We Have Good News, and Bad News

The federal government recently released official figures on the Gross Domestic Product (GDP) for the second quarter of 2018. It rose at a favorable annual rate of 4 percent. In general, sustained growth stimulates jobs and contributes to lower unemployment, which in turn boosts tax revenues while generating the money to finance spending on public projects.

At the same time, here in Southern California, housing values continue to rise, with the median home price for June in the six-county area at an all-time high of $536,250 – up 7.3 percent from a year earlier. Obviously the nation’s business interests are prospering, all the while homeowners’ rising property values add to their net worth.

As usual, of course, the good is mixed with the bad. The GDP growth is narrowly distributed, with rank-and-file workers left behind. And as income inequality becomes more severe, the likelihood is future quarterly GDP growth cannot be sustained. As for the increasing home values, only current owner’s profit – the deck is stacked against those seeking to purchase. Currently in San Diego County, for example, with the median home price at $575,000, 28 percent of buyers can afford this price. In Orange County, with a median price of $739,000, it’s ever less favorable, with only 21 percent able to buy.

Do we have problems? We most certainly do. Corporate profits are up because their employee costs are shrinking. Many persons who desperately need work cannot find it. The job market is evolving in ways never imagined. The tasks of onetime irreplaceable employees are being filled by computers. Positions formerly paying twenty-five dollars per hour in Cleveland, Ohio, or Providence, Rhode Island, are now performed in Canton, China, at two dollars per hour.

What are our elected leaders doing to resolve the problem? They’re hiding behind a national unemployment rate of 4 percent. In 1994 the Labor Department redefined unemployed as “persons without jobs who have actively looked for work within the past four weeks.” If they added back in those without work for longer periods and part-time employees, the rate would well exceed 20 percent … not quite as bad as the Great Depression, but close.

A final thought: If you’re depending upon the government to cure the problems ailing the U.S. economy, you’ll wait a long time. Unfortunately elected officials specialize in getting elected to public office, not in solving problems after being elected.

Al Jacobs, a professional investor for nearly a half- century, issues weekly financial articles in which he shares his financial knowledge and experience. You may view it on http://www.roadwaytoprosperity.com.

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