Economic Reform, 2008

Crisis -- No New Jobs in 12 Years

2012-01-05T17:03:00.000-08:00

There has been a net zero increase in private sector jobs in the U.S.A. since November 1999, twelve years ago. One may go to this Bureau of Labor Statistics web page and construct the table and graph that shows this crisis. Click the second box at this BLS site. An then construct your graph, 1999 to 2011. The BLS re-works their web page, and doing so they destroy the graph on this blog. I try to patch it back in place every week. Instructions to create graph are just below.

In December, 1999, total of 109,992,000 private sector workers, in December 2011 109,928,000 workers, 64,000 fewer after 12 years. (If the BLS web page is closed, you can "google" "BLS databases", click "Employment" then click "Employment Hours and Earnings - National, Top Picks" and check the second box on the list, "Total Private Employment, CES0500000001". Then arrange for a graph showing the years 1999 to 2011.)

I'm going to place another graph from an article in The Monthly Review, June 2011, by Fred Magdoff, "The Jobs Disaster in the United States." This graph is a ten year moving average graph. Note the horizontal axis zero line as the rate line crosses it in 2009. The Magdoff article is a better read than this blog article you are now reading.

Source: Calculated from All Employees: Total Private Industries (USPRIV), downloaded from St. Louis Federal Reserve FRED database, http://research.stlouisfed.org.

30 million potential workers increased the work-age population 1999 to 2010, from 207 million to 237 million. (See this BLS site for confirmation. Choose Database Tools, Top Picks, Total Non-farm employment) Of this increase it's normal for 2 of 3 to join the work force, or 20 million. Of this increase of 20 million there was no net increase in private sector jobs --- None. Only government sector jobs were created. Is this a crisis? Leakage out of the work force occurs at all ages. But the young workers entering the working age population are hardest hit. See the BLS link at the bottom of the next paragraphs.

The graph from the St. Louis Federal Reserve:

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2007 - 2012
Between January 2007 and December 2011 the working age population has increased by 8,717,000, yet the labor force has increased by only 743,000. And the number working is down by 5,238,000.

1997 - 2012

Between January 1997 and December 2011 the working age population has increased by 37,451,000, the labor force by 18,431,000, and the employed workers by 12,492,000. This indicates that during this 15 year period for every 100 added to the working age population only 33.335 found work. 66 did not find work.

(Details from two sources: http://www.bls.gov/news.release/empsit.t01.htm, and http://www.bls.gov/cps/cpsaat1.pdf. The working age population increased from 231,887,000 to 240,584,000 an increase of 8,717,000, Jan. 2007 to Dec. 2011. See "Employment, Hours, and Earnings from the Current Employment Statistics survey (National)" Total private, Series Id: CES050000001).

Hughes and Seneca, from Rutgers University, first reported this job-loss trend in "America's New Post-Recession Employment Arithmetic" in September 2009, stating,
"To put this new millennium experience into perspective, during the final two decades of the twentieth century [1980 - 2000], the nation gained a total of 35.5 million private-sector jobs. During the current decade [2000 - 2010], America appears destined to lose more than 1.7 million private-sector jobs."

The BLS web page shows Total Non-farm employment Dec. 1999 to Dec 2011, 12 years, an increase of 1.368 million. And Government employment Dec. 1999 to Dec. 2011, 12 years, an increase of 1.432 million. All the job increase in the economy over 12 years derives from increases in government employment.

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I left an e-mail with a certain economist, and I will copy it here to explain.

At the Bureau of Labor Statistics you can read that 12 years ago there were the same number of private sector jobs in the U.S. as today, 109.7 million today and 109.7 million in Nov. 1999. No net job growth over 12 years in private sector employment. Between 1990 and 2000 the labor force grew by 13.1%, so one would think in the past 12 years the private job sector would have grown at the least by 13.1% creating 14 million new private sector jobs. But the 12 year growth rate has been absolutely flat. No job growth. There should be at least 124 million private sector jobs, but we have in Nov. 2011 only 109.7 million. What has happened?

Also consider the report at National Jobs for All Coalition, unemployment. Add all the unemployed, the under-employed and those working full-time and full-year for below poverty level income, and you arrive at --- 29.6%, almost 30% of the workforce of 154 million adult workers. That would be over 45 million adults just squeaking along. No wonder that one recent report states that one third the families in the nation are either officially poor or "near" poor, meaning incomes of no more than 150% of the poverty level. See this article and graph from a New York Times article:

The Social Security Administration in 2010 reported that half of U.S. workers (75 million workers) had an annual income of less than $26,362. Then consider that our economy generates over $47,000 per person and over $109,000 per worker. It could make you sick! It makes no sense.

