Usa poverty & income: 4 lost decades

[neddy]

September 15, 2011
POVERTY AND INCOME IN AMERICA: THE FOUR LOST DECADES
Posted by <cite class="vcard author">John Cassidy</cite>
<article>

The latest poverty and income figures came out this week, and boy are they disturbing. It’s not so much the headline figures, which have been well covered in the Times and elsewhere: 46 million Americans living under the poverty line in 2010, the highest number since the Commerce Department started collecting the figures back in 1959. That’s a horrible statistic. (Amy Davidson responded on Tuesday.)

But it’s not too surprising since we’ve been through the deepest recession since the nineteen-thirties, and getting thrown out of work is a primary cause of poverty. (Plus, the population grows every year. If the proportion of people in poverty stays the same, you’d expect the absolute numbers to grow over time.)

It’s not even the fact that median household income—the income of the American household in the middle of the income distribution—is now back to the level it was at in 1996: about $49,500 in inflation-adjusted dollars. To be sure, that is a very alarming fact. But I think most people have already cottoned on to the idea that we have been through a “lost decade.” To get the picture, you just have to look at the stock market or your last paycheck.

Also, the figures for household income need to be treated with a bit of caution, since they aren’t adjusted for changing family sizes. As time goes on, more people are getting married later or not getting married at all. This means there are more single-income households, which obviously earn less than two-income households. This biases the figures somewhat. (The story of where the poverty line came from and how it’s derived is actually pretty interesting. If you want to read more about it, I wrote an entire magazine piece about the subject back in 2006.) Still, even making the necessary adjustments, it’s pretty clear that the typical American family has made little or no progress since the late nineteen-nineties.

But let’s look at the figures for individuals, which aren’t subject to any such distortions, and to eliminate the effects of the economic cycle let’s go back further than the late nineties. (When economic historians come to look at the period from 2000 to 2011, I suspect they will view it as one elongated period of recessions and subpar growth—the end of the great asset price boom.)

To me, what is really, really alarming is this: a typical American male who works full time and still has a job is earning almost exactly the same now as his counterpart was back in 1972, when Richard Nixon was in the White House, O. J. Simpson rushed a thousand yards for the Buffalo Bills, and Don McLean topped the charts with “American Pie.”

The figures, which appear in Table A-5 at the back of the Census Bureau’s report (pdf), are these. Median earnings for full-time, year-round male workers: 2010—$47,715; 1972—$47,550. That’s not a typo. In thirty-eight years, the annual earnings of the typical male worker, adjusted to 2010 dollars, have risen by $165, or $3.17 a week.

If you do the comparison with 1973 it is even worse. The figure for median earnings of full-time male workers in that year (when O. J. rushed two thousand yards and Tony Orlando had a chart-topper with “Tie a Yellow Ribbon Round the Old Oak Tree”) was $49,065. Between now and then, Archie Bunker and Willie Loman have suffered a pay cut of more than twenty-five dollars a week.

Is it any wonder Americans are not as optimistic as they used to be?

One final note:

By definition, this is not a new story: it’s been going on for decades. One of the first pieces I wrote for The New Yorker, back in December, 1995, was entitled “Who Killed the Middle Class?” Here is how it ended: “At some point, both parties will have to level with the voters and tell them the truth: the postwar Golden Era is gone forever, and the great middle class has gone with it. This is nobody’s fault; it is just how capitalism has developed. Once this conclusion is accepted, maybe the political debate can move away from mutual recrimination and on to ways of governing a less homogenous and more inequitable society.”

Looking back, I’m not sure about the “nobody’s fault” line. Deliberate policy measures have certainly played a role: opening America’s markets to cheap foreign competition; attacks on trades unions and labor laws; the practical abandonment of efforts to train (and retrain) large swaths of the non-college-graduate work force. But the underlying economic trends remain the same. If anything, they are strengthening.

</article>Read more http://www.newyorker.com/online/blogs/johncassidy/2011/09/poverty-figures.html#ixzz1YyjTQhAU

 

[neddy]

The Impoverishment Of The West

• by Martin Hutchinson
• September 19, 2011

http://www.prudentbear.com/index.php/thebearslairview?art_id=10577

The Census Bureau’s study of American incomes, poverty and health coverage issued last week was most interesting when considered, not as a metric of this recession, but as a long-term picture of where American living standards are going. If median incomes are back to 1996 levels in real terms, then the stagnation that followed the 1973 living standards peak has intensified and the prognostication for the future must be thoroughly unpleasant. It’s thus worth examining how much of the decline is only a medium-term problem, due to mistaken policies that can be reversed, and how much is an inevitable and permanent decline from what may have been a fleeting middle class Nirvana in 1950-73.

