The New Normal: What to Expect of Our Economy

THE NEW NORMAL is an expression, and a condition, we may have to get used to . . . or so many economists are now telling us. And for millions of Americans, even ostensibly good news is providing little to cheer about. Our Sunday Morning Cover Story is reported now by Martha Teichner:

The timing was ironic . . . The announcement on Monday that the Great Recession is over.

Just as President Obama got an earful at a Washington, D.C. town hall meeting broadcast on CNBC.

"My husband and I have joked for years that we thought we were well beyond the hot dogs and beans era of our lives, but quite frankly, it's starting to knock on our door and ring true that that might be where we're headed again," said Velma Hart, who described herself to the president as "one of your middle class Americans."

Hart dared to say what a lot of Americans are thinking: "Mr. President, I need you to answer this honestly, is this my new reality?"

Call it what you like . . . the new reality, the new normal. If you're middle class, the answer is probably yes. The debt-driven boom we came to think of as normal isn't coming back any time soon.

University of Maryland economics professor Carmen Reinhart says, "We are dreaming if we think the solution is a quick one.

Reinhart co-authored "This Time Is Different," an 800-year survey of financial crises.

"Recoveries from severe financial crises have historically not been swift," she told Teichner. "It's not a matter of months; it's not a matter of even a couple of years."

Reinhart and her husband Vincent, a resident scholar at the American Enterprise Institute in Washington, recently compared major global meltdowns since the 1929 stock market crash.

"The message was basically pretty grim," Vincent Reinhart said, "that economies after a big financial crisis that we just went through tend to grow about a percentage point slower than in the previous decade, and that the unemployment rate tends to be much higher, for an entire decade.

"Typically, in a business cycle we get back to the same economic path we were on - people get their old jobs back, or nearly their old jobs. But this time around, very much like the Great Depression, we are not going to be able to go back on the same road."

Former Clinton Labor Secretary Robert Reich, in a new book, points out another ominous parallel between the Great Depression and the Great Recession: its cause.

"More and more of the income that was generated by the economy went to the people at the top," Reich said.

In the last century, there were only two years - in 1928, just before the great crash, and then again in 2007 - during which the richest 1% were taking home nearly a quarter of the entire income of the nation.

"The typical CEO is up to 350 times the salary and benefits of the typical worker," Reich said. "Last year, when most Americans were suffering, the top 25 hedge fund managers each earned one billion dollars.

"A billion dollars would pay the salaries of something like 20,000 teachers," he said.

That wage inequality, Reich argues, is at the heart of our economic woes, and to fix things we need to pay those teachers and the rest of the middle class more, not less, so they can spend enough to kick-start the economy.

And yes, that means higher taxes for the rich.

"The economy depends, 70 percent of demand, on consumers," Reich said, "and those consumers are essentially the middle class. People who are very rich, they spend a much smaller proportion of their income."

In the partisan battle over the future of the Bush tax cuts, Republican Sen. Mitch McConnell said, "No recovery will take place if we impose new taxes on the people we need to create jobs."

Reich disagrees . . .

"We provided a huge tax cut to the rich, and nothing trickled down," he said. "After 2001, median wages actually dropped."

The top tax rate is now 35% . . . if the Bush tax cuts are allowed to expire, 39.6%.

For the record, under President Eisenhower, a Republican, the top rate was 91%. Really, middle class wages were rising - and the rich actually got richer.

"Henry Ford understood this," said Reich. "He paid his workers $5 a day at the Highland Park Model-T plant. That was about twice as much as the typical worker was earning. He said, 'You know, I'm going to make a lot of money because my workers are going to earn enough that they can turn around and buy the Model-Ts they're making.'

"And you know something? Henry Ford was right."

Getting anybody to buy anything lately has been a challenge.

New York Fashion Week just ended. Some of the collections were colorful, many were less edgy . . . more classic, according to fashion analyst David Wolfe.

"Right now, we are going back to the idea of investment clothing," Wolfe said. "You don't want to buy something disposable, because it ends up costing you too much money."

In a recent Pew Research Center survey, more than 6 out of 10 Americans (62%) say they've cut back on their spending since the recession began in December 2007. A major casualty: the housing market.

And here's where American ingenuity comes in.

In 2007, just as the recession hit, Blu Homes of Waltham, Mass., started manufacturing what it calls the "Anti-McMansion" - a line of high-quality modular homes.

