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U.S Economy Improving? American Dream Dead?

Lately we have been reading many reports from prominent organizations including the federal reserve indicating that the U.S economy is growing and improving. Of course those statistics are based on data collected from many sectors of the economy and in particular the stock market. The U.S stock market has been gaining steam for the most part of 2013 and it reached unprecedented gains when the DOW at NYSE reached over 16000 points. Nasdaq also enjoyed greater gains pushed by the rapid gains of the major tech companies like Google and Apple. With all the talks about improvement in the economy there are many Americans who doesn’t see the economy improving. The major set back to the improvements of the U.S economy is the slow growth in the job market.

Unemployment is high in the united states and consumer’s confidence is still low. Given those facts how can we explain the positive improvements in the data collected that shows the U.S economy is growing above 3% points?. Economists also believe the housing market which caused the great recession when it collapsed in 2008 is bouncing back and improving. Home prices are climbing back to their pre-recession values in the majority of the U.S markets. With all the improvements in the economy we are faced with the important question and that is why the economy hasn’t improved for main street and the average American citizen?
To answer that question we will analyze some of the socioeconomic changes after the great recession.

Unemployment

First the recession caused massive job losses quickly and that reduced consumer’s demand for many products including cars, housing and even food. U.S consumers make up about 70% of the GDP and when consumers faced with layoffs and job insecurities they tended to cut back on many purchases and that slowed the growth of the economy. The situation produced strange cycle of companies who realized that the only way to increase profitably is to reduce labor costs since consumers unable to purchase more products to increase sales. The high unemployment caused by the recession and the heavy use of automation increased the supply of skilled and unskilled workers who would accept lower wages and were obligated to maximize their productivity to keep their employment.

Many companies were able to increase their profits not by increasing sales but by reducing labor cost and that translated into good performance of their shares in the stock market. That explains the first major factor why the stock market went sky rocket in 2013. Further more, that explains also that the wealth was transformed faster and with large quantities to the top 20% where as the average U.S citizen didn’t feel any improvement. The second factor that help the stock market flourish is the federal reserve program of purchasing 85 billion a month worth of mortgage securities and other products to help the economy and boost stock prices. Even though the federal program is necessary to prevent further damage to the economy and even to prevent it from collapsing, it increased the massive shift of wealth more to the top 20%.

Income inequality

whether we agree that the U.S economy is actually improving or not, the greatest challenge will remain for many years to come is the wide gap between the rich and the poor in America. The recession has produced a class of low paid and underemployed citizens that replaced the middle class. The ability of the members of that class to have social mobility to improve their earnings become more difficult. Education alone will not guarantee higher pay as companies looking to hire well trained and experienced individuals who are the best in their fields. The second choice for the low earner to improve their lives is the small business sector. However many American small businesses faces tough times due to the weak purchasing power of those low earners. Starting a business in the U.S becoming more risky because consumers don’t have much to spend or if they have extra income they prefer to save it for a rainy day due to the uncertainty of the economy.

The American dream is dead? The land of opportunity no more?

The united states historically was the best place for individuals who worked hard and improved their lives and became rich. The difficult times made social mobility difficult but it is still much better than other parts of the world. People with great ideas still can make it and establish successful startups.

Joe Smith
Founder of Pixcs.com

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