I recommend Nouriel Roubini's report "The Way Forward" at the New America Foundation. Two co-authors, Daniel Albert and Robert Hockett, contributed. Their jobs proposal would create "A $1.2 trillion, Five-Year Public Investment Program targeting high return investment in energy, transportation, education, research-and-technology-development, and water-treatment infrastructure." This is "Pillar One" of their proposal; Pillar Two is devoted to "Debt Restructuring and Regulatory Capital Loss Absorption" to repair housing and financial debt overhang; and Pillar Three addresses "Global Rebalancing -- A New G-20 Commitment to Currency Realignment, Domestic Demand Growth and Reduction of Current Account Surpluses. . . ". The comprehensive reform proposal is the most realistic "Way Forward" I have read. You can listen to an audio or watch a video presentation by the three authors at this site. It's 2 hours long, but pretty interesting, but not as good as the paper. Take a look, not Masterpiece Theater, but a great discussion.

My own "solutions" essay is February 2011's essay, found here.

A similar proposal, Investing in America's Economy, November 2011, comes from the Economic Policy Institute, Demos, and The Century Foundation. From its summary: "3.Build on economy-boosting investments. We must build and maintain initiatives that directly support long-term job and economic growth. Failing to invest adequately in these efforts – or sacrificing them to short-term deficit reduction – would be a dereliction of sound public management." The report suggests public investment in Child Care Services, Early Childhood Education, Infrastructure, Public Transit (high speed railroads), Rural Broadband Connectivity, Basic Research and Development.

The article America Beyond Capitalism by Gar Alperovitz shows the ultimate democratization of the economy which would drastically and dramatically reconstitute our economic lives through worker owned enterprise. Our lot in America will never be systemically improved until workers make decisions regarding allocation of resources. From the article America Beyond Capitalism at Dollars and Sense Magazine, December 2011:
"A mere one percent at the top now owns roughly half of the nation’s investment capital—more wealth than the entire bottom half of society taken together. This is literally a medieval pattern of ownership. Worker co-ops are one way to offer a practical alternative to this pattern, but they are not the only way."

Richard Wolff, emeritus professor economics, publishes at his own web page, and offers the same advice as Alperovitz: democratize the workplace. He spoke on January 12, 2012 in Berkeley and his lecture will soon be broadcast and available on KPFA radio.

The Levy Economic Institute assures us that this is Not Your Father's Recession. The scholars at PERI recently released a proposal that would create 19 million jobs by 2014. The Economic Policy Institute also advocates federal job creation, (see also this) as do many others such as this one at Demos.org by Rutgers professor Philip Harvey.

Robin Hahnel has been promoting a Parecon economy for decades and his video is accessible here.
A good summary of the poverty of "mainstream" advice can be found here, the article Capitalism in Crisis -- the Apologia. In the same vein, Jack Rasmus' articles, here, consistently analyze the shortcomings of mainstream advice. And Dean Baker's articles are found here. With all these sources a reader can fill up his or her day. Good luck.

http://www.bls.gov/cps/cpsaat1.pdf --
and BLS 1940 to 2010 Employment Status Report -- where I took my info

From: http://www.floridatoday.com/content/blogs/jparker/labels/unemployment.shtml
_________________________________
From my blog, August 2011. --- though it may seem hopelessly confusing:

Between the years 2000 - 2010 the civilian non-institutional population grew by 11.9%
(some 25,253,000 added, from 212 million to 237 million).
The civilian labor force grew by 7.9% (some 11,306,000, from 142 million to 153 million).
This says that of the increase in the population of potential workers (25 million), 44.8% entered the labor force (11 million), and 55.2% (14 million) did not enter the labor force.
The employed civilian labor force grew by 1.6% (some 2,173,000, from 136,891,000 to 139,064,000). (My confusion here has to do with the ages of those who decided not to participate in the labor force. I imagine that most of the missing participation occurred with older workers, a slow discouragement led to a persistent leakage out of the work force -- that's my guess.)
Out of the 25 million increase in civilian non-institutional population, 8.6% found jobs, and 91.4% did not find jobs. 25 million were added to the first (population), 2.2 million were added to the second (jobs). Restated: For every 12 people added to the population of potential workers, 1 job was added to the total employed! And those were government jobs, not private sector jobs. !!! Crisis?

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2011-12-02T09:50:00.001-08:00

The Need for a Large Government Stimulus

The essay is below, but first a sign and some quotes.