(Blu Homes)

"Instead of spending $600,000 for a family that can really only afford a $250,000 home, spend $250,000," said Maura McCarthy, co-founder of Blu Homes.

"We saw this opportunity coming where, you know, there was a crash in the housing market and, you know, all the McMansions were coming down." Yes, she did say "opportunity."

Units can be customized with the click of a mouse. They literally fold up, so they can be trucked to homesites.

"We've sold about 25," she said. "I expect to do about 30 this year, about 60 next year, and probably tripling or quadrupling."

That's meant 30 new jobs already at the factory in Springfield, Mass., where - with the unemployment rate over 13% - the old jobs are gone.

"There are always, you know, phoenixes that come out of the flames and that come out of the downfall of the economy," said McCarthy. "And we felt like that. That was a real fire in the belly of Americans, to want to live differently."

A couple of hours from Phoenix, Ariz., you can see what possibility looks like in the aftermath of the Great Recession . . . 350,000 solar panels covering 200 acres of desert, producing enough electricity to power 6,000 homes.

Rob Gillette is CEO of First Solar, one of the ten fastest growing companies in the U.S., according to Fortune magazine.

"Over the last five years, First Solar started and went public and had a handful of million of revenue. And this year, we'll be $2.6 billion in revenue."

First Solar makes, installs, and manages solar energy systems worldwide. At its U.S. manufacturing plant in Perrysburg, Ohio, it employs 1,200 people and expects to hire more.

"I talked to a few that used to work on the line for Jeep or Ford, and now they work for us," Gillette said.

The stock market closed the week up, on encouraging news about the economy. Right now, the "New Normal" is shorthand for hard times.

But, times change . . .

"Before we get too fatalistic, our market economy has historically proven to be pretty resilient," said Vincent Reinhart. "We have opportunities for technological progress and productivity growth that can pull us along. So, we'll get over it. And ten years from now we will be more resilient and better able to take advantage of good things that could happen."


For more info:
BluHomes.com
firstsolar.com
Article: "After the Fall" by Carmen and Vincent Reinhart
"After-Shock: The Next Economy and America's Future" by Robert Reich (Random House)
"Spend Shift: How the Post-Crisis Values Revolution Is Changing the Way We Buy, Sell, and Live" by John Gerzema & Michael D'Antonio (Jossey-Bass)
"This Time Is Different: Eight Centuries of Financial Folly" by Carmen Reinhart & Kenneth Rogoff (Princeton Univ. Press)

[hhandyman]

Income over 500,000. send to pay off the national debt. Regardless of source interest, or Pay check. Income under 24,000 send 10 percent That is a fair tax. for federal levels Who can spend more than that to provide for reasonalble food shelter and clothing for a family of 4 much less the income of 1 person.
Life is important 0 debt is more important and since time is same for all rich or poor 24 hours in your day do the best with what you have to have more. Never borrow more than you can pay back in under a year.

[californiadreaming1]

This article is nonsense! The "top 1%" are not all billionaire hedge fund managers and CEO's. You might want to think the top .01%! Where this author gets this information is beyond me.

This country is full of class wars started by ... yes ... our president. Hate thy neighbor, etc. - if they have more than you do or are suffering less.

Obama took in over $5.5M last year. He talks as if he is a saint. He is making lots of money. I say raise the upper tax brackets to 39.5%, but stop all this hatred. It isn't a pretty picture of America. In fact since Obama took office, I have seen Americans hate each other more and more.

Back in the Eisenhower years taxes were topped at 91% - yes. But the whole system was different. Businesses were structured differently. Let's get real here. You are talking about apples vs. oranges.

[sooku]

Henry Ford was right, not everything can be reduced to dollars and cents. It's better to set up plants, businesses and schools in this country than to send the work overseas. Yes, both make money, but they aren't equal. But he blamed the dollars-and-cents model on Jews, which earned him a huge fan named Adolf Hitler but little traction in America despite the anti-Semitic majority. It's time to ignore his prejudices and focus on his core message.

[babooph]

The last time feudalism was in place it lasted hundreds of years-the price the nobility charged for "safety" was slavery...

[rncox1]

Depends on how you go about achieving yor wealth. If by promoting an idea, providing a service or product people need while creating lots of domestic jobs, good, more power to you. But not if you seek to export your labor needs overseas then bring the products or services back here to sell in order to skirt around this nation's labor laws. That shows a marked lack of respect for your nation and your fellow countrymen whom you are relying on to be your coustomers.

