Friday, July 31, 2015

Overview of Inequality, Household Budgets, Proposals to Reverse Inequality

I will speak tomorrow, August 1, 2015, to the local Democrats in Oakhurst, California. My topic:
               Inequality as a Threat to the American Middle Class

Here's my outline with the comments I will make. 

                   half own 1.1%                                 own 12%               own 17%     own 30%
                                                                                                                                                    top 1%
                                                                                                                                                    own 40%      
0% --------------------25%---------------------50%-----------------------80%---------90%---------100%

         no savings                under $80,000            average                  average     percentile
                                                                             $225,000               $500,000     90 - 94   95 to 99
                                                                                                                                    $1.3 mn    $3.3 mn
                                                                                                        Average for top 1%  ---  $27 million

Reference: Survey of Consumer Finances, Congressional Research Service
There are pie graphs of this at various places, here, here, here.
The most interesting variant is one that tries to include Social Security payouts, here.
Total private wealth in the past seven years has grown by 32%, adjusting for inflation and population.
In seven years $28 trillion was added to private wealth. This is a 50% increase in seven year not adjusting for inflation, up from $56 trillion in 2008 to $84.9 trillion. Quite an amazing performance during the worst economic catastrophe in 75 years! If the top 5% own 75% of all financial assets, and financial assets is where most of this new wealth originated, then the top 5% or 6 million wealthiest gained about $450,000 per year in wealth, a total of $3.125 million. This is not taxable income, but it is unrealized capital gains, not taxable until converted to cash. See the Flow of Funds report to confirm the gain of $28 trillion. It is $87,500 per person, or $226,000 per household. Unfortunately for most citizens, the gain went to a small minority of Americans.

The average household net worth in 2015 is $685,000, but only half of all households own more than $80,000. Therefore it's not surprising (or is it?) that only 10% of households own the  average or above. In the same seven years the median household net worth has fallen from $135,000 to around $80,000, a fall of 40%, a loss of about 20 to 30 years of savings. Also median income has dropped 8%, and some 9 million jobs were permanently eliminated with the 1.5 year recession, the worst slump in 75 years.

In Australia median household net worth is about 5 times higher than in the U.S. In Japan, France, Italy, and Germany it is about three times higher. The World Wealth Report is the guide for these data.
The World Wealth Report, by Credit Suisse Bank, the datebook, shows that in 2000 the debt to wealth ratio was 18%. In 2008 the ratio grew to 30%, and in 2013 it had returned to 19%. This would be household debt outstanding relative to total wealth. The Federal Reserve, Table D.3 shows household debt growing by 95% (nearly doubling) from 1996 to 2008, from 67% of GDP in 1996 to 97% in 2008, and today it stands at 85%. This indicates that the return of the debt to wealth ratio is a phenomenon of financial wealth growth, not a decline relative to annual GDP -- for what that may be worth to the typical reader who reads this much of my blog essays.

The U.N. Human Development Index ranks the U.S. at the 5th place among about 170 nations of the world. When adjusted for inequality the U.S. slips down 23 places to #28. This loss of 28 places is exceeded by only one nation, Iran. See the U.N. table here.



Income distribution is not as brutal as wealth. The top earning 1% of taxpayers, among 166 million tax returns not 120 million households, earn about the same amount as the total income of the lower-earning 50%. The ratio holds true as well for households as for taxpayers. Both parties earn around 16%, and together they pull in 1/3rd of all income. About 60% of all pre-tax income goes to the higher earning 20% of households. About 50% pre-tax income goes to the top 10%. After-tax income shows the top 20% receiving 50% of all income.

                16.4% of total income                              23.7% of income                     59.9% of income

            average $35,000                                                  $125,000                           $324,000

The average at the top goes up drastically because the top one percent take in $1.7 million on average.

Source: Congressional Joint Committee on Taxation, page 30, 2014
This page also shows that the top 5% of taxpayers pay 47% of federal taxes, and 70% of all income taxes. The top one percent pays 45% of all income taxes with about 17% of total income. The Citizens for Tax Justice shows Who Pays Taxes In America, indicating that the effective overall tax rate for the top 1% is about 33% of their total income. In the 1950s, under Eisenhower, the top marginal tax rate on income above $500,000 was 91%, not today's 44%. See this chart.