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Jimi Hendrix is attributed with this aphorism, as is Sri Chimnoy. Mohandes Gandhi also said: "

Power is of two kinds. One is obtained by the fear of punishment and the other by acts of love. Power based on love is a thousand times more effective and permanent then the one derived from fear of punishment. –Gandhi

Meher Baba said, "If men were only to become conscious of the fact that peace and happiness are not to be fought for but to be sought for within oneself, they would abandon their fighting and be at peace with themselves and the world."

__________________________________________

My (unpublished) Op-Ed to the New York Times:

Robert Shiller published an essay in the NYTimes today, Nov. 26, 2011, on "The Fire Bell of Unemployment"

in which he states that, "First, there is a lack of scientific proof that government spending — fiscal stimulus — will do much to remedy unemployment."

I think it is critical to deal with that assertion to have any understanding of solutions at hand.

History of Stimulus Spending

Between 1933 and 1937 the unemployment rate dropped from 25% to 9.6% due to "government spending --- fiscal stimulus". There was the Civilian Conservation Corp, the WPA, and the PWA. Roosevelt won a landslide re-election because of his success.

I suppose that is as close to "scientific proof" as an economic answer can be. Human sciences are in fact mostly studies, not sciences, and establishing causation is literally impossible. I refer you to the essay by Marshall Auerback at New Deal 2.0, August 30, 2010, "The Real Lesson from the Great Depression: Fiscal Policy Works" where he cites the drop from 25% to 9.6%.

If that were not enough evidence we can look at the period 1939 through 1944 when "government spending --- fiscal stimulus" lowered unemployment from around 14% to 1.2% in 1944. "The total output of the economy in constant prices -- the real Gross National Product (GNP) -- increased from $319.8 billion (in 1972 dollars) in 1939, the last year unaffected by the war or the prospect of war, to a peak of $561.9 billion (in 1972 dollars) in 1944." This is an increase in GNP of 76% in 6 years which is a growth rate of 10% per annum compounded. These figures originate from the book American Economic Development Since 1945 by Samuel Rosenberg, page 20. Furthermore, "Between 1939 and 1944, total civilian employment rose from 45.8 million to 54.0 million." Combining employment in the military services, the civilian employment increased by an unheard of 42% over six years. Over half that increase were women entering into the paid work force. Clearly, "government spending -- fiscal stimulus" made an enormous difference, perhaps it made all the difference.

Ways to Raise Income at the Lower-Earner Level

Mr. Shiller cites a proposal from Edmund Phelps to "provide a subsidy of $4.50 an hour for the lowest-paid workers, with declining amounts until they earn more than $15 an hour." This is good, but I prefer a more generous proposal that comes from the University of Massachusetts/Amherst professors Jeannette Wicks-Lim and Jeffrey Thompson, "Combining Minimum Wage and Earned Income Tax Credit Policies to Guarantee a Decent Standard to All U.S. Workers". To quote from the report:

"Specifically, we begin by proposing a 70 percent increase in current minimum wage rates. This would raise the federal minimum from today’s rate of $7.25 to $12.30 per hour. We also propose two expansions of the EITC [Earned income Tax Credit], the federal program that provides tax relief and cash benefits for low-income working families. These include raising the maximum EITC benefits by 80 percent and the income eligibility threshold to three times the federal poverty line. The maximum EITC benefit would rise from $5,028 to $9,040 and households with incomes up to $57,000 could receive benefits.”

How Low is Low Income?

The average income for the top one percent of U.S. households was $1,370,662 in 2011 according to this report from The National Priorities Project. Half of all U.S. workers, or 75 million workers, received less than $26,362 in 2010, according to the Social Security Administration.

In contrast, the Tax Policy Center shows that 28.2% of all U.S. personal income is the portion received by the lower-earning 80% of households deriving from wages and salaries. Approximately 80% of the nation's workers are non-supervisory workers (or employees). In other words, the main income of 80% of the work force is wage and salary income and their share is 28.2% of all income.

To re-enforce this idea, note that the Social Security Administration released figures for wage and salary income for 2010, and they showed that the median income was $26,362 for the 150 million workers who had payroll income. About 1 in 6 workers, or approximately 25 million workers, received 0 to $5,000 a year, another 1 in 6 received between $5,000 and $15,000 a year, and another 1 in 6 workers received income of between $15,000 and $26,362. This chart from the SSA. Note the drop in the median/average "Ratio" from 1989 to 2010. That's growing inequality. This data does not include income from capital gains and proprietary income which, combined, equal 17% of all personal income, and if included would show even greater inequality of income.