[noloyalisti]

We now have one of the most corrupt economic and political system in the world. It has been corrupted by giving the top 1% so much of our wealth and letting big corporations who don't care about people's rights, workers or their country run the government.

We will not be able to change anything until we acknowledge the REAL ENEMY who has destroyed America through crony and predatory capitalism.

[babooph]

The start of the "New World order" feudalism.

[get_down]

With interest rate close to zero, where does a general household get to spend their money from? Unless from their principal of course. However we all know if we do indeed spend our principal instead of saving it for rainy days - we'll be in deep trouble in case we need some money in the future and our original saving shrunk. This is the point I made about Federal Reserve Chairman Ben Bernanke who held a key interest rate at a record low near zero since December 2008 and our economic woes since then has not relieved a bit. I can only say Mr. Bernanke is not only incompetent but also clueless to the Nth degree. And so long as Mr. Obama keeps Mr. Bernanke continuously on his Administration's payroll, our Economic recovery will be hopeless and for that reason alone, I?ll put the blame on Mr. Obama and I won't vote for him again in the coming election. That's a promise and you can take it to the bank!

[newsterI]

"And so long as Mr. Obama keeps Mr. Bernanke continuously on his Administration's payroll, our Economic recovery will be hopeless and for that reason alone, I?ll put the blame on Mr. Obama and I won't vote for him again in the coming election. That's a promise and you can take it to the bank!"

Admit it, you never planned to vote for him anyway, and after just a year and a half you are ready to cave in and throw in the towel and vote for the party who CAUSED all this to begin with, just great! dont be surprised if you get what you deserve, someone like Caribou barbie whose first order of agenda would be getting the 10 commandments in all the public buildings, school prayer required, abortion rights overturned, abstinence only taught in schools, and then, oh, when she gets around to it around mid-term- maybe looking at jobs and the economy.
Bernanke does not operate in a vacuum all by himself, he is only the CHAIRMAN, he cannot raise the interest right now because doing so would have very negative results. Keeping it low has not harmed anything, raising it WILL.
Maybe now that we are out of iraq combat wise, that $10 billion a month waste of money will be reduced.
This country has lived on borrowed money for many years, king bush DOUBLED the national debt and raided the SS fund, his actions caused oil and thus gas prices to shoot to $4 a gallon.
Now we have debt like never before, and there's no end in sight, it rises every year as it has, because everyone demands pork for their special projects, because we built a nation-wide highway and bridge system in the post war 40's and 50's when we were living high on the hog and the Govt was building highways, bridges, dams, and more, that now almost all needs to be replaced at a cost we can't afford and never will be able to!
ONE bridge such as Manhattan has can cost one BILLION dollars to replace, and all steel bridges have a limited lifespan.
We have an electrical grid that is overworked, much of it designed for the 1890's, with wires strung across wood poles, and it's all falling apart too.
Then there's schools, oh yeah, every little town had to build their own school, not a simple building, it always had to be some massive solid brick building with central air, huge football fields on land that has to be maintained and insured, and now most of these buildings had maintenance deferred so many years they need REPLACEMENTS.
Except NOW those brick buildings that maybe originally cost a million dollars in a town with but 5000 residents, will cost 50 times that, WHERE'S that cash gonna come from??
Raise property taxes 300%? oh yeah that'll fly!
BORROW some more? sure, why not! what's another $50 million bond in a town of 5000, they can pay it off later, maybe.

If you think costs and deterioration is bad now, just wait a few more years to a decade or so and really see what happens!

[robe59]

The new normal? Recession over? You have got to be kidding! I don't care what doctored up numbers you are looking at--you ain't seen nothing yet. Have people, mostly politicians and bankers become less greedy? 95,000 reported foreclosures last month with the end nowhere in sight. Banks showing huge profit--and not making the money available etc, etc. What rock are these people living under?

[lilbear925]

We can expect politicians -- from any party -- to continue to pad their pockets at the expense of the taxpayer. We will see the minimum wage remain too low to support a working family or pay rent. We can expect to see housing prices continue to climb until only bailout bankers can afford to live under a roof. We can count on the government to continue to tax the citizens to the point of bankruptcy, and continue to throw tax money overseas to countries who pray for the downfall of this nation. Within 100 years, the common spoken language in the US will be Chinese, since they will own most of the country and all of our debt. Live with it -- or vote and do something about it.