Inequality in the past 50 years

My favorite Federal Reserve graph shows that 82% of all workers today receive 4% less each week in wages than 51 years ago. Their income has dropped while the nation's "disposable personal income has risen by 175%. If this does not convince you of stark unequal treatment of income, then nothing will convince you.
You can go here, then convert 1964's income of $95.50 a week into today's dollars, here, and it will convert to $735.16, the pay in 1964. Then compare it today's pay of $705.26 a week, on average. Annually, that is $36,660 in wage income for full-time and year-round workers.
The U.S. Census, here, shows that the "per capita income"  "in 2013 dollars" has increased since 1967 by 92%, from $15,026 to $28,829.
The, personal income, here, shows that "disposable per capita income" (meaning after-tax income) has grown since 1964, in chained or inflation adjusted dollars, by 175%, nearly tripling, from $13,485 to $37,084.
And while income either doubled or tripled for "per capita" it fell by 4% for 80% of the workers.
Is this inequality?         

Wrong! -- Now I'll argue the opposite
The U.S. Census report Income and Poverty, September 2014, page 23, shows that between 1967 and 2013, the portion of households that earn over $100,000 a year has increased from 7.7% to 22.5%. Now between one in five and one in four households are earning over $100,000. That is definite a step forward. And those earning below $35,000 has fallen from 39% to 34%. Everyone, the rich and the poor, are making more income! That is shared prosperity!

But Wait a Minute!

The top one percent received 88.5% of all growth between 1979 and 2012, according to this report.
And they increased their (already oversized) income by 180%, while the lower-earning 99% increased their income be less than 3%.  Here's an "info-graphic", a snap-shot of the report:

One of the authors holds two PhD.s in economics.
Now who do you believe?

Another look at figures shows the same thing.
A look at State of Working America, Income, here, shows that of all the income growth between 1979and 2007, 80.9% of it went to the top 5%, and 19.1% went to the lower 95%. And nearly 60% went to the top 1%.
Hardly an equal sharing of the gains of growth.
Who are the authors of this report? Saez and Picketty?  Saez, a professor at University of California, Berkeley, can be found here, see his report Striking It Richer, and Thomas Picketty is the author of the best selling book of 2014, Capital in the 21st Century.

The reports from the Economic Policy Institute are the best.  Send them a thank you is my suggestion.


American Middle Class Budgets, 
                      Incomes and Expenses

First look at the changes, 2000 to 2012, in the expenses of the family with two children.
See page 8 of this report, The Middle Class Squeeze.

I was able to print this graphic on paper, but it doesn't seem to transfer to this Google blog.

Page 8 shows that the median income for a 2 child and 2 parent family is $84,000, very high. According to a web site, this is the 74th percentile. But reasonable for adults of this age, mid forties with dependent children.

In 12 years the income has moved a bare $600 more, virtually no growth. Expenses have offset each other: taxes down $4,400, consumer goods down $5,500. But 4 key or "pillar" expenses have jumped $10,600, these expenses are housing, college savings, health care, child care, and retirement savings.

I quibble with their health care expenses. The Kaiser Family Foundation (here) states that these expenses have doubled between 2002 to 2013. "Family premiums have increased 80% since 2003 and have more than doubled since 2002." (page 12)  (This KFF report has a summary graphic.) 
Exhibit A

The average premium costs $16,351 of which the out of pocket cost to employee is $5,884 or 36% (this from the first report cited, page 12). This is a raise in total compensation of $10,467. This raise in compensation is not accounted for in the Middle Class Squeeze report.  
The actual cost may be $8,600 to the Middle Class family of the example, but their total compensation is under-reported. 

Let's turn to another source, the Economic Policy Institute "Basic Family Budget Calculator". 
I turn to Topeka, Kansas, because this locale has the median costs in the nation for 2013. Here we see the expense of health care is $1,342 a month or $16,104 a year. Consistent with the K.F.F. survey results.  