The average contribution to economic output is $109,000 per worker per year according to the San Francisco Federal Reserve Bank, and our GDP per capita is almost $46,000 per year. The lower-earning 80% receive only 40% of all the personal income our economy generates, while the top 20% of households receives 60.3%, according to the Tax Policy Center. Clearly there is room for raising the incomes of lower paid employees, as a measure of economic justice. And in doing so we would stimulate the economy and create employment.

The Federal Deficit -- Rebalance plan

Occasionally left-wing economists state, counter-intuitively, that the government has to spend in order to reduce the deficit. The private sector is knocked out, only government spending can rekindle hiring -- that's a basic Keynesian argument. Since the economy has a shortage of purchasing demand, or aggregate demand, only "government spending -- fiscal stimulus" targeted at low-income households will revive purchasing demand, which amounts to about 70% of the economic activity.

Dean Baker summarizes well the lag in performance in his article of December 9, 2011: "In short, we have lost more than $1.2 trillion in annual demand. The stimulus package came to around $300 billion per year for two years. Guess what, $1.2 trillion is much more than $300 billion.
The long and short is that the economy is operating way below its potential because there is nothing to replace the gap in demand created by the collapse of the housing bubble. The lack of demand means a shortage of jobs and high unemployment. There is nothing mysterious about this picture, it is about as simple and straightforward as it gets."

But, in contrast to the deficits-must-increase argument, there are potentially $824 billion in annual federal program cuts (such as in the military budget) and tax increases (such as higher rates to the high-earners) we could make and not spend-up the deficit, according to the Institute for Policy Studies report released this month, "America Is Not Broke". Their $824 billion annual spending cut is 7 times greater than the amount the Super Committee was charged with finding. Freeing up $824 billion annually and applying $290 billion to unemployed and underpaid workers would generate the missing purchasing demand that causes our economy's present lackluster performance.

A Plethora of Progressive Proposals
The Chicago Political Economic Group also proposes spending over $900 billion a year from new taxes and cuts in this report, A Permanent Jobs Program for the United States.

A net $824 billion of budget balancing (program cuts and tax hikes) would reduce the deficit from 37% to 13%. In other words the federal government spent $3.46 trillion, collected $2.16 trillion, and had a deficit of $1.30 trillion in 2010, and this deficit would be reduced to $476 billion if we had installed the plan's $824 billion in program cuts and tax hikes. But, as noted in earlier essays, about $300 billion is needed, and maybe more, for a public jobs program. $824 billion amounts to 5.5% of the U.S. GDP in 2011. The federal government collected in revenues 14.4% of GDP, spent 25.3% of GDP, and had a deficit of 10.9% of GDP in 2011, according to the Table S-5 of the OMB, the President's Budget.

The economists at University of Massachusetts, Amherst, PERI, released a plan, December 2011, to create 19 million jobs, which reduces unemployment to 5%, by 2014. The Institute for Policy Studies also released a proposal to save the economy: Jobs, A Main Street Fix for Wall Street's Failure, that revives our stricken economy. I recommend all these plans.

Nouriel Roubini, aka Dr. Doom because of his prescient prediction of the 2008 recession, released a plan, The Way Forward, at the New America Foundation. This plan has three constructive proposals, called pillars, 1) "a substantial five-to-seven year public investment program that repairs the nation's crumbling public infrastructure, 2) "a debt restructuring program that is truly national in scope, addressing the (intimately related) banking and real estate and financial asset price bubbles" and 3) " global reforms that can begin the process of restoring balance to the world economy". Without a trade balancing remedy, all reforms are futile.

Jack Rasmus gets the award for most foresighted thinking. At jackrasmus.com and at kyklosproductions.com you can read his proposals. Almost three years ago, in March 2009, he presented a detailed list of initiatives that would rekindle economic activity, see this article at Z Magazine.

The core problem is inequality

We will have to discover a healthy proportionality of income distribution if we wish to have a viable and healthy economy. From 1942 to 1982 the top 10% never received more than 35% of total income, now they receive about 50%. That's the core problem of our economy, in my opinion. Most all of the gains went to the top one percent. This is neo-feudalism.

