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Saturday, August 10, 2013

A Prescription

   A Prescription for a Sick Economy --- In Brief

(On October 1, 2013, I wrote and sent a letter about Obamacare to the local newspaper who never published it, and now I have put it at the bottom of this essay. Look for the photo of medical care to a youngster. The more important message is this "Prescription" essay which I leave at the top. Also, you might consider reading  Robert Kuttner recent article  at the American Prospect that summarizes my positions and recommendations; I suggest reading the nine point proposal section at the end that begins with "Suppose we wanted to get serious about creating an American economy of greater employment security and higher wages, in which nobody who wanted to work full time would be poor. For starters, we’d need a national strategy of using every available policy tool."  I hope I haven't deflected the reader's interest in reading the main article of this blog, which follows below.)

Income and wealth distribution is today's central economic problem. We are on a path of self-annihilation it seems, like a gladiatorial battle, until only one family is left standing with all the nation's capital resources. For example: 
The lower-earning 80% of households -- 96 million households or  256 million citizens -- earn just 40% of all pre-tax income (see this CBO report, page x.) and 20% at the top earn 60%, and 10% earn 50% and 1% earn 22%. You can say accurately that the 20% at the top earn 6 times the average of the lower-earning 80%. Today the combined incomes of the top-earning 1% of households is greater than the combined earnings of the lower-earning 60% of households (see here). The top 1% receive 21.9% of all income, the lower-earning 60% receive 21.4%, or restated, 3 million people have more income than 192 million. It takes 63 family incomes from the lower-earning 60% to equal one family's income in the top 1%.  
In the past 20 years the top 1% of households have received 66% of the nation's household income growth (see this  "In Focus" article and this article) and in the past 3 years have received incredibly 95% of all growth. 

And leaving aside annual income, the wealth figures from the Federal Reserve report shows, on page 17, the average wealth per household is $498,000  -- since revised upwards in September 2013   to $616,000 per household. Half of the nation's households own just 1.1% of all wealth, according to a Congressional Research Service report referenced in this article. And a report on "liquid assets" states that  44% of U.S. households would be unable to pay an emergency bill of $2,000 (see the FDIC study here, another study here and still another here). In regards to both income and wealth, the nation demonstrates a colossal nearly unbelievable, and certainly pernicious, disparity among citizens. Government charity provides to one in seven Americans their food and to one in five their medical treatment(The next essay at this blog has a section on government charity programs.) 

How well-off are we as a nation? 
Total taxpayer income reported to the Congressional Joint Committee on Taxation, 2012, was $11.468 trillion (see page 28), which averages to $35,837 per human being, and that is $96,760 per household on average. This is too low, according to the Bureau of Economic Analysis. They state the average disposable or after-tax personal income for all Americans is about $39,215 as of July, 2013, according to the Bureau of Economic Analysis, see here. And for average family saving? So again, we prove to be very wealthy, over $70 trillion in net worth (see here, page i), about $583,000 per family on average, and our income is very high, over $39,000 after-tax income per human being. Isn't it obvious we don't share and that great social inequity and suffering is the result? Starvation or death through inability to access medical attention are human sufferings of the most ancient type. We could shift the economic system just slightly, and people of their own could afford to buy food, find health care and live with economic security.   

Are you $146,000 richer since five years ago? Most average households are. 
During the past five and a half years the nation has had a recession, the worst in 80 years, and a recovery, though few have felt it. Now, in October 2013, all households (on average!) have 30% more savings than before 2008, on average $146,666 more. That's a recovery, yet most households have lost more than 8% of income. How could both those statements be true? Ask yourself, how could most households lose income yet the average savings for households goes up by over 30%? Was your household among the 95% who missed out on the wealth gain? Since 2008, the nation has increased its total household net worth to over $74 trillion (see here page i of a Federal Reserve report), a 31% increase in the past 5 and a half years, that is a $17.6 trillion increase in five years --- an increase of over $146,000 per household, yet the income of the  median income household has dropped by 8.1%, from $54,489 to $50,054 (see the Pew Research report here or see this graph and best of all, check out these three graphs).  ----  As the article at  TooMuch article states, 
"And the rest of America? The incomes of the nation’s bottom 99 percent rose all of 1 percent last year. Since 2009, bottom 99 percent incomes have barely bumped up at all, just 0.4 percent on average, after taking inflation into account."

