What an Economic Recovery Should Look Like

From my ivory tower that's actually a second floor one-bedroom, it's easy to become isolated from reality. I read as many newspapers as I can, and, unfortunately, I watch the news as well. In doing so, I'm constantly being faced with the same discussions: Why is the economic recovery so slow? Is the economy recovering at all? Perhaps the question shouldn't be so focused on the word "economy." Instead, maybe we should ask, "Are we recovering?"

The virtuous circle of growth
I understand the need and use of certain growth metrics to determine the direction and strength of any given economy, but I believe it would be more meaningful to the average news-imbiber to see how these numbers look when put in context of the tangible, functioning world. Solid GDP growth means we are doing something right, but it doesn't mean the country is experiencing overall economic improvement.

The New York Times recently ran an article titled "When Capitalists Cared." In the piece, the author mentions an economic term -- the virtuous circle of growth. When a company pays its employees well, they buy more. The theory is used in the context of Henry Ford's business principles, in which he believed in paying his workers above-average rates, which would eventually make them not only employees, but also customers. Ford was talking about being the foster parent for the American middle class.

His strategy worked. When Ford introduced the "Five-Dollar Day" plan, his employee turnover rate went from triple digits to almost nonexistent, and his per-unit cost went down because of sharp increases in productivity. Most importantly, it helped create a new class of people, neither poor nor rich, who buoyed the long-term growth of his company. They were average American workers, making double the industry standard wage, and the first non-aristocratic people to buy Model Ts.

With this story in mind, I wonder why one of the most innovative, profitable companies in the world, Apple (Nasdaq: AAPL  ) , is an industry leader in below-average compensation of its employees. Some 30,000 of Apple's 43,000 employees, as of 2011, worked not in research labs, but in the company's retail stores. They are the ones responsible for selling millions of dollars of merchandise, per employee, yet many make less than $30,000 per year. My critics will argue that the company created thousands of jobs by opening up its hundreds of stores around the country and around the world. But what are these privileged jobholders able to contribute to the economy, much less themselves, on an hourly wage on which they can't come anywhere close to purchasing an item in the stores in which they work? What is Apple truly contributing to improving the quality of life, something we consider akin to GDP growth, when it's contributing to its workers' credit card debts?

Henry Ford set up a legacy for one of the biggest auto manufacturers in the world. His company revolutionized not only the manufacturing process, but also the idea of what it means to employ a human being. While paying his people twice as much as everybody else, and believing in the economic usefulness of a middle class, Ford was still able to end his life with a fortune of more than $180 billion, adjusted for inflation. Clearly, there is room for everyone to win.

What it means to recover
At the end of 2011, the average household income was $51,413. Household income is often defined as the combined earnings of two wage-earning people. The average one-bedroom city apartment costs around $11,000 per year, before utilities. With basic utilities factored in (no Internet, TV, and the like), that number is closer to $13,400. A monthly transportation pass costs about $720 annually, assuming the household doesn't own vehicles, which sell for an average of more than $30,000, and doesn't have to fill it with gas, which sells for an average of $3.83 per gallon.

Jobless claims may be going down, and other various economic indicators may show the nation improving, but what does any of it mean when two people are expected to share $50,000 a year before taxes and spend a conservatively calculated $30,000 per year? The average American is not given the Five-Dollar Day plan that Ford conceived to help build a middle class and lead us into an era where we were the most productive, best-paid people in the world.

To paraphrase the New York Times article yet again, post-World War II era America showed the greatest period of sustained growth for nearly three decades, all while income-tax rates were substantially higher than today. When philosophy shifted from looking after the average worker to enriching the 1%, productivity increased more than 80% while average wages grew less than 5%.

Due for realignment
The competitive nature of a capitalistic society presents innumerable difficulties in pursuing a single path to recovery. Therefore, to define an economic recovery is itself difficult and much more complicated than simple job numbers or export data. I certainly don't have the all-encompassing answer to the question, but I do believe one step to a true recovery is to not only hire new workers, but also to treat them as the future of the country. They will be the ones to fill the aisles -- creating a need for more stores, more jobs, more everything.

I'm glad to pick up The Wall Street Journal and read that people are getting back to work, and I am happy to see that housing is on its way back up from the grave. But we are far from what most would consider an honest recovery. It doesn't mean this is the way things will be; it just means we can change it.

Fool contributor Michael Lewis owns none of the stocks mentioned above. You can follow him on Twitter, @MikeyLewy. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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