EDITORIAL - Don't be caught off guard again

Quite understandably, the finance minister, Mr Audley Shaw, and other policymakers, have in recent times been eager to talk up emerging macro-economic stability in Jamaica and the foundation that this can provide for long-term growth.

Now, it is just for investors to have the confidence to put their capital into projects, and for commercial banks to follow the lead of the central bank by aggressively lowering their interest rates and narrowing the spreads between what they pay depositors for the use of their money and what they charge those who borrow.

This newspaper has no fundamental dispute with with this focus of Minister Shaw, and his key advisers. We suggest to the finance minister, however, and the administration broadly, that there are some long-term economic trends abroad, particularly in Jamaica's key trading partner, the United States, to which they must pay attention lest they be caught off guard.

One issue which we especially have in mind is the necessary rebalancing being undergone in the United States economy after decades of robust growth when income distribution was skewed in favour of the few at the top, and the squeezing, if not decimation, of the country's middle class.

The issue is addressed by a new book by Robert Reich, a labour secretary in the Clinton administration, and highlighted in a recent article by New York Times columnist, Bob Herbert.

In the 1970s, based on the research noted by Reich, the top one per cent of Americans controlled around nine per cent of the country's wealth. In the following decade, it moved to 14 per cent, and by the late 1990s, between 15 and 19 per cent.

Inflation

The latest available data is for 2007 when the top one per cent richest Americans had 23 per cent of the income.

Or, looked at from another angle, taking inflation into account, in the 30 years up to the meltdown of two years ago, the wages of the typical American hardly moved, and actually declined during this decade. In other words, the American middle class, whose lifestyle expansion in recent decades was financed with credit, had little or no cushion when the crash came in 2008.

The upshot, according to Herbert: "With so much of the middle class and the rest of working America tapped out, there is not enough consumer demand for the goods and services that the US economy is capable of producing. Without that demand, there are precious few prospects for a robust recovery."

Herein is part of the explanation for growing fears America will be unable to consolidate its nascent recovery from the meltdown and may be slipping back into recession. But perhaps a more fundamental sign of the squeezing of America's middle class is the rise in the number of people considered to be living in poverty - now at 43.6 million, or a poverty rate of 14.3 per cent, from 39.8 million or 13.2 per cent in 2008.

The implications for Jamaica are clear. America supplies around 70 per cent of our tourists and the bulk of our $2 billion a year in remittances, and so on.

We need not remind the Government of the consequences of its failure to act early at the outset of the global financial meltdown in 2008, which Mr Shaw and others felt would have had little impact on Jamaica.

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