Our economic problem is not a federal deficit problem, spending too much or a taxing too little, our core problem is distribution of income and wealth. We have the most unequal distribution of annual income among developed nations. The recent CBO report shows (page 8) that the top one percent of households have a post-tax and post-transfer income greater than the income 44% of the nation's households (both groups receive about 17% of all income, post-tax and post-transfer). The highest one percent of households in the wealth scale own more than 225 times the median household net worth, an all time high. The one percent also received 64% of the economic gains 2001 to 2007, and over 50% of the nation's gains over the past 30 years, according to U. C. Berkeley professor Emmanuel Saez. The marginal income tax rate on the very top incomes over $379,000 a year is nominally 35%, but as a group they pay 30.8% in overall and effective taxes (overall means to all government agencies, and effective means as a portion of their income.) See the report by Citizens for Tax Justice for confirmation, "All Americans Pay Taxes". The average overall effective rate for the lower 99% averages to 28.2%. Households with incomes around $40,000 pay 25.3% per year.

On November 29, 2011, the Democrats introduced a bill to extend the Social Security Payroll tax cut. The extension would be paid by a higher tax on very high income earners. See this article. In my opinion, good, but only a temporary fix.

The Economic Policy Institute has an article with many graphs that illustrate the title:
"Occupy Wall Streeters are right about skewed economic rewards in the United States", October 26, 2011, by Josh Bivens and Lawrence Mishel. The graph agrees with another report that shows from 2007 - 2009 the top 20% of households increased the size of their wealth pie from 85% to 87.2%. (See Sylvia Allegretto's report State of Working America's Wealth, page 5) Here's a graph from the EPI article showing the growth and drop-off of wealth for the top 1% and the bottom 90% of households over 1983 - 2009 -- but note that if we could extend the graph to 2011, the wealth of the lower 90% that is mostly housing price wealth would still be below 1983 levels, while the wealth of the top 1% would be restored to around 80% on this chart, because corporate stock prices have recovered, see the stock graph here:

In the coming year we will all be playing the amateur economist. I want the NYTimes to present divergent views.

I recommend the University of Mass/Amherst professors who run PERI, James Boyce, Robert Pollin, Thomas Palley, and others.

I don't have any credentials at all. I don't expect publication. But I have convinced myself, if no one else, that economists are a sad lot, and quite often have less understanding than the average Joe. See my blog, http://benL8.blogspot.com where I present a plethora, a raft, a compendium of data on inequality. --- I can provide reference citations for the figures in this short essay.

Thanks, Ben Leet

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And now, December 9, 2011, President Obama finally gets his message straight.
I wonder why he took so long. This quote comes from a Robert Reich article.

President Obama:

This kind of inequality – a level we haven’t seen since the Great Depression – hurts us all. When middle-class families can no longer afford to buy the goods and services that businesses are selling, it drags down the entire economy, from top to bottom. . . .

Inequality also distorts our democracy. It gives an outsized voice to the few who can afford high-priced lobbyists and unlimited campaign contributions, and runs the risk of selling out our democracy to the highest bidder. . . .

More fundamentally, this kind of gaping inequality gives lie to the promise at the very heart of America: that this is the place where you can make it if you try. . . .

It’s heartbreaking enough that there are millions of working families in this country who are now forced to take their children to food banks for a decent meal. But the idea that those children might not have a chance to climb out of that situation and back into the middle class, no matter how hard they work? That’s inexcusable. It’s wrong. It flies in the face of everything we stand for.

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2011-11-20T11:11:00.001-08:00

Half of Households Own 2.2%, Half of Workers Earn 12.3%, and Half of Households Receive 19% of the Nation's Income.
(see below, in blue)
Smaller share for 90% -- Household Income Distribution

Growing share of income for the rich

Inequality in the U.S. has has grown steadily since the 1970s, following a flat period after World War II. In 2008, the wealthiest 10 percent earned almost the same amount of income as the rest of the country combined.

SHARE OF NATION'S INCOME Including capital gains

The top 0.1 percent of the population (those making about $1.7 million or more) saw the sharpest increase in income share, taking home 2.6% of the nation’s earnings in 1975 and 10.4% in 2008. (See the source here.)

The best years for the U.S. economy were 1942 to 1982, and the graph from U.C. Berkeley professor Saez also shows this distribution. (See here, page 6, Figure #1)

A Congressional Budget Office report of October 2011 showed (page 8) in 2007 the income percentages for household quintiles (groups of 20% each representing 23 million households) before and after all taxes and transfers. Before: 2%, 7%, 12%, 19%, and 60%. Meaning, the top-earning households in percentiles 81% to 100% took in 60% of all pre-tax income. The after-tax-and-transfer income shares were: 4%, 9%, 14%, 20%, 53%. Meaning the top-earning 81% to 100% took in 53% of all income after all taxes and transfers. This also shows that half the households receive 19% of all income, the other half receives 81%. It also shows that 44% of lower-earning households as a block received the same share of total income as the top-earning 1%, each group received about 17% of total income.

