The mice are taunting Clementine, our hamster. Clementine spends her whole life gripping the bars of her cage and peering out whilst waiting for the brief time she is allowed to run around in her plastic ball each day. Our free-roaming mouse invaders have taken to standing on the edge of her cage flicking two claws at her and generally behaving like they are in Newcastle on a Friday night. Their relative positions of freedom just increase Clementine’s anguish.
It’s the sort of relationship that reminds me of the caged Ben Bernanke, chair of the US Federal Reserve and the free-roaming Bank of Japan’s Haruhiko Kuroda. America has spent the last 4 years pursuing a policy of quantitative easing, essentially a support programme that involves pumping money into the economy and which has resulted in growth this year of around 2 per cent. The Japanese, by contrast, announced a QE policy in December and have already produced annualized growth of 4 per cent. The US must feel like Clementine does – mocked and helpless; 2 per cent growth seems a meagre reward given the trouble it has caused.
At a recent grilling on Capitol Hill, Bernanke was asked whether the Fed’s quantitative easing program at $3trn had gone too far. He retorted, in words to this effect, “If you think that’s big, take a look at the Japanese…” What Bernanke is talking about is that although the scale of the Japanese target, ¥270trn or $2.6trn in today’s money, is close to the Fed in absolute terms, if you put it into the context of the relative sizes of the two economies, it is truly colossal. To match the Japanese, the Americans would have to put an astonishing $7trn into the US system, which is close to 50 per cent of US nominal GDP. It’s enough to make you spit your sushi out.
But for America the real question is about the quality of their recovery and what the next downturn looks like. America needs jobs but not any old jobs; they need to be permanent. The measure of unemployment that includes part-time workers shows that over 13 per cent of the US is under-employed because of part-time working. Compare that to unemployment and the measure of part-time work is about 7 per cent of the working population. At the same time the bonus culture that first showed up in the 1970’s is so deeply entrenched that, to this day, about 20per cent of American’s total take home pay is variable whilst the proportion that workers are taking home of company profits has dropped to below 50 per cent. Back in the late-1920’s this was 68 per cent. No wonder Jay Gatsby threw a party.
If you take these factors together then what you find is that the combination of variable pay and uncertain employment means that US growth could be subject to vicious variability. Given that about 65 per cent of the GDP in the US is consumer spending you understand that at the heart of the US economy there is now a level of uncertainty never seen before. Effectively America needs a permanent pay rise and the transfer of profits from owners to workers. But neither of these things is going to happen whilst global competition makes the west look generous on pay and people who place their capital at risk need to be rewarded. So making policy in an economy with an unstable beating heart will remain is a high-risk game.