Economic Disaster

During the holiday shopping season, Americans bought fewer gifts while paying more for necessities.

From Thanksgiving to Christmas, spending rose only 3.6 percent over the same period last year, the weakest performance in at least four years, according to early tallies from MasterCard Advisors, a unit of the credit card company. One-third of that increase was for gas purchases.

That’s bad news for an economy that is dependent on free-spending shoppers for growth. When consumers pull back, the economy slows. Employers respond by delaying hiring plans, reducing work hours and, if problems persist, laying off workers. Once a downturn starts, it is always hard to reverse, and especially now, with the White House unwilling to acknowledge that six years of debt-fueled growth is proving unsustainable and with most candidates for president only beginning to talk about how they would fix the economy.

Of course, one season does not a trend make. And after-Christmas bargain hunters have yet to spend their last penny. But the preliminary results are not likely to change much. Earlier this month, the government reported that personal spending surged in November, but the boost was mostly due to higher outlays for food and gasoline. More troubling, the rise in spending far outstripped the rise in Americans’ income, with the mismatch covered, in part, by a significant drain on savings.

All of that portends economic pain for families, even if growth, over all, does not contract — the general definition of a recession. That’s because even optimistic growth forecasts — about 1.5 percent for this quarter and next — are too tepid to counter recessionlike conditions in which job growth slows, unemployment rises and paychecks shrink or disappear. If inflation continues, rising prices will only feed the pain.

To make matters worse, many Americans are ill-prepared for tougher times.

Since the end of 2001, the economy has posted positive growth every month. That is a performance much trumpeted by President Bush and his aides. There is another aspect of that performance that they don’t talk about. With the Bush-era expansion apparently bottoming out, it may well become the first in which median family income, after inflation, never makes it back up to its level at the peak of the previous business cycle.

A new study by the Economic Policy Institute uses Census data to trace the dismal trajectory. Economic growth during the Clinton administration peaked in 2000, followed by a brief recession. Growth resumed at the end of 2001, the beginning of the Bush-era expansion, but real family income continued to fall through 2004. It has turned up since then, but as of the end of 2006, it was still about $1,000 below its peak in 2000.

Even if that difference is made up this year (and it’s still too early to tell if that will happen) Americans would be merely breaking even. That would be a pathetic outcome after six years of strong labor productivity.

Dismal income growth is no accident. It is the result of misguided tax, labor and social policies — including government disregard of the downsides of globalization for many Americans — that have concentrated income in the hands of the few.

The ease of borrowing has made it possible for many people to live beyond their means. But, the end of easy money is now exposing Americans’ vulnerability. Today’s stingy shopper may be tomorrow’s angry voter. To deserve those votes, a candidate must articulate a plan not only for restoring growth, but for ensuring that in the next upswing, the benefits are shared.