Real U.S. median household income of $49,445 in 2010 was 6.4% below its level in 2007 and 7.3% below its peak in 1999. Given the performance of the economy it’s likely this position has worsened in 2011. More alarmingly, median household income is only 0.9% above its value in 1989 and 6.3% above its level of 1973. For most households, an entire working life of 38 years has elapsed with no significant increase in living standards. As is well known, the dispersion of income has also sharply increased; in 1973 only 1.2% of households had an income above $200,000 in 2010 dollars, whereas in 2010 3.9% of households exceeded that level. The middle middle class, with incomes of $35,000 to $74,999 has shrunk from 40% of the population to 31%.

Even this grim tale does not give a full picture of the decline, because household income has been sustained compared to 1973 by a much higher proportion of women in the workforce. Real median male earnings have declined by 4% since 1973, whether you consider all men or only those with full-time, year-round jobs. However the picture is brighter for women, whose workforce participation rate was around 70% of men’s in 1973 if you consider all jobs, or a mere 43% of men’s participation if you consider only full-time, year-round jobs. Today female workforce participation is 90% of male whichever way you look at it. Furthermore women’s earnings have done much better than men’s, up by 85% for all workers or 33% when only full-time workers are considered. Still the bottom line is that for traditional families, real incomes have only increased since 1973 at the cost of the wife going out to work and childcare being hired (if necessary).

Unsurprisingly, the U.S. workforce is thoroughly disgruntled, with attitudes to public institutions, politicians, churches, the media, etc. having declined catastrophically since the 1970s. This is in no way a sign of deteriorating national character, but simply of stagnating and in many cases declining national fortunes.

There appear to be two culprits for stagnating or declining living standards, apart from technological change, which may also have played a complex role. The first was a blizzard of regulation beginning in the 1960s and intensifying after 1970, with a second burst in 1989-94 and a third since 2009. In the 1970s, living standards’ fall from their 1973 peak coincided with (i) more U.S. income going into environmental cleanup (probably mostly beneficial, even if not directly included in GDP), (ii) intensified safety and workplace welfare legislation (a bonanza for trial lawyers but probably little benefit to others, and certainly tending to reduce wages and increase healthcare costs), and (iii) such nonsenses as the Corporate Average Fuel Economy standards, which added a huge drag to the U.S. economy, wiped out well over a million high-paid jobs in the U.S. automobile industry and achieved far less fuel saving than would have been achieved by a 50 cent tax on gasoline. Second and third bursts of regulatory hyperactivity, in 1989-94 and since 2009, have coincided with further erosions of U.S. living standards; this is most unlikely to be a coincidence.

*eat the outsourcer’s lunch*

The other major culprit, which kicked in around 1995 or so, is globalization, caused by the immense technological change of the Internet and modern cellphones, which have made multinational logistical sourcing chains infinitely more efficient and cheaper. This is not simply a one-off effect; outsourcing a product or service to India, China or Vietnam not only makes it cheaper, but also increases the capabilities of the local Indian, Chinese or Vietnamese workforce, raising its capability still further and making it competitive in more sophisticated products and services. In this respect David Ricardo’s Doctrine of Comparative Advantage, which essentially said that outsourcing was beneficial to both the rich outsourcer economy and the poor outsourcee economy, has been proved to be completely wrong. Ricardo failed to take account of the improved capabilities in the outsourcee that would result from the outsourcing, and the ability of newly empowered impoverished outsourcee workforces to learn the business, clamber up the value chain and eat the outsourcer’s lunch.

The same dynamic that has sapped U.S. growth has also been at work in Europe. In Britain, the regulatory blizzard (for example infamous real estate planning regulations that have made British housing among the most expensive in the world) came in the 1940s and prevented the country from having a postwar “wirtschaftswunder” like Germany. In Germany and France, the huge expansion of the regulatory state came in the early 1970s and the late 1970s respectively, with substantial jumps in government’s size coinciding with an abrupt ending of rapid economic growth. In Italy and Spain, government’s expansion came in the late 1980s and early 1990s, when EU-wide regulations were adopted and previously robust growth rates slowed to a halt. In Europe, the expansions of regulation tended to coincide with expansions of the welfare state, and the latter has frequently been blamed for the economic sluggishness, but in reality Spain’s 20% unemployment rate, for example, is more the result of regulation than welfare.