The top-earning 1% of households received 21% of before-tax income and 17% after-tax-and-transfer income.

In 1979 the share for the top-earning 1% was 8%. Their share grew from 8% to 17%, after-tax, 1979 to 2007 (page 6).

The Congressional Budget Office report in October 2011, "Trends in Household Income Distribution 1979 to 2007" concluded, "For the 1 percent of the population with the highest income, average real after-tax household income grew by 275 percent between 1979 and 2007 (see Summary Figure 1)."

Gini Inequality Index
The pre-tax inequality Gini coefficient was reduced from 0.590 to after-tax 0.483 (see Appendix B). What that means is Brazil has a Gini of 55.0, Argentina of 48.8, Mexico of 51.6 at the top end, while Japan's is 24.9, Germany's is 28.3, and France's is 32.7. The U.S. has the greatest inequality among developed nations.

Tax Rates for all Income Groups
In another report, the tax rate for different household income quintiles is shown, "All Americans Pay Taxes", by the Citizens for Tax Justice. The top 1% pay an overall effective tax rate of 30.8%, while the lower 99% pay an average 28.2%. (the middle quintile of households pays 25.3% the lowest quintile pays 16.0%.) "Overall effective" means -- the actual amount paid relative to total income, and to all government agencies.

Household Inequality, Wage Inequality, Wealth Inequality
About the CBO report, they show that half of U.S. households receive 19% of all income, the other half 81%.
The Social Security Administration, reporting on wage and salary income, reports half of all workers receive 12.3% of wage income, the other half receive 87.7%.
Sylvia Allegretto, a U.C. Berkeley economy professor, reporting in State of America's Wealth, reports that half of the U.S. households own 2.2% of all wealth, (not 22% but two point two percent) the other half own 97.8%. The top 1% own 37%. (See Table 3.)

See the make-up of the top one percent here. The threshold income was $343,927 in 2009, and the average income was $1,300,000 plus. See this paper that reports the income share of the top 0.1% grew from 2.2% to 8%, 1981 to 2007. The graphs at the bottom are easy to read.

Any politician callous to these inequalities, who insists on a "no tax increase on the rich" position, such a politician deserves retirement.

Transferring from the Top 1% to the Lower 60%

If the top-earning 1% of households received 8% of post-tax income, as they did in 1979, instead of 17% as they did in 2007, according to the CBO, and their loss of share (9%) was transferred to the lower-earning 60% of households, about 70 million households (out of the total 117 million U.S. households), the incomes of all the lower-earning 60% would increase by 50%. Those with incomes of $12,000 would increase to $18,000, and those with $50,000 would receive $75,000, and so forth across the spectrum. It's time to return to the 1950s, in my opinion, when the tax rates on high income were over 90%. The nation needs it.

Income for the lower-earning 90% of households drops by 6.4% --- a negative 6.4% --- over a 35 year period. (While the income for the top-earning one percent increases by 275 times, see above. Really, this is no way to run an economy in a democracy.)
See this study from the Chicago Political Economy Group to confirm, and the table below from another report.

INCOME LEVEL	NUMBER OF PEOPLE	AVERAGE INCOME	OVERALL CHANGE 1970-2008
Top 0.1%	152,000	$5.6 million	+385%
Top 0.1-0.5%	610,000	$878,139	+141%
Top 0.5-1%	762,000	$443,102	+90%
Top 1-5%	6.0 million	$211,476	+59%
Top 5-10%	7.6 million	$127,184	+38%
Bottom 90%	137.2 million	$31,244	-1%

2011-11-11T11:12:00.001-08:00

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.
and
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.
and
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%.
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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)

Source: Calculated from All Employees: Total Private Industries (USPRIV), downloaded from St. Louis Federal Reserve FRED database, http://research.stlouisfed.org.

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%.
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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.
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Below a Congressional Budget Office graph, courtesy of Inequality.org

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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.

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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 ---

http://www.youtube.com/watch?v=pyV60kTvEFE

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.

Chorus:

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.

Chorus

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.

Chorus

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.

Chorus

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.

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Complex Addendum Note

U.S. Census, Mean Total Income, 2009 = $68,827

http://www.census.gov/hhes/www/cpstables/032010/rdcall/1_001.htm

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,

http://www.economist.com/blogs/dailychart/2011/10/income-inequality-america

CBO report ---

http://cbo.gov/ftpdocs/124xx/doc12485/10-25-HouseholdIncome.pdf

From the Center for Budget and Policy Priorities and the Tax Policy Center:

2011-10-28T16:50:00.000-07:00

Half of U.S. workers have incomes below $26,364, yet the average output per worker is $109,000 ---- please explain (see #3 below)
I often show on this site startling economic conditions, like the one above. This week I show four ideas and conditions.