I cannot explain this bizarre divergence adequately, $17,600,000,000,000.00 is a lot of added wealth in 5 years. The annual GDP was about $15 trillion for each of the five years, about $75 trillion total. It's not possible to save 20% of that. The rapid surge in wealth results from two things, the Federal Reserve pouring cash into banks, using keystrokes to create money, buying the banks' bad loans, and the cash in the banks goes into financial assets markets provoking an artificial bubble benefiting the wealthiest 5% who own 75% of all financial assets. This policy at least maintains incomes for retirees. But essentially I'm lost as to how wealth goes up 30% while income for most goes down 8% in the same period. The Pew report shows that the median is about the same as it was in 1990 --- so, no growth to median income ---  and since 1990 the economy has grown by 35% per capita (see this source here) If the median had grown with the GDP since 1990, then today the median would be $73,500, not $50,000. When will the nation wake up?   

Damage to society is self-evident and inescapable. And I'm not over-stating the obvious. Perhaps this action by the Federal Reserve was not a democratic decision, and new money that they created could have been applied more productively.  William Greider published a report at the Levy Economic Institute that outlines a direct approach that the Fed refused to apply: see the report here.  He states, "The central bank has abundant precedent from its own history for taking more direct actions to aid the economy. And it has ample legal authority to lend to all kinds of businesses that are not banks. "

Robert Reich, a University of California professor, has helped produce a movie about it, Inequality for All, see here

Briefly, for your information, an intelligent solution exists and has the support of one in six of the members of the House of Representatives. The Congressional Progressive Caucus proposes a plan to inject $2.1 trillion over a three year period into direct government job creation, similar to 1933-1937 when the unemployment rate fell from 25% to 9.6% (see here), or similar to the WWII years when employment increased by an  unheard of 40% while the unemployment rate dropped below 2% for 2 years (taken from Samuel Rosenberg's American Economic Development since 1945, page 20). 

We have lost a healthy distribution balance. First, look at wealth distribution
File:U.S. Distribution of Wealth, 2007.jpg

The lower-saving 80% own 15% of all wealth, the top 20% own 85%. The top 1% own nearly as much as the lower-saving 95% (and these figures do not include immense foreign tax haven holdings which probably would increase the top 1% share to around 45% of all wealth). 
About income, 80% of taxpayers receive 48.3% of all income after taxes and government transfers. (I noted "market" income, pre-tax and pre-transfer income, above, when I cited that the 80% receive 40% of "market" income.) After government transfers and taxes their share increases. These 80% are mostly non-supervisory workers or employees. Here's a page from the U.S. Census showing that 80% of workers (96 million workers) in private enterprise work in firms with more than 20 employees.) As a result of economic pressure, employees in general have too little purchasing power to support the full potential of our economy, and therefore national consumption has been reduced, and subsequently employment is retarded. This economic death spiral will return us to the Dark Ages. We must reverse course. Henry Ford knew this in 1912 when he raised his workers' pay to $5 a day. He needed consumers to purchase his automobiles. This is Keynesian economics. A complex blog on econometrics also makes this claim (see 8/19 and 8/12/13 entries). See A new report from the Brookings Institute and the Urban Institute's Tax Policy Center shows that 51.7% of all income, post-tax and government transfers, goes to the top 20% of households, and 48.3% goes to the lower-earning 80%. That 51.7% today once registered 41.7% in 1979. 

What would your income be if it had matched  economic productivity? Find out here at the site.  

Most of the 10% shift went to the top 1% of households at the expense and loss to the lower-earning 80% of households.
Zero Hedge presents this graph of lowering labor share of total income. Note the trajectory since 1980 during Republican administrations. (And another similar graph from Forbes below): 

These last two graphs go back only to 1947 or so. The next one,  part of an interview at PBS with a British economist, shows a longer period. The article with it states that labor is 82% of private enterprise workers, non-supervisors.  
Andrew Smithers chart

U.S. Census Income Data
I wish I could publish a homemade circle graph. It shows 
the first 25% of households receives less than 5% of all income the next 25% receives 12%
the next 25% receives 17% 
the last 25% receives  65%
I took the data from this Federal report on Poverty Income and Health Insurance Distribution, page 31. It shows median household income of $50,054 and mean average income of $69,677 in 2011. 
Why is the median 69% of the average? Why aren't they both approximately the same? 

You can go to State of Working America and confirm those figures, here. From 1 to 5, the quintiles by percent of total income: 4.0%, 8.3%, 13.1%, 19.1%, 55.5%, and the top one percent receives 19.9%, more than the lower-earning 50%. This must be post-tax and post-transfer income, as it mirrors the report from the Urban-Brookings Institute cited above and the CBO report here. The median household income in the SWA report is $69,985 while the mean average is $104,163. Again the median is 70% of the average. I can't give a good reason why the two reports have such different average and median incomes, but it has to do with assigning income as cash income for the first report, and total income for the second report.  