Monthly costs

for a family with

2 parents and 2 children

in TopekaKansas
 Child Care$1,181
 Health Care$1,342
 Other Necessities$370
Monthly Total$5,280
Annual Total$63,364
A look at the family's expenses shows that about a quarter are for child care and a quarter are for health care.

Now we look a little further, to the table showing working age family incomes, courtesy of State of Working America, an Economic Policy Institute project.

I'll be!  The graph seems to
come across onto this blog.

I think I have to continue to type inside this box.  Yikes!

Median expenses: $63,634
Median income:  $65,577
That means that about half the families of working age will have expenses greater than income,
and half will not.
What does that say for the "middle class", typical or iconic family in America?
Half are struggling.
Recently the Pew Surveys stated that 40% of Americans self-described as low-income, 44% as middle class, and 16% as upper.



Proposals and Solutions 

Sixteen for '16, by Salvatore Babones  --- a book

Mr. Babones  works at the Institute for Policy Studies, a think-tank that sponsors the monthly newsletter

Sixteen for 16 Book cover

The 16 solutions:

Government-led job creation
    (this is my #1 choice, and if you look through this blog where I report on Philip Harvey's plan "Back to Work", or the Congressional Progressive Caucus budget proposal for a program of 3 years costing $350 billion a year, with additional support for later years, you will find references to plans and specifications that would return the nation to high employment and rising wages.

National infrastructure renewal

A rededication to public education
  (and I encourage readers to check out Diane Ravitches book Reign of Error)

Universal single-payer healthcare, often known as Medicare for All.
Senator Bernie Sanders is sponsoring such a measure.

Higher taxes on higher incomes
(Mr. Picketty, whom I note above, supports a highest marginal income tax of 80% on only the income that exceeds $457,000. The current rate on this high income is almost 44%.)

Refinancing Social Security

Stronger bank regulation

The right to join a union

 living minimum wage

10 sick days, 10 holidays, and 10 vacation days

An end to the prison state

Secure reproductive rights

Making it easier to vote

Closing down the NSA

More humane treatment of refugees

Addressing global warming

To this list I add, instituting higher Earned Income Tax Credit, creating Individual Development Accounts, supporting the proposals found in the book on finance The Bankers' New Clothes by Admati and Hellwig, and reducing the size of the U.S. military, and maybe the most important public funding of elections, criminalizing campaign finance contributions.

Thank you Oakhurst Dems for inviting me to speak.  

Saturday, May 2, 2015

Comment on Robert Reich article

Robert Reich penned an article in the American Prospect titled "The Political Roots of Widening Inequality". Link to it here.
I mention the long report "The Middle Class Squeeze", and here is it's link.
The Conclusion of this 145 page report is only 3 pages, it is worth a quick pass over.
I haven't read the entire report. It's contents page include six major topics: Jobs, Early Childhood Education, Higher Education, Health Care, Housing, Retirement.

Here's my comment:

The Center for American Progress report "The Middle Class Squeeze" goes into this topic, even more than Reich's article. It's 145 pages long, for one thing. It shows a graph, page 9, of income and expenses for a two-parent-two-child family, comparing 2000 with 2012. Median income and its expenses remained roughly equal over the 12 year period. Income for this group is surprisingly high, $84,700. State of Working America shows a graph of income for "working age families" showing median income of $65,577 for 2013, which is up only 8% since 1979. The GDP per capita, 1979 to 2013, increased by 75% for a comparison of unequal growth. That "working age families" median income dropped by 8% since 2000, unlike the 2-parent-2-child family income which did not drop but gained $600. My point here though is to look at the expense side of the picture. Expenses for middle-class security (housing, health care, childcare, college savings and retirement savings) increased $10,600, by a third, from $33,000 to $44,000. Their taxes decreased $4,400 from $15,600 to $11,700, and basic needs (groceries, telephone, clothing) budget decreased $5,400 from from $19,200 to $13,600. The expense for two autos stayed about the same. Some expenses have gone up (health care doubled and child care and college up by 35% or so in 12 years) while other costs have dropped (taxes, groceries). The costs shifts have balanced each other, and the same amount of income is needed to cover total expenses. This Reich article fails to state another fact, non-supervisory workers, about 80% of the workforce, have seen only a 3% increase in wage income since 1964, while during the same period disposable (after-tax) income has risen per capita by 177%, nearly tripling, making for extreme inequality. It is a complicated picture, but the jobs market has suppressed wage growth, and political policy has suppressed it. Fixing the market would require a direct public jobs program to tighten the labor market. A tight labor market raises wages for the lower-earning 80%, as it did 1995 to 200. Politically, a labor and union rights policy and a pro-labor foreign trade policy would change the political dynamics. has the program, as does the Progressive Caucus budget. My blog,