1.) FDR in 1938 takes on Fascism in the U.S. -- Will Obama?

2.) The Real Unemployment Rate and the Misery Rate

(21.4% and 32.3%)

3.) The Sinking Median Income ---

$26,364 or less is the income of half of working America.
75 million make more, 75 million make less.

4.) Productivity Gains Over the Years and Middle Income Stagnation

So much attention to economics in the country, happy days are :

(Thank you Brian Narelle for the use of your cartoons -- See his site here.)

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Here are four topics that are relevant to my thinking and their inter-relationship will become clear.

1.) On April 29, 1938, Franklin Roosevelt addressed Congress about

"Curbing Monopolies" in which he defines Fascism.

"Unhappy events abroad have retaught us two simple truths about the liberty of a democratic people.

The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power.

The second truth is that the liberty of a democracy is not safe if its business system does not provide employment and produce and distribute goods in such a way as to sustain an acceptable standard of living.

Both lessons hit home.

Among us today a concentration of private power without equal in history is growing.

This concentration is seriously impairing the economic effectiveness of private enterprise as a way of providing employment for labor and capital and as a way of assuring a more equitable distribution of income and earnings among the people of the nation as a whole."

Read more at the American Presidency Project: http://www.presidency.ucsb.edu/ws/index.php?pid=15637#ixzz1c2UDu94B

There are fewer "private sector" workers today than in 2000, 11 years ago. Today there are 109 million, in 2000 there were 110 million. See this Bureau of Labor Statistics reference, and another BLS reference in section 2 just below. The population that makes up the labor force has grown by 33 million people, from 207 million to 240 -- and private sector employers have added a net ZERO new jobs in the past 11 years. This should concern everyone who lives in this country. See below for more about this.

I received the Roosevelt quote from the writings of John Weeks, a Socialist economist from Great Britain. (See the source.)

Wouldn't be pleasant to hear our president speak as FDR spoke, and even more pleasant to live in a country where most people knew what he was talking about?

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2.)

21.3% -- the True Unemployment Rate

32.2% -- the Misery Rate

Since 1999 we have added a net zero to the number of private employees in the U.S.A. There were 109 million private sector workers in 1999, and there are still 109 million private sector workers in 2011 --- 12 years and no growth in the private employment sector. View the data here:

http://data.bls.gov/pdq/SurveyOutputServlet)

Since 1999 the population of potential workers -- everyone above 16 years old -- has grown by 33 million or by 16%, from 207 million to 240 million. Let us suppose that the labor force would have grown at the same rate as the working population. Then today there would be 20.5 million additional workers participating in the job market. But in fact the labor force participation number grew by only 15 million. Some 5.5 million workers are missing, people who chose not to enter the labor force. They are not counted in any BLS figures of unemployment or underemployment. That is an additional 3.2% added to the unemployment rate of 9.1%, or a total of 12.3% unemployed.

(See BLS figures at http://www.bls.gov/cps/cpsaat1.pdf

To that you can add the discouraged workers and the under-employed workers, an additional 9.3% to the 12.1%, for a total of 21.4% true unemployment. (See njfac.org/jobnews.html)

And that's not all. Add the additional 10.9% who work full-time and year-round in jobs that pay less than the official poverty rate for a family of four. Then you find that 32.3% of working America are either 1) out of work, 2) can find only part-time work and want full-time, 3) have dropped out of the job market, or 4) have a lousy paying job. Find the figures for all these under- and unemployed here.

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3.)
Distribution Figures

$47,000 --- The economy generates over $47,000 of output per citizen, man, woman, child, and elderly person --- over $47,000 per capita.

$109,000 --- It generates over $109,000 of output per worker (see http://www.frbsf.org/csip/data/charts/chart17b.cfm).

$26,364 --- But the median wage, according to a very recent report by the Social Security Administration is now $26,364. See the David Cay Johnson article . The net compensation for all 150.4 million payroll stubs is $6 trillion, which averages $40,000 per worker ($39,959.30 to quote the SSA exactly). This figure includes only what is reported on the W-2 paycheck statement, and does not include compensation from capital gains and business income, about 18% of all income. Nor does it report pension income, nor government transfers such as Earned Income Tax Credit or Temporary Aid to Needy Families. This is pre-tax income for wage earners. The figures on wages are "awful" according to Johnson. Worse than last year.

