The drop in the stock market (now about 1,000 points on the Dow) is a graphic indication of the stark fact that we are entering the infamous double dip of the recession, long feared and predicted. The economy is not in a V after all (down and then up), but in a W (down, up, down again, and then, finally, up). And the cause of the second dip is not the recession itself, but the cure administered to it by President Obama and the Democratic Congress.
Consider the indications (data provided by the New America Foundation, analysis by Sherle R. Schwanninger and Samuel Sherraden):
· GDP growth has been 2.2 percent, 5.6 percent and 3.2 percent for each of the last three quarters, well below the rebounds typical in past recessions.
· Total civilian employment has rebounded by only 1 percent since the depth of the unemployment five months ago. In 1973, at a comparable point, it had rebounded by 7 percent. In 1981, by 8 percent. In 1990, by 4 percent. And in 2001 by 3 percent. U-6, the broadest measure of unemployment, stands at 17.1 percent, and we need 12.8 million new jobs.
· Housing prices have dropped by 30 percent since 2006 and "many economists expect housing prices to decline at least another 10 percent," according to Schwanninger and Sherraden.
· While corporate profits are 30.6 percent higher than a year ago, wages are up by 1.6 percent, less than half their rate of increase two years ago.
· Financial-sector profits make up 35.7 percent of all domestic corporate profits. These gains are driven by trading revenue, which does not reflect real economic growth. Schwanninger and Sherraden report, "In the first quarter of 2010, Goldman Sachs, Morgan Stanley and Bank of America earned 72 percent, 45 percent and 16 percent of their net revenue [respectively] from trading profits."
· Personal savings dropped from a high of almost 6 percent to 2.7 percent in March 2010, so households have cut their debt by just $300 billion since it peaked in 2008. Household debt, which rose from 60 percent of GDP in 1990 to almost 100 percent in 2008, has dropped to 97 percent. It has a long way to go before it's down enough to free consumers to spend more.