The Internet-based increase in outsourcing took effect in Europe mostly after 2000, and has contributed to the severity of this recession, which had far less financial cause than in Britain and the United States. Its effect has been dampened and delayed by European protectionism, since France at least was never entirely convinced by Ricardo’s doctrines. However the euro has played a pernicious role in deepening the Internet’s unemployment-producing effect in southern Europe, where competitiveness was already weak. On the other hand Germany, already positioned at the top end of the value chain in many of its industries, has been able to gain from their relative competitiveness compared to southern European rivals.

In Japan, the regulatory state arrived in the 1970s, slowing the miracle growth rate of the 1960s, but Internet outsourcing played a more important role, preventing from about 1995 the natural recovery of the Japanese economy from its 1990 crash. Japanese industries were already positioned in many of the market niches that were to be occupied by China, and had not fully transformed themselves from their previous role as low-wage suppliers; consequently the effect of the emergence of China, India and other emerging market sources was both more rapid and more severe in Japan than elsewhere. Japan’s continued economic sluggishness is a portent for the fate of the U.S. and Western Europe going forward.

The overriding question is thus how much further this impoverishment of the wealthy West will proceed. Is it inevitable that western living standards will rapidly fall to the global average, so that the U.S. median household income of $49,000 becomes around $10,000, at purchasing power parity? Alternatively, can such an outcome be delayed until global living standards have increased to the current western level?

Policies of cheap money, high legal and illegal immigration, encouragement of global population growth and a “level playing field” in international trade all accelerate the move to equality. While nearly half the world’s population, including most of India and much of China, is still not fully connected to the world economy, that connection has already been revolutionized by cellphones and with money readily available, barriers are descending all the time, in all but the most abominably run nations. By and large, this is to be welcomed; one can as an American morally wish for the preservation of differentials between U.S. and coastal Chinese living standards but cannot morally wish to perpetuate the miseries of the world’s poorest.

However, if almost all the world becomes fully connected to the globalized economy and its capabilities are brought up to Western levels through outsourcing, then all remaining protections for higher Western living standards become artificial barriers that will inevitably disappear.

In the very long run, this is almost certainly inevitable. Thus if we wish to preserve our living standards, two policies are essential. In the long run, we must stop global population growth and begin the process of its decline. The planet simply will not support 10 billion humans with western living standards. Even if the “global warming” threat is a fantasy, the resources consumed by such a world will run up against the planet’s limitations, causing an economic collapse from which exit will be impossible. With improving technology and good management we may be able to support a 5 billion global population at Western living standards – we’re supporting perhaps 2 billion currently at something approaching them – but the resource burden of 10 billion is too heavy. Accordingly, population reduction programs are a matter of great urgency, in order to bring forward the year in which population growth ceases, and accelerate its decline back to a tolerable level.

In the short run, the emergence of emerging markets must continue, but it is not in the West’s interest that it should continue too fast. Reverting to protectionism is not the answer – as the 1930s demonstrated, it reduces the world’s potential output and makes everybody poorer.

*de-capitalization of the West*

However the West’s current wealth depends crucially on its capital base. Technology is largely available to all, especially as outsourcing has spread much modern technology throughout the world. But capital isn’t; the West’s wealth was originally built up largely through its superior capital resources, which both produced factories and allowed more to be spent on the health and education of its workforce. Policies of low interest rates, below zero in real terms, have reduced the West’s comparative advantage in capital cost and have spread capital availability much more widely through emerging markets, with China building up foreign exchange reserves of close to $3 trillion. Since 2008, the de-capitalization of the West has accelerated, with negative real interest rates ensuring that its capital stock, receiving negative real returns, degenerates each year. This process must be reversed, and its reversal is above all urgent in the United States, whose monetary policy has since 1995 exhibited the greatest folly.

Only when real interest rates are positive will the dissipation of the U.S. capital base end and U.S. corporations once again have the incentive to employ domestic labor rather than being lured through endlessly available zero-cost capital to outsource production to new manufacturing facilities in cheap-labor economies.

