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Friday, November 11, 2011


16.0% of Americans lived in official poverty in 2010, according to the updated poverty report. But the poverty rate would be 12% higher, at 28.6%, except for government programs like Social Security and Earned Income Tax Credits.   
Half of the U.S. Households Have $1 of Income while the other Half Has $4, after all taxes and transfers, according to a CBO report. 
Half of all the 150 million workers earn $1 while the other half earn $7 according to a Social Security Administration report. I know that sounds preposterous, but if you take a long look, though incredible, it's true.  
I know it looks like a difficult read, and it is. You just saw links to 3 reports. It get complicated. These figures are worth the effort if only to convince you of the need for a government jobs program. 
When one looks into the inequality issue one finds some astonishing things. 

On average, while half of US households receive $1 of income, 
another half of US households receives $4 of income. This is after government taxes and transfers according to the CBO. 

This ratio, 1 to 4, comes from the Congressional Budget Office report of October 2011, "Trends in Distribution of Household Income Between 1979 and 2007". (See the summary and the full report.)

Before taxes and transfers the ratio is 1 to 6.3 (per the CBO report). 
Before taxes and transfers, the poverty rate in the U.S. would be 28.6%, not 15.2% (see this report -- just above figure 2, or see updated report linked at top paragraph). The Social Security program reduces the overall poverty rate by 6% (see this report). Imagine, two of seven Americans would live in poverty, but for the transfer programs even though the nation's economy generates $46,000 per human being every year.   

The income ratio of the lower 50% to the upper 50%  stands at 1 to 6.8 if one took the pre-tax figures from the IRS (as reported by the Tax Foundation here -- see Adjusted Gross Income of Taxpayers in Various Income Brackets, 1980-2009) that show the AGI, adjusted gross income, for the lower half of tax filers was, on average, $15,291 and the average income for the "above 50%" tax filer was $98,128 -- this is a ratio of 1 to 6.8.

But the pre-tax and pre-transfer incomes from the CBO report yields a ratio of 1 to 5. (see page 8) But after all taxes and transfers, the 1 to 4 ratio holds. The pre-tax and pre-transfer incomes per ascending quintiles is 2, 7, 12, 19, and 60. That is, the highest quintile received 60% of all income, pre-tax. The highest 1% received 21% of all income. The post-tax and post-transfer income share per ascending quintiles is 4, 9, 14, 20, and 53. That is the highest 20% of households received 53% of all income, post-tax. The highest 1% received 17%
Inequality Strangles Economic Growth 
Now almost 1 in 6 live in official poverty. It would be 2 in 7 except for government transfers and programs. We have fewer private sector employees in 2011 than we had in 2000, 110 million then and 109 million now.

Chart 3. Private Sector Job Growth (10-year moving average annual percent growth)
Chart 3. Private Sector Job Growth (10-year moving average annual percent growth)
Source: Calculated from All Employees: Total Private Industries (USPRIV), downloaded from St. Louis Federal Reserve FRED database,

This comes from the Monthly Review article by Fred Magdoff, June 2011. The next comes from Business Week magazine, Sept. 2009

There are 154 million workers, 140 million are working on a daily basis (with 9% unemployed). Together they create an output product worth $15 trillion, and each worker on average contributes $109,000, (according to the Federal Reserve Bank of San Francisco). 

There are 312 million humans, and 150 million salary and wage earners, and 117 million households
The average household income for the middle quintile is $40,400
The average income for the lower-half of households is $23,040 according to Citizens for Tax Justice 
The higher-half average is 114,760.
The ratio is 1 to 5. 
And the household average for all is $68,900. Excluding the top one percent the average is 56,200. 

Not to confuse the reader, the median individual worker median is, according to the Social Security Administration, $23,632/year among 150 million workers. Half earn less than $23,632, and that lower  half earn only 12.3% of all wage and salary income. A quick look may prove to the disbelieving reader that assertion. (I discussed this report in the previous blog post. It is worth looking at because, as I mentioned, it shows that half or 75 million workers, have $1 of wage and salary income while the other half earn $7. This is a long and difficult issue which I will write about in future blog postings.) 

