The US economy or Gross Domestic Product (GDP) grew by 2.6 percent last quarter. Yet, economic outlook remains grim; consumer spending slows, and prices are still rising, while wages are stagnant. Minimum wage in Philadelphia, for example, is still at $7.25. Moreover, OPEC plans to cut oil outputs by 2 million barrel per day in November. In fact, gas prices are quickly climbing back up, and just today regular gas is at $4. 50 at Lukoil in Germantown, Philadelphia, up from $3. 85 a couple days ago and is rising. The US Feds plans to raise interest rates again, so as to mob-up-liquidity. Yet, income inequality is at an all-time high with a Gini co-efficient of over 0.9. (It is important to point out what is meant by mobbing-up-liquidity so that we can put this growth and the FEDS plans into perspective.
“Mob-up-liquidity is an economic term used to mean a strategy to cut-down or reduce spending or money within an economy, especially when there is “too much money chasing too few goods” known as inflation. To mob-up-liquidity must also be understood within the economics of demand-and-supply. When demand is high, and supply is low, then this drives up prices, ceteris paribus (all things being equal), such as wages being relatively above inflation etc. And the converse is true, when demand is low and supply is high, then this drives down prices.
In the US economy today, prices are rising, and real wages are falling, which seems to suggest that the economy is either correcting itself-absorbing the gluts created by COVID stimulus or is automatically fixing the supply issue affected by transportation during COVID which impacted the normal flow of distribution of goods and services. In fact, COVID created a situation where there was “too much money chasing too few goods” given the problem of transportation and supply which pushed up prices. President Biden’s administration had to pump millions of dollars into the shipping/transportation sector after COVID in the beginning of 2022, which had helped to free up supply again. However, the damage from the lack of supply to meet the huge demand stemming from the stimulus had already started and this led to a sharp increase in consumer price inflation, it was 9.1 percent in June 2022, one that the US has not seen since the depression (See diagram below).
Further, gas prices were high resulting from the Russian invasion and the embargoes that the US had put on some Russian oil and energy imports. However, the economy started to bounce back in mid to late July and recently posted a GDP growth of 2.6 percent. However, this comes at a very ominous time.
Nevertheless, President Biden’s Administration and Democrats are quick to use the small growth as meat to dangle before their lackluster base during this mid-term election which requires a win for the Dems to keep their majorities. However, this growth report comes at a time when the US economy is at the twilight of what appears to be more hardships, stemming from a looming energy crisis, and the Relative Deprivation – where societies with rising inequalities appear to have more crime and violence.
The Gini coefficient measures income inequality within a society, zero suggest perfect equality, any number over zero suggests unevenness. The higher the number the greater the level of inequality. Jamaica has a Gini of 0.45, and most post-industrial countries Hoovers around 0.3, such as the Scandinavian countries with very little inequality and more monolithic society, while US and UK and other diverse societies with more black and brown peoples have higher inequality (See, McKenzie, R. Neoliberalism, Globalization, Income Inequality, Poverty and Resistance, 2021, Ch. 2-5. However, since COVID there’s been a spike in income inequality in these societies.
Why is the economy growing, while at the same time consumer spending is slowing? Which suggests that consumer confidence is also waning. Yet the US Feds are planning on raising interest rates to mob-up-liquidity. Mobbing up liquidity means there’s too much money chasing too few goods which usually results in price increases. However, median incomes are falling, and wages have largely remained unchanged. How then can the feds mob-up liquidity when confidence is falling, and working-class families are struggling. Where’s the money or the liquid? Certainly, not in working class families, it is at the top. The diagram below shows that real wages have been falling since COVID since 2019 from $69, 500.00 per annum in 2019 to $67.500.00 in 2020. However, those at the top have been experiencing increases in their net income and wealth.
Nevertheless, conservative economists argue that the market must be free of interference and restrictions as those at the top will drive wealth and stimulate growth. But that has not been happening. Those at the top are getting richer while those at the bottom and in the middle are getting poorer. The market system has never guaranteed the automatic gains for everyone. But this has always been the case. In fact, in Neoliberalism, globalization, income inequality, poverty and resistance, I raise the concept of the Bureaucratic Phenomenon developed by Michael Crozier – whereby Neoliberal Globalization was supposed to be the sine qua none of economic prosperity and growth once smaller and newer states plugged into the new economic world order beginning in the 1960’s and 1970’s with the introduction of the IMF and later the WTO to guide fair game within the new globalized world. However, the rules served only to prop up the few rich post-industrial countries over the newer rivals who eventually became dependent capitalist countries. This pharisaical mentality/duplicity is not only evident within the global, but also within the local where the most vulnerable peoples are always “made to be left behind,” while politicians fight over remedies that only deepen these peoples’ plights all but ensuring that those at the top continue their dominance and advantages over the rest.
Furthermore, not only are real wages low and poverty rising, but income inequality is also high, while spending on luxury goods remains high. That’s where the gains of growth are being enjoyed and that is what is causing the inflation, that’s what the Feds want to mob up, the heavy spending at the top. Because if consumers aren’t spending as much, given falling median incomes and wages and rising poverty, then what is driving up prices. Oil, COVID, the Russian War, which would affect supply and demand. However, oil prices in the US have fallen significantly and are back to pre-summer levels, and the economy has bounced back since COVID, yet not for those at the bottom. Moreover, during COVID those at the top benefitted from tremendous gains from government stimulus when most did not need it. While those at the bottom barely received any stimulus help that provided any major relief that could create any independence and stability for them and their families. In fact, the diagram above showing income inequality suggest that the net worth of those at the top spike while still receiving government subsidy and stimulus. Those at the bottom did not experience any change in their net worth and politicians argued over who should get the support and ended up giving much of the stimulus to the rich while the poor had to jump over hoops to get any help that largely missed many. Essentially, we learned that we can never rely on a free market to be free of interference as people are driven by self-greed and those who control the factors of production and their political interests with access may have sway over the market.
Moreover, inflation spiked to an all-time high in June 2022 of 9.1 percent and while the economy rebounded in July to 2.6 percent in GDP growth, inflation remains high at 8.2 and is hurting those at the bottom 50th percentile of the population the most. In addition, Poverty rates are rising since 2019 and has spiked since 2020 and seem to eye its all-time high of 16 percent.
Therefore, the latest GDP growth report didn’t provide any confidence that working class families can rejoice over. While politicians hurriedly post this minuscule report as a victory that may ensure a win in the upcoming elections, economists and majority of Americans experiencing hardships and fall in the power of their dollar and changes to their lives. In fact, economists agree that this report must be seen not as a move “upwards” but a move “sideways”. Moreover, crime and violence has also spiked especially in black and brown communities and major cities in the US, while politicians looking forward to the mid-terms gloat over numbers that do nothing to change working class families lives or to be positive about the economic outlook moving forward.
Renaldo McKenzie is author of Neoliberalism, Globalization, Income Inequality, Poverty and Resistance and is a Doctoral candidate/researcher at Georgetown University, and a graduate at The University of Pennsylvania. Renaldo also attended/graduates from the University of the West Indies and The Jamaica Theological Seminary respectively and was an economic major at The Exed College in Jamaica. Renaldo is also an academic and a visiting Adjunct at Jamaica Theological Seminary.
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