Monday, February 9, 2015

What Caused the Recession and Are We Still In It?

          What Caused the Recession                   
         and Are We Still In It in 2015?                

Debt caused the Recession. 
From 1996 to 2008 outstanding financial debt increased by 162%
and the economy's growth per capita grew by 24%
Creating debt at a rate almost 7 times faster than real growth is disastrous. I calculated from the Federal Reserve's Flow of Fund report, Table D3, and then adjusted for inflation. This Federal Reserve Graph shows the growth of the financial system outstanding debt, numbers unadjusted for inflation. And this one shows the growth of household debt.
Here's another comparing financial debt with non-financial corporate debt.
I also used the Measuring Worth web page where they calculate GDP per capita growth between 1996 and 2008.

There's a chart tucked away in Bailout Nation by Barry Ritholtz showing that GDP growth during the pre-crash 2000s was generated by home loan mortgage borrowing, called 2nd mortgages. 

Here's a graph of total private debt as a percentage of GDP. We are still around double the historical average. Between 1946 and 1976 the economy grew at a rate of 

Chart- US Private Debt as a Percent of GDP

Here's a video about the drag of private global debt from the Guardian newspaper. 

The U.S. economy grew at half its normal rate between 2000 and 2010. From Wikipedia and  
"US real GDP grew by an average of 1.7% from 2000 to the first half of 2014, a rate around half the historical average up to 2000.[84]"

Here's an article about the failure of the Obama Administration effort to save homeowners (from a recent American Prospect issue). This is an example paragraph from the article:

                 "The most direct and effective policy solution to stop foreclosures is to allow bankruptcy judges to modify the terms of primary-residence mortgages, just as they can modify other debt contracts. This is known in the trade as “cramdown,” because the judge has the ability to force down the value of the debt. The logic of bankruptcy law reduces debts that cannot be repaid in order to serve a broader economic interest, in this case enabling an underwater homeowner to keep the house. Liberal lawmakers believed the threat of cramdown would force lenders to the table, giving homeowners real opportunities for debt relief. Wall Street banks were so certain they would have to accept cramdown as a condition for the bailouts that they held meetings and conference calls to prepare for it."

Here are the Ten Myths from Jennifer Taub's book Other People's Houses from the last chapter :

1. There has been no official bipartisan consensus on the causes of the financial crisis.

2. The financial crisis was an accident without human causes.

3. The financial crisis was brought about because he Community Reinvestment Act of 1977 forced banks to lend to people with low incomes who could not afford to pay back their mortgages. 

4. The giant government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, caused the financial crisis because he government pushed them to guarantee mortgage loans to people with low incomes as part of their public housing mission.

5. Mistakes were made, but there was not widespread fraud and abuse throughout the financial system.

6. The financial crisis was caused by too much government regulation.

7. Nobody saw it coming.

8. The financial crisis ws unavoidable.And financial crises of this magnitude are inevitable.

9. The Dodd-Frank Act has ended "too big to fail". 

10. The bankers are the victims of greedy homeowners who borrowed money and did not pay it back. 

It is a masterful book. It is also very complicated and detailed. 

Paul Buchheit has been writing the best journalism I've encountered. He explains in this February 2015 article the endemic poverty in the wealthiest nation. He cites a study showing that "almost two-thirds of Americans didn't have savings available to cover a $500 repair bill or a $1,000 emergency room visit."
The average household income, pre-tax and pre-transfer, is $93,000 a year. The average savings per household is around $650,000 -- and almost 2 in 3 live in households that cannot pay a $1,000 emergency room visit. !!!