The global overpopulation threat to Western living standards is a long-term one; it will become acute only around 2050 or so. Even before that date however, we will impoverish ourselves if we continue to allow the outward flow of resources and know-how to continue at its current rate. Yes, we want emerging markets to grow rich, but not at the expense of our own citizens’ living standards. Fortunately, the policies to reverse this trend are available.


Views are as of September 19, 2011, and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.
Gross Domestic Product (GDP) is a broad gauge of the economy that measures the retail value of goods and services produced in a country.
Federated Equity Management Company of Pennsylvania

 

[neddy]

Top 1 Percentile of Americans takes 18% of the country's wealth. (Actual figures are higher due to transfer pricing and use of tax-haven)

http://g-mond.parisschoolofeconomics.eu/topincomes/

 

[neddy]

http://www.tomdispatch.com/post/175450/tomgram:_andy_kroll,_america's_lost_decade/

Flat-Lining the Middle Class
Economic Numbers to Die For
By Andy Kroll

Food pantries picked over. Incomes drying up. Shelters bursting with the homeless. Job seekers spilling out the doors of employment centers. College grads moving back in with their parents. The angry and disillusioned filling the streets.

Pan your camera from one coast to the other, from city to suburb to farm and back again, and you'll witness scenes like these. They are the legacy of the Great Recession, the Lesser Depression, or whatever you choose to call it.

In recent months, a blizzard of new data, the hardest of hard numbers, has laid bare the dilapidated condition of the American economy, and particularly of the once-mighty American middle class. Each report sparks a flurry of news stories and pundit chatter, but never much reflection on what it all means now that we have just enough distance to look back on the first decade of the twenty-first century and see how Americans fared in that turbulent period.

And yet the verdict couldn’t be more clear-cut. For the American middle class, long the pride of this country and the envy of the world, the past 10 years were a bust. A washout. A decade from hell.

Paychecks shrank. Household wealth melted away like so many sandcastles swept off by the incoming tide. Poverty spiked, swallowing an ever-greater share of the population, young and old. "This is truly a lost decade," Harvard University economist Lawrence Katz said of these last years. "We think of America as a place where every generation is doing better, but we're looking at a period when the median family is in worse shape than it was in the late 1990s."

Poverty Swallows America

Not even a full year has passed and yet the signs of wreckage couldn’t be clearer. It’s as if Hurricane Irene had swept through the American economy.

Consider this statistic:

• between 1999 and 2009, the net jobs gain in the American workforce was zero. In the six previous decades, the number of jobs added rose by at least 20% per decade.

• Then there's income. In 2010, the average middle-class family took home $49,445, a drop of $3,719 or 7%, in yearly earnings from 10 years earlier. In other words, that family now earns the same amount as in 1996.

After peaking in 1999, middle-class income dwindled through the early years of the George W. Bush presidency, climbing briefly during the housing boom, then nosediving in its aftermath.

In this lost decade, according to economist Jared Bernstein,

• poor families watched their income shrivel by 12%, falling from $13,538 to $11,904.

• Even families in the 90th percentile of earners suffered a 1% percent hit, dropping on average from $141,032 to $138,923.

• Only among the staggeringly wealthy was this not a lost decade: the top 1% of earners enjoyed 65% of all income growth in America for much of the decade, one hell of a run, only briefly interrupted by the financial meltdown of 2008 and now, by the look of things, back on track.

The swelling ranks of the American poor tell an even more dismal story. In September, the Census Bureau rolled out its latest snapshot of poverty in the United States, counting more than 46 million men, women, and children among this country's poor. In other words, 15.1% of all Americans are now living in officially defined poverty, the most since 1993. (Last year, the poverty line for a family of four was set at $22,113; for a single working-age person, $11,334.) Unlike in the lost decade, the poverty rate decreased for much of the 1990s, and in 2000 was at about 11%.

Even before the housing market imploded, during the post-dot-com-bust years of “recovery” from 2001 to 2007, poverty figures were the worst for any recovery on record, according to Arloc Sherman, a senior researcher at the Center on Budget and Policy Priorities. The Brookings Institution, meanwhile, predicts that the ranks of the poor will continue to grow steadily during the years of the Great Recession, which officially began in December 2007, and are expected to reach 50 million by 2015, almost 10 million more than in 2007.