What would your income be if labor's share of the national income had continued at the 1980 level? 
Of all private sector employees, 82% are non-supervisory employees (94 million out of 114 million -- check BLS data). If the 1980 distribution ratios were in effect today, that is if workers took in 66% today, then the income of 94 million workers would increase by $9,760 each year for all 94 million non-supervisory employees evenly distributed. (I took 8% of $11.468 trillion from the Congressional Joint Committee on Taxation report -- page 28 -- and divided it by 94 million = $9,760, and I looked at the Social Security Administration report on wage income.) Since a fourth of all workers, or more than 37 million workers, earn less than $10,000 a year, this would double the incomes for 1/4 of all workers. But it doesn't work that way.  But it is a perspective that demonstrates the very, very low earnings of most workers.  

I was planning to go to the California State Fair with a back-to-back page that I could easily hand out.
I missed the Fair, but here is the two page handout.
Knowledge is powerful.
I may mail it, I may send it to the local newspaper.
This essay is my simple attack on the problem; the next essay below is rather broad and complex and confusing, frankly, but it shows the labor composition, the pay distribution, the U.S. budget in a simplified version, and much more. Here's the original essay, before I added and added all you have just read.  

      A Prescription for a Sick Economy

The U.S. economy is not improving.  There was no, that is zero, net job creation in private sector employment over the 12 year period between December 2000 and June 2012 (see here). This is a failing economy, clear and simple. The "working age population increased by over 30.7 million, a 14% increase. During those 12 years we expected 18 million private sector jobs to be created, but zero were created, and in the past 12 months 2.6 million have been created, an increase of from 111.694 million to 114.302 million, a 2.3% increase when we should have had an increase of 14% . The employment to population ratio since 2007 has dropped to its 1984 level and has not improved in 5 years. An additional 14 million workers is one tenth of today's workers which stands at 143 million, but it should be 158 million. Contrary to some news media hype, the housing market is not fully recovered. Between January 1 and March 31, 2013, there were 190,121 home foreclosures. This figure contrasts with 10,000 in 2006 Q1. In the past five years there have been over 5 million foreclosures, about 10% of all mortgages. This does not include the number of short sales, REO sales and pre-foreclosure sales. About 20% of all mortgages are still “underwater”. Wage income is not keeping up with inflation, so 80% of workers are losing purchasing power year by year. Most new job growth is occurring in the low-paying sector of the economy.  Investment in the economy (net of depreciation costs for capital goods and machinery) is also at a unprecedented low, while the only section of the economy that flourishes are corporate profits which are at an all time high. This benefits only a minority of Americans. 

There is a solution, it is called wage-led growth.
More jobs are needed to make wage levels grow. A tighter jobs market both reduces the unused supply of labor, raises wages, and increases the demand for labor by creating additional purchasing power. The surest method to tighten the jobs market is to create public jobs directly such as occurred during the Great Depression. The next surest is to fund public infrastructure projects and increase employment in government services such as education, pre-school services, elder care and disability care. Adding federal block grants to state budgets to restore the loss of over 500,000 local government jobs is another growth inducing method in an economic slump. Increasing the minimum wage, broadening and increasing the Earned Income Tax Credit, strengthening workers' union rights are other measures needed to create wage-led growth.  
One third of the House of Representative Democrats, or about one sixth of all House members, support the plan for direct job creation and infrastructure enhancement funding, and the other measures mentioned. They are called the Congressional Progressive Caucus. Their budget, a stark alternative to both Obama's and the Republican's budget, is available on the Internet. 

