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Tuesday, October 22, 2013


In a Nutshell

I want to capsulize or reduce to the size of a nutshell the main ideas of this blog. This post does that. And, new and staggering, I am adding a subsidiary blog to this main blog where I will post  my comments to articles I read elsewhere.  My first comment here (click the link) argues that the true unemployment rate for October 2013 is 12.4% not 7.3% -- (I just added to it, so read the last paragraph also). 
--- now, as concise as I can make it --- this nutshell. 

Wealth has increased by 31% in the past five years, a gain of $17.6 trillion ($17,600,000,000,000) (see the Federal Reserve report, page i). That's a lot of money. The top 5% of households own 75% of all financial wealth (see reference, page 11), therefore on average each of the six million households in the top 5% gained $2,200,000. The other households in the nation lost income over the past five years, the median household level income dropped from $54,000 to $50,000, an 8% drop. The country now can boast of $74 trillion in net household worth, that's $616,000 per household if it were evenly distributed among the 120 million households. The lower-saving half own just 1.1% of all wealth (see reference here). 

Half of U.S. workers earn only 6% of all personal income. Some 47% of workers earned less than $25,000 in 2012. That is, 77  million workers earned $745 billion, according to the Social Security Administration's wage income report for 2012. Total personal income is $12.95 trillion (call it $13 trillion, not billion), according to the Bureau of Economic Analysis. So, half of workers received 6% of all income. The median wage income according to the SSA was $27,519. "Per capita personal income for the nation  was $41,560," states the BEA report. (Read a news story about it here.) Dividing the total personal income by all workers yields $84,640 per worker. About 44% of all workers 67 million out of 153 million) earn below the official poverty threshold, $23,218. The average income for the lower-earning half is below $10,000 a year while the average for all is over $84,000. For additional info on income distribution see these two sites here and here. The first says that average household income in 2011 was $104,163, and the second says that 1% of households earns 21.7% of all income while 60% earn 21.4%. 

Total personal income spread evenly among all 317 million American citizens equals $41,560, but the average income for half the workers is $9,802 (divide $745 billion by 76 million workers). 

The Lower-earning 50% or 76,816,000 Workers
Who are the workers in the lower-earning half? Almost 19 million (12% of workers) work part-time voluntarily, and nearly 8 million (5%) work part-time but want full-time work -- see the BLS figures here. Some 18 million (11.7%) work full-time and year round for less than poverty level income (see NJFAC data here). That leaves 21% still earning less than $27,519. These would be the unemployed  (7.3%) and temporary partial-year full-time workers (7%) or full-time year-round workers earning above $23,050 and less than $27,519, (6.7%) . The U.S. Census does not keep data on temporary workers; I have written them and received that answer. Again, the lower 50% have an average wage income of $9,802. The average annual worker's income (dividing total personal income by all workers) is $84,640. The 2012 poverty threshold is $23,050 for a family of four -- see HHS numbers here

I've done a little math and discovered that the combined incomes of 110 households in the lower-earning 25% of households equals one income in the highest 1%. 
In the lower-earning half it takes 65 households to equal one income in the top one percent. 
In the lower-earning three quarters it takes 43 households
The top one percent has received 95% of all the economic gains of the past three years. Their income share has never been higher except in the year 1928. 
The Ryan budget, supported by all the Republicans in the House, proposes to cut the top income tax bracket from 39.6% to 25%. They are rabidly opposed to budget deficits but this is their first priority, cutting taxes for the richest. For the last four years of the  Clinton presidency, the federal revenues were equal to 20.0% of GDP (see the source, page 27), but today federal revenues take in 15%, an $800 billion difference; but the right wing never tires of claiming that balancing the budget is a spending problem. Logic is not their strong suit. Their budget would achieve 66% of its cuts from programs assisting the poorest families. Concern for the poor is not their strong suit. Unfortunately Obama plays into their hands by negotiating cuts instead of demanding a direct federal jobs program needed to re-employ the over 12 million who would be working today if the employment to population ratio were as high as it was in 2007. See the Progressive Caucus budget that would pour $700 billion per year, creating 17 million jobs, perhaps more. We have about 25 million who want full-time work, see the National Jobs for All Coalition analysis. That's an unemployment and under-employment rate of 15%. 

A tighter labor market, or full employment, raises wages for all the 80% of workers who are employees. It increases purchasing which drives almost 70% of the economy. The nation's infrastructure needs refurbishing. The direct government jobs program is almost self-financing. After employment reaches fullness the government can step out of the job creation business as private sector hiring replaces government hiring. That's how the system works -- but it requires a balanced distribution of income. From 1933 to 1937 unemployment dropped from 25% to 9.6% (see reference). From 1940 to 1945 the number of daily workers surged by 40% due to the war mobilization (direct government job creation), and still the  unemployment rate dropped below 2% for three years. The employment to population ratio in 1944 was very close to today's employment to population ratio, just 0.7% below. Unions thereafter kept wages high and all earners and families enjoyed a 30 year period of increasing income until by 1976 all income levels had doubled in real, inflation adjusted dollar income -- see reference

As for solutions, The Way Forward is the best summation of and prescription for our economy's problems. I continue to read it and be amazed. The report's authors prescribe three pillars of change. I have grasped more understanding about the economy than from  any other report. Recently Dan Alpert, co-author of The Way Forward has published The Age of Oversupply. I'm on chapter four today, very good so far. Read the wsj review here. Any very  determined follower of this economic mess will want to read the entire book. 
                   Robert Kuttner wrote an article  that simplifies the needed policy solutions in nine points, The Task Rabbit Economy. This also is a key article for understanding the economy. He leaves out a much needed housing debt-overhang resolution, so we should make it a ten point program. 
The Congressional Progressive Caucus' budgets are very interesting reading, as well as the Economic Policy Institute's supporting reports on their budgets for 2013 and 2014
I'm reading Sam Pizzigati's book The Rich Don't Always Win; a history of the U.S. economy since 1890 emphasizing the progressive gains that balanced the distribution of personal income over this dynamic period, an issue key to economic health. (Here's Pizzigati interviewed on TV.) He edits the weekly newsletter
" Policy must begin by fixing the unemployment situation because growth is a byproduct of strong employment—not the other way around," states this report on Full Employment at the Levy Economics Institute.  
The nutshell of the nutshell. 

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