Hitting similar record highs are the numbers of "deep" poor, Americans living way below the poverty line. In 2010, 20.5 million people, or 6.7% of all Americans, scraped by with less than $11,157 for a family of four -- that is, less than half of the poverty line.

The ranks of the poor are no longer concentrated in inner cities or ghettos in the country’s major urban areas as in decades past. Poverty has now exploded in the suburbs. Last year, more than 15 million suburbanites -- or one-third of all poor Americans -- fell below the poverty line, an increase of 11.5% from the previous year.

This is a development of the last decade. Those suburbs, once the symbol of by-the-bootstraps mobility and economic prosperity in America, saw poverty spike by 53% since 2000. Four of the ten poorest suburbs in America -- Fresno, Bakersfield, Stockton, and Modesto -- sit side by side on a map of California's Central Valley like a row of broken knuckles. The poor are also concentrated in border towns like El Paso and McAllen, Texas, and urban areas cratered by the housing crash like Fort Myers and Lakeland, Florida.

The epidemic of poverty has hit minorities especially hard. According to Census data, between 2009 and 2010 alone the black poverty rate jumped from 25% to 27%. For Hispanics, it climbed from 25% to 26%, and for whites, from 9.4% to 9.9%. At 16.4 million, more children now live in poverty than at any time since 1962. Put another way, 22% of kids currently live below the poverty line, a 17-year record.

America’s lost decade also did a remarkable job of destroying the wealth of nonwhite families, the Pew Research Center reported in July. Between 2005 and 2009, the household wealth of a typical black family dropped off a cliff, plunging by a whopping 53%; for a typical Hispanic family, it was even worse, at 66%. For white middle-class households, losses on average totaled “only” 16%.

Here's a more eye-opening way to look at it: in 2009,

• the median wealth for a white family was $113,149,
• for a black family $5,677,
• and for a Hispanic family $6,325.

The second half of the lost decade, in other words, laid ruin to whatever wealth was possessed by blacks and Hispanics -- largely home ownership devastated by the popping of the housing bubble.

The New Lost Decade

As for this decade, less than two years in, we already know that the news isn't likely to be much better. The problems that plagued Americans in the previous decade show little sign of improvement.

Take the jobs market. Tally the number of jobs eliminated since the recession began and also the labor market's failure to create enough jobs to keep up with normal population growth, and you're left with an 11.2 million jobs deficit, a chasm between where the economy should be and where it is now. Filling that gap is the key to any recovery, but to do so by mid-2016 would mean adding 280,000 jobs a month -- a pipe dream in an economy limping along creating an average of just 35,000 jobs a month for the past three months. Unless the country's jobs engine were somehow jump-started, 11.2 million jobs in this decade would be a real stretch.

But few in Congress, and none of the controlling Republican politicians, will even think about using the jumper cables. President Obama's relatively modest American Jobs Act, for instance, was declared a corpse on arrival at the House of Representatives. On Monday, a reporter asked House Majority Leader Eric Cantor (R-Va.), "The $447 billion jobs package as a package: dead?" Yes, Cantor assured him, indeed it was.

The president and his administration watch despondently from the other end of Pennsylvania Avenue. And for the majority of Americans, a jobless “recovery” exacts an ever-greater toll on their earnings, their families, their health, their basic ability to make ends meet.

The question on many economists' minds is: Will the U.S. slump into a double-dip recession? But for so many Americans living outside the political and media hothouses of Washington and New York, this question is silly. After all, how can the economy tumble back into recession if it never left in the first place?

No one can say for certain how many years will pass before America regains anything like its pre-recession swagger -- and even then, there's little to suggest that the devastating effects of the middle class's lost decade won’t have changed this country in ways that will prove permanent, or that the gap between the wealthy and everyone else will do anything but increase in good times or bad in the decade to come. The deep polarization between the very rich and everyone else has been decades in the making and is a global phenomenon. Reversing it could be the task of a lifetime.

In the meantime, the middle class has flat-lined. Life support is nowhere close to arriving. One lost decade may have ended, but the next one has likely only begun.

Andy Kroll is a staff reporter in the D.C. bureau of Mother Jones magazine and an associate editor at TomDispatch. He writes about the economy and national politics, and has appeared on MSNBC, Al Jazeera English, and Countdown with Keith Olbermann.

Copyright 2011 Andy Kroll