Economic Facts of Life
1. Half of U.S. households own just 1.1% of all private wealth; the other half own 98.9%. (from the Survey of Consumer Finances, 2012, page 17, a Federal Reserve report, and this report from the Congressional Research Service
2. Half of U.S. workers receive less than 7% of all personal income annually (from a Social Security Administration report and a Congressional Joint Committee on Taxation report, page 28). 
3. $52,577 per year or $30,155 per year? The median worker income is the middle earning worker. If wages since 1968 had matched workers' productivity growth, then the median (or middle worker) hourly wage would be 74% higher, or $28.42 an hour not today's $16.30 an hour. On a yearly basis, the numbers are those above. (See here for average work hours per year.) Annual income for the median (in the middle) household would be $92,000 a year, not today's $50,000 (according to U.C. Berkeley professor Robert Reich). Would your life be different if most of your neighbors had let's say 74% more income? 
4. We are a very wealthy nation. After all taxes have been paid, personal income is $38,000 per person. This translates into $76,000 for a family of two, $114,000 for a family of three, and $152,000 for a family of four. The average savings per family is $498,000, but the median is $77,300. In Australia most adults have more than 5 times the U.S. amount, in Japan and France they have 3 times that amount. (from - personal income) 
5. The collective income for the highest earning 1% of households is greater than the income of  the lower-earning 60% of households. Their wealth exceeds that of 90% of households. (See the Citizens for Tax Justice report)
6. The poverty level in the wealthiest nation in the world is 16.1%, one in six, according to the Supplementary Poverty Measure report. Childhood poverty in the U.S. is double the average poverty rate of other wealthy nations. 
7. Government spending in the U.S. ranks 30th out 33 member states of the advanced nations of the OECD (see the Tax Policy Center's graph). Only Turkey, Chile, and Mexico tax their citizens less than the U.S. Presently the cost to the federal government of charity programs to U.S. citizens is about $750 billion annually (my following essay below, June 5, 2013, deals with this in greater detail); this is about 20% of the federal budget, and 5% of the U.S. annual economy, and 1% of all private wealth. This charity includes (in descending amounts) Medicaid which is half the expense, and unemployment compensation, food stamps and the school lunch program, the earned income tax credit, supplemental security income to disabled Americans, rental assistance, children's health insurance program, temporary assistance to needy families (known previously as "welfare"), women, infants and children nutrition, and the low-income home energy assistance program. 
8. The basic budget for the median level household is $63,238. The Economic Policy Institute study states, " In the median family budget area, Newaygo County, Mich., a two-parent, two-child family needs $63,238 to secure an adequate but modest living standard. This is well above the 2012 poverty threshold of $23,283 for this family type." (See EPI calculator, and this EPI article)

Aside from increasing wage income for 80% of U.S. workers, reducing prices for common necessities such as gasoline prices, housing, medical care, and education expenses would add to the purchasing power of the common worker and increase economic growth. Mandating employer paid vacations, family leave and sick leave policies, allowing judges to reduce home mortgage principal levels in foreclosure proceedings, reconstructing student loan costs and repayments, and instituting a more progressive tax structure would further improve ordinary household incomes and living standards and economic security. The CPC budget and the Demos plan "Millions to the Middle" outline many of these proposals. 

The best summation of solutions I've read is here: Go to the American Prospect magazine and find the article by Robert Kuttner called The Task Rabbit Economy. The article was posted  on Oct. 10, 2013. At the end of the article he proposes raising an additional one trillion in federal revenue to create full employment. It is a serious article and excellently referenced and argued. The Congressional Progressive Caucus also recommends a $2.1 trillion direct job creation program spread over three years, see their Back to Work federal budget here. U.S. Representative John Conyers has sponsored a full employment act in Congress that would create directly and indirectly 8 million jobs, see here. The Chicago Political Economic Group has had a similar plan since 2009 posted here and here. And a link to a conference on Roosevelt's Economic Bill of Rights will update our awareness to the 21st Century. 
Would you like to become an expert on wealth and income distribution? Here are the sources: 

Brookings-Urban Institute, Tax Policy Center, Measuring Income for Distributional Analysis, July 2013: 

I took the "Sick" idea from an article by Dan Alpert at Economonitor, a good description of recent hiring trends:

Economic Policy Institute, State of Working America, Charts, Income, 
Sources of pretax comprehensive income, by income group, 2007 (2011 dollars) 

CBO, Trends in the Distribution of Household Income between 1979 and 2007:
__________________________ WEALTH
U.C. Berkeley professor Emmaunel Saez, Striking It Richer:

Congressional Research Service, An Analysis of the Distribution of Wealth Across Households, 1989 to 2010:

Economic Policy Institute, Lawrence Mishel, Confirming the further redistribution of wealth upward:

On Wage-Led Growth, a report by Jeff Madrick:  
__________________________ VIDEOS
A book presentation video, Jeff Faux speaking on his book The Servant Economy: 

Government Direct Job Creation, a video of Phillip Harvey, author of the Demos report Back to Work (11:15 a.m. video, second one down):

Bill Moyers has a powerful interview with 2 women organizers, Madeline and Rachel LaForest: 
and another powerful interview about hunger and food insecurity:’s-hungry/ 

Doctor examining small boy in office.

