While these speculative booms benefitted a few, most of America, Smith writes, “had been in a recession ever since the dot-com bubble burst…The job loss that began in 1999 has continued at a greater or lesser pace ever since. More likely this is the result of globalization.”
Economic prospects for many were fading because the American economy's core has been in the process of decoupling from the periphery, leaving most Americans in the hinterlands of falling incomes and growing want. The core is no longer investing in America, but investing abroad. But the diminished spending power of the average American contributed to the economic contractions. It was declining household net worth that preceded each of the last two recessions. Smith writes in “Structure of a Recession, Part 1”:
The red line indicates the net worth of U.S. household, plotted on the right axis. It flattens out and declines just before 2001 and collapses in 2007. In each case it precedes the weak job market by about a year and in each case the job market does not turn around until net worth starts rising again.
And household net worth again declined after the most recent, epic economic recession, setting the stage for another economic contraction.
Expansion of Welfare Needed Now to Prevent Descent of Tens of Millions Into Poverty
Growing productivity and globalization are part of the reasons for these epic collapses, helping increase profits while at the same time keeping unemployment high and wages down as the American worker has to compete with cheap labor abroad.
These trends are not over nor can they be addressed through any job-creation schemes because there is no demand for the surplus workers—millions of jobs have been shipped abroad, especially to China, a country which developed an enormous industrial base which its domestic consumer market cannot support, and replacements for these jobs can't be magically waved into existence.
In the absence of generous welfare provisions like those in Europe, structural unemployment in the U.S. will exact a terrible social toll as poverty rates rise in the near future. Unfortunately, policies thus far have been informed by an austerity dogma, centered not on expansion of federal spending or expansion of social services but on cutting them. Without a vast expansion of the safety net, however, more will fall into poverty in the coming years and overall the economy will continue to deteriorate.