive column, an average rate of close to zero means that everyone else must be in negative numbers. (Here’s the reality: in the years leading up to the recession, according to research done by my Columbia University colleague Bruce Greenwald, the bottom 80 percent of the American population had been spending around 110 percent of its income.) What made this level of indebtedness possible was the housing bubble, which Alan Greenspan and then Ben Bernanke, chairmen of the Federal Reserve Board, helped to engineer through low interest rates and nonregulation—not even using the regulatory tools they had. As we now know, this enabled banks to lend and households to borrow on the basis of assets whose value was determined in part by mass delusion.

The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support. Without these, unemployment would have been high. It was absurd to think that fixing the banking system could by itself restore the economy to health. Bringing the economy back to “where it was” does nothing to address the underlying problems.

The trauma we’re experiencing right now resembles the trauma we experienced 80 years ago, during the Great Depression, and it has been brought on by an analogous set of circumstances. Then, as now, we faced a breakdown of the banking system. But then, as now, the breakdown of the banking system was in part a consequence of deeper problems. Even if we correctly respond to the trauma—the failures of the financial sector—it will take a decade or more to achieve full recovery. Under the best of conditions, we will endure a Long Slump. If we respond incorrectly, as we have been, the Long Slump will last even longer, and the parallel with the Depression will take on a tragic new dimension.

Until now, the Depression was the last time in American history that unemployment exceeded 8 percent four years after the onset of recession. And never in the last 60 years has economic output been barely greater, four years after a recession, than it was before the recession started. The percentage of the civilian population at work has fallen by twice as much as in any post-World War II downturn. Not surprisingly, economists have begun to reflect on the similarities and differences between our Long Slump and the Great Depression. Extracting the right lessons is not easy.

Read more about America’s 21st Century Job Engine.

© 2012 Vanity Fair

***

Photo by Flickr user clementine gallot