But for now, I'll use the average income for the middle 20% of households, from Citizens for Tax Justice, $40,400/year, while their average (not median) household income amount is $68,900. The SSA median for individual workers, $26,362, reflects worker payroll income only. The $40,400 figure is apparently an average for the middle quintile of households. This amount is also near the average mean annual income of full-time year-round workers, $44,410, according to the US Census, while they report a median hourly rate of  $16.27, equivalent to $33,840 a year if working full-time, which is generally not the case. Half of workers earn less than $26,362 and earn only 12.3% of all payroll income.  

Using the figures from the Citizens for Tax Justice, the average for the middle 20% is $40,400, and the average income is $68,900. (The U.S. Census also reports a "mean total income" of $68,827 for 2009. Their median for households is $49,777. 

The average income for the lower 50% of households is $23,040 according to CTJ figures. And the average income for the households in the higher-earning 50% is  $114,760. This is the 1 to 5 ratio I mention above. This is pre-tax income and is consistent with the CBO report. 

The main issue and question is: how can the lower earning workers afford to buy the products they are creating? 
If the worker earns $1 while creating output worth greater than $1, how can he buy what he creates?  Owners must layoff  workers. And the cycle spirals to destruction.  

Bureau of Labor Statistics reports between 2007-2009  8.8 million workers lost their jobs, 5.7% of the labor force. Some 15.43 million were "permanently dislocated from" their jobs and only 49% found re-employment, according to this report. The recovery as of October 2011, 2.3 million jobs have been recovered. When enough workers are laid off, falling income and falling purchasing power "destroys capital". "Income destroys capital" -- meaning that capital assets --- plant, machinery, equipment, real estate,  hardware and software --- are lost, and the asset base (capital) begins to shrink. 
Martin Wolff used this phrase in an interview with Doug Henwood, and it stuck with me. "Income destroys capital" Wolff said as a last and worst possible outcome to our economic downturn. 

The last option is a public jobs program such as this one by Rutgers professor Philip Harvey, or this one by "Dr. Doom" aka Nouriel Roubini. The Great Depression did end in 1937 with the WPA and the New Deal, according to this report. After the unemployment rate dropped from 25% to 9.6%, Roosevelt cut back on the program and the unemployment rose back to 18%. 
Gini Coefficient Index - Measuring Inequality

Before taxes and transfers the US Gini coefficient (that rate of inequality where the higher number means greater inequality) stands at 0.590, according to the CBO study, Appendix B. In comparison the Gini for Brazil stands at 0.55 (see this report). After taxes and transfers US gini stands at 0.483 according to the CBO, still the highest inequality among developed nations.  

This CBO report states that pre-tax Gini coefficient was 0.590, and the post-tax Gini was 0.483. (page Appendix B) It further states, in so many words, if the top 1% share of post-tax income were reduced from 17% to 16%, and then added to the income of the lowest 20% of households, that shift would "boost income in the bottom quintile by almost 50 percent."  Average household income for the lower-earning 20% of households in 2010 would rise from $12,000 to $18,000. 

Following this same redistribution logic, if the top 1% were receiving their 1979 share of 8%, and their 9% reduction were applied to the lower 80%, then 80% of households would receive almost a 25% increase in income (their share would increase from 40% of all income to 50% of all income). The household median would rise from $49,775 to $62,500, and 80% of households would enjoy a 25% boost. Boosting incomes like this would restore growth and create a self-sustaining recovery, as it did after World War II. Morally it would create a more just society. It might empty the prisons. Perhaps one third of the deaths are a result of inequality, according to one study. So perhaps such a shift in income would raise the life-span as well as the quality of life for a great majority. But the only way to get there, I believe, is through government public employment programs.  

