What's wrong with the economy today?

Economic statistics say that our economy is doing reasonably well, but a lot of people don't feel the statistics reflect the true situation. What is going on?

Bonddad offers a diary at My Left Wing that explains the apparent contradiction. There are two elements in his explanation.

First, unemployment is low at 5%, but the labor force participation rate (how many of the total work force are actually working) suggests that the low unemployment rate means that a lot of people have simply given up looking for work rather than having in economy that provides jobs to those who want them. The fact that real wages (nominal wages with the effects of inflation removed) have actually declined in four of the five years between 2000 and 2004 means that the problem is better measured by the labor force participation rate than by the unemployment rate.

Second, there is the problem that the U.S. economy has lost between three and four million high paying jobs between 2000 and 2003 and that those jobs have not been replaced. Normally when the economy goes down employers react by laying off workers, and when the economy goes back up employers hire the laid off workers back. However, industries only hire workers back if the industries are still economically viable. The absence of rehiring of workers confirms that the American economy is restructuring in ways that eliminate large numbers of high wage jobs.

The result is an economy that is undergoing a jobless recovery.

My bet is that the only reason the economy is improving is that the federal government is running such a large deficit. Every dollar the government spends is added to the overall Gross Domestic Product, but so much of it is sterile war spending that does not build an economy that it provides good economic activity but no investment in future economic growth. Selling armor for humvees to be destroyed in the sand and IEDs of Iraq is not investing in the future. War is an expensive drain on the economy.

True, the tax cuts provide funds to the wealthy which they can choose to invest in productive investments. However, the U.S. economy does not offer much in productive investments, so much of that investment money is going to other nations where the return is better. Either that or it is going to consumption by the wealthy, perhaps contributing to the real estate bubbles in various cities.

The question is merely when this deck of cards will collapse. The next question is how bad the collapse will be.