October 1, 2013

About Obamacare, 

The Obamacare health insurance exchanges began accepting enrollment on October 1, 2013. One can enroll at, or obtain a customized estimate of premium expenses and much more information at Kaiser Family Foundation (KFF), and their subsidy calculator. The Kaiser site will estimate your expenses; for instance, living in Mariposa, a three person family with one child with an income of $30,000 can qualify for a "Silver" plan costing $1,250 a year (4% of income), or can choose a "Bronze" plan costing $0 because the subsidy covers the cost. It is a complicated system, families usually pay on a sliding scale between 2% to 9.5% of their annual income. 

I read several articles and reports lately, and here is a very brief summary of the highlights: 
1. Some 57% of all U.S. citizens report "skipping or delaying some type of care in the past year because of cost", this increases to 83% for the uninsured and 70% for those with annual income below $40,000 (from a KFF report). Our nation's per capita medical expense is roughly 2.5 times more expensive than most other advanced nations' per capita cost (from an OECD report). Medical insurance premium expenses increased by 80% between 2002 and 2012 (from a KFF report). 

2. Some 36.6% of Americans either refuse to buy or cannot afford medical insurance --- 15.7% or about 50 million Americans have no medical insurance coverage, and 20.9% (67 million) were covered under Medicaid in 2012. This is data from the U.S. Census, September 2012 (see page 70), and "Policy Basics: Introduction to Medicaid" a report from the Center for Budget and Policy Priorities. The cost of medical insurance for family coverage has risen by 80% over the past 10 years, from $9,068 to $16,351, reports the KFF. Inflation during this period was 27% according to the Bureau of Labor Statistics. This indicates an economic failure in a very wealthy nation. Our nation produces $39,215 of after tax income per person, that is, after all taxes are paid the average personal income for every human is $39,215 according to the Bureau of Economic Analysis, Department of Commerce, 2013 Q2. A family of four therefore, on average, would have an income of $156,000 after paying all taxes. Another source estimates annual "cash income" per family at $75,100, from a report by Citizens for Tax Justice, "Who Pays Taxes in America". This report shows that the highest-earning 1% of households earns more income collectively than the lower-earning 60% of households, 21.9% vs 21.4% respectively. We have a wealthy nation with over $500,000 of savings per family on average according to a Federal Reserve report, Survey of Consumer Finances (page 17), but the lower-saving half of all households own only 1.1% of all savings (from a Congressional Research Service report). As a result of severe inequality, rapidly rising medical insurance costs, and an over-priced medical system, we have a dysfunctional system where more than a third of all citizens are unable or unwilling to buy medical insurance. 

3. Over half, 50.4%, of all U.S. children either receive Medicaid (41%) or are uninsured (9.4%) according to the CBPP report. (See the last sentence of the report.) Almost half (44.5% according to the U.S. Census, or 33 million children) of all citizens under 18 years of age receive their medical care from government programs (35.1%) or live in uninsured families (9.4%). (See page 70 of U.S. Census report. When the government "shut down" comes to an end I'll be able to link this source.)

Obamacare is very complicated, but the Kaiser web page is helpful as is the Center for Budget and Policy Priorities report "Policy Basics: Introduction to Medicaid".  For instance, 44% of Medicaid expenses go to the disabled and blind, 20% go to the elderly, 21% to children, 15% to adults. 

Obamacare needs fixing, it will be a burden to some families who fall between the policy cracks, but the more exacerbating problem, greater than an out of control medical system, is the inequality of income and wealth that is crippling the nation and preventing the economy from achieving full employment. 

Yours, Ben Leet
My blog address:
Jeff Faux's article describes his English sister-in-law who calls a physician assistant and discovers on a Saturday night that she has a detached retina. She goes in the next morning at 8 a.m. for surgery. Her bill is $0.  Read  the story here:  

Also read the American Prospect article "The Cruelty of Republican States in One Chart" and read my comment below it. The states requiring working parents' incomes to fall to 16% of the poverty level --- the case of Arkansas law (a family of three with income greater than $3,133 is ineligible even though the poverty level is $19,530) --- before one is eligible for Medicaid are the ones refusing the expansion of Medicaid offered through the new Affordable Care Act, even though the federal government would pay for 93% of the expanded expenses until 2022! Shame on you Arkansas.     
Like charts? Here's the Huffington Post's Twelve Charts about Why Health Costs Are Obscenely Expensive: 
And here's a guy on YouTube who makes a point about high health care prices in the U.S.. 
And here's the facts about having a baby in the United Kingdom.  Eventually everyone will get the picture, that in the UK they pay about a third what we pay. 
Thanks, Steve, Want drama, read about Obamacare. I'll stop being so so boring, I'll add charts! Here's a chart comparing U.S. health with that of Italy. Read the article.