The new normal for America's economy

Do not hold your breath waiting for consumers to lift the U.S. economy out of recession with a return to old spending habits. Get used to the new normal.

The dawning recognition for lots of folks is that the boom times of the past decade were phony, propped up by credit cards, two-income families and mindless borrowing against inflated house values.

It has taken a solid decade for most of us to get the message, but the reality is sinking in with a grim certainty. Those sweet times had all the substance and economic nutritional value of cotton candy.

I am haunted by a factoid from a June issue of Time magazine that featured a report by Rana Foroohar on five destructive myths about the U.S. economic recovery. Half of Americans, the article noted, say they couldn't come up with $2,000 in 30 days without selling some of their possessions.

Forget the rosy notion of having six months of living expenses stashed away for emergencies. This is about rustling up two grand in a month. Half say they could not do it. That kind of statistic is not the foundation of a robust, consumer-driven economy.

As a nation we might actually be getting a bit wiser about borrowing and how we use credit. Imagine. Studies report that debt as a percentage of annual after-tax income reached a record 135 percent in 2007. Average household debt is now down to around 119 percent.

Elements of the economy are rocking. Corporate profits have soared, and they are doing just fine without hiring. Even the stock market recovered 90 percent of what it lost. Is it rude to note that 10 percent of Americans own 80 percent of the outstanding stock?

In the past decade, as Americans were dutifully running up their credit-card debt and turning their homes into ATMs, the country had the lowest job creation since the Great Depression.

Here is a telling observation from the Time report:

"Nobel laureate Michael Spence, author of The Next Convergence, has looked at which American companies created jobs at home from 1990 to 2008, a period of extreme globalization. The results are startling. The companies that did business in global markets, including manufacturers, banks, exporters, energy firms and financial services, contributed almost nothing to overall American job growth. The firms that did contribute were those operating mostly in the U.S. market, immune to global competition — health-care companies, government agencies, retailers and hotels."

Making stuff was replaced by trading bits of paper, and employers fueled job growth overseas.

Remember, the recession officially ended in June 2009. Where this goes next is not clear. Spending our way to prosperity is a fantasy. Even salutary effects of a tight economy — resurgent personal savings rates — mean there is less to spend on cars, household goods and education.

Were we as wealthy as we might have felt or pretended to be? The answer in basic economic terms of income growth and job creation is no and no. We had easy access to stuff, and now we are paying the bill.

Real-estate values took a pummeling. The scariest recognition is they might be dropping toward and settling into a coherent value, not pausing for a rebound.

Erosion of the job base means decreased access to health insurance tied to employment, and the demise — the disappearance — of traditional, defined-benefit pensions. Factor in stagnant pay and renewed scrutiny of credit worthiness. Add in 45 million Americans on food stamps.

This is reality for consumers expected to shop and spend the U.S. economy back to prosperity. All against a backdrop of Congress playing dangerous political games with the debt limit and federal budgets.

The new normal does not mean the U.S. is going to implode, but we must be honest about our financial status and what it takes to move ahead.

Lance Dickie's column appears regularly on editorial pages of The Times. His email address is ldickie@seattletimes.com