Income for half is $1, and the income for the other half is $4 (post tax and transfer, CBO data). The U.S. has the highest inequality, as measured by the Gini coefficient, of all industrially developed countries. The recent Congressional Budget Office report states (page 8) the post-tax Gini is 0.489 and pre-tax of 0.590. The U.N. rates nations according to income Gini. Our imbalanced ratio is falling to the levels of Argentina - 48.8, Brazil - 55.0, Costa Rica - 48.9,  Mexico - 51.6, China - 46.9. The U.S. level is the highest among developed nations with Japan at 24.9 and Germany at 28.3 and France at 32.7. I have to warn readers that more recent U.N. reports differ from those stated at Wikipedia. But the CBO figure, 0.489, is for 2007 reported in November 2011. We are much closer to Mexican inequality levels than French inequality levels.  

To further emphasize the point. Look at the ratios between the lower-earning 10% of households vs. the highest-earning 10%. The U.S. ratio is 15.9. The Japanese ratio is 4.5. Germany's is 6.9, and France's is 9.1. Mexico - 21.6, China - 21.6, Brazil 40.6, Argentina - 31.6, Costa Rica - 23.4. We are about half-way between the French inequality and Mexican inequality.  

And a further emphasis comes with a look at wealth distribution from a study in 2008 by the UN University World Institute. Wealth is not so unequally distributed in any country save a bare few. The U.S. gini is 0.801, other's gini range in the 0.6 or 0.7 level. 

Below a Congressional Budget Office graph, courtesy of 

Average After Tax Income by Income Group 1979-2007
CBO Report on Income Distribution
The recent report from the Congressional Budget Office, "Trends in the Distribution of Household Income Between 1979 and 2007" is the best report to date on income distribution. Their distribution figures match those of the Tax Policy Center from 2006. The breakdown of pre-tax income is on page 8, Box 2, with an explanation of the Gini coefficient, which for 2007 was 0.489. The distribution of pre-tax "market" income per ascending quintile (on page 8) was 2%, 7%, 12%, 19%, and 60% (the last 20% of households received 60% of pre-tax income). The post-tax distribution per ascending quintile was 4%, 9%, 14%, 20%, and 53%. (The highest-earning 20% of households received 53% of post-tax income.) The pre-tax income of the top 1% equaled 21% of the total income, which is also the exact pre-tax income of the lower-earning 60% of households. The post-tax income of the top 1% was 17%, which is approximately equal to the combined incomes of the lower-earning 44% of households. Consistent with this distribution is the statement, "For every $1 of income received by the 51 million households in the lower-earning 44% of households, the 1.2 million households in the top-earning 1% of households receives $44 of income. The two groups received equal incomes, 17%  and 17% of post-tax income." 

This is the fuel of recent occupy Wall Street and other protests. It's also the rot that will bring down the entire economy. 
Hard Times  --- the Musical Version 

As Stephen Foster sang, "Many days you have lingered around my cabin door, Oh, hard times, come again no more."
Listen to James Taylor sing "Hard Times Come Again No More", with Yo Yo Ma accompanying Taylor ---

Let us pause in life's pleasures and count its many tears,
While we all sup sorrow with the poor;
There's a song that will linger forever in our ears;
Oh hard times come again no more.

Tis the song, the sigh of the weary,
Hard Times, hard times, come again no more
Many days you have lingered around my cabin door;
Oh hard times come again no more.

While we seek mirth and beauty and music light and gay,
There are frail forms fainting at the door;
Though their voices are silent, their pleading looks will say
Oh hard times come again no more.

There's a pale drooping maiden who toils her life away,
With a worn heart whose better days are o'er:
Though her voice would be merry, 'tis sighing all the day,
Oh hard times come again no more.

Tis a sigh that is wafted across the troubled wave,
Tis a wail that is heard upon the shore
Tis a dirge that is murmured around the lowly grave
Oh hard times come again no more.

This graph is inaccurate. In 1937 unemployment had dropped to 9.6% because of WPA employment that has not been properly assessed according to this source at New Deal 2.0

Complex Addendum Note

U.S. Census, Mean Total Income, 2009 = $68,827
The Census data is grouped by household, not individual worker income, but the mean average of both are identical. The medians are much different, $49,777 for households, $40,400 for individuals. Yet multiplying 117 million households times their median income of $49,777 yields approximately the same outcome as multiplying 150 million workers times their median income of $40,400. 

Nice inequality graph, CBO,  

CBO report ---

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