The Citizens for Tax Justice site reports a mean average income at $68,900 for 2009. The U.S. Census reports a mean average income for 153 million individuals as $42,466. The reports are widely different. I expect that the U.S. Census just does not capture all income in their figures. The CTJ figure may include more income from the very highest 1% of earners, driving $42,466 to $68,900. U. C. Berkeley professor Emmanuel Saez reported that 23.5% of all income went to the top 1% in 2007, exceeding the pre-tax income of 60% of households. Another problem is an explanation for the low median figure of $26,362. One conjecture is that pension income may be very large, driving upwards the mean average, separating the $26,362 median from the $42,466 mean. The questions abound, and they are important because, in the words of professor Robert Wade, "I have suggested, first that the West is likely to experience several more years of slow and erratic growth; and second, that another big financial crisis within a decde is quite possible. . . . The second prediction rests on the failure to push through reforms to finance that would stamp on the practices that produced the current crisis, and to change the incentive structure facing the banks, with its built-in bias toward moral hazard. It also rests on factor beyond the financial sector. The latter high top-end income and wealth inequality."

"Anyone who wants to understand the enduring nature of Occupy Wall Street and similar protests across the country need only look at the first official data on 2010 paychecks, which the U.S. government posted on the Internet on Wednesday," says Johnson.

The Tax Policy Center generated a breakdown of income, its sources and distribution, in 2006. The State of Working America, 2006/2007, published it on page 79. The lower-earning 80% of households received 40.0% of all pre-tax income, the top-earning 20% received 60.3% (as you can easily see if you link to the table).

This is pre-tax income. I made a point to calculate the fraction of total income that the lower-earning 80% received through wages and salaries: it was 28.2% of total 100% of personal income. About 80% of the work force are non-supervisory workers. 28.2% is their labor-reward share of all income that our economy produces. The labor-reward share for the top 20% is 36.3% of total income, 8.1% higher than all 80%'s share. The lower-80% receive 11.8% of their income from pension and other sources.

Using the Tax Policy Center's numbers, for every $1 of income received by the lower 80%, $6 of income are received by the top-earning 20% of households. (When 40 is divided by 80, each receives 0.5, and when 20 is divided 60, each receives 3.0. The ratio is 1 to 6.) The figures from David Cay Johnson are alarming, but not as alarming as the Tax Policy Center. The Johnson figures do not include the capital and business income that goes almost entirely to the top 20%, mostly the top-most 5% who own 72% of all financial assets.

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See the report by Citizens for Tax Justice on overall effective tax rates. You will find average incomes for each 20% grouping and the overall tax bite each income group pays effectively or actually, not just the nominal rate.

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4.)

Workers Produce More, But Wages Stagnate

What would be the median worker's income if wages had matched productivity? Les Leopold writing at Alternet, 10/23/11, gives his best analytical guess:

I calculate that the median would have risen from $31,824 to $61,360. That's about double. Imagine your neighbor has a normal job, but he earns $60,000 instead of $30,000. It is possible even still. See my February essay. Read this link to the chapter "What Should Be Done: A New Deal for the Middle Class" in Aftershock by Robert Reich. Les Leopold uses weekly wages to find the median, not annual median as David Cay Johnson reports from the Social Security Administration. Thanks, Les.

The same graph but done by the Economic Policy Institute at their site State of Working America looks like this:

The median compensation increased by about 15% and productivity increased by 92%. Using the Social Security Administration figure for median income, $26,364 in 2010, then the median would increase by 77% to $46,600. Half of 150 million workers would earn less than $46,600.

And finally, the Congressional Budget Office presented their study last week that showed the changes in the sizes of the income-pie-slice received by different income groups. Their graph shows the top one percent getting most if not all the economy's increase, while the other income quintiles shrunk in relative size. Note: "After Transfers and Federal Taxes". That would be transfers like welfare and Earned Income Tax Credits.

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Now, why do I do all this calculating? The same reason people are sleeping outside at the Occupy sites. The economic arrangements are perverted. On top of this we send about $1.4 billion a day over seas to our commercial foreign trade partners. For four years it was over $2 billion a day. The wages for manufacturing labor in China is reported by the Department of Labor, Monthly Labor Review, March 2011, to be $1.36 an hour, and in the U.S. it's $34 an hour. We have an uphill fight to stabilize our median income. I think the population should respond intelligently by viewing the facts as clearly as they possibly can. That's why I write.

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Dollars and Sense Magazine published an article that summarizes our problems and presents solutions that match what I have presented on this blog. The author is Katherine Sciacchitano in the September/October 2011 issue. This is a short quote: "It took the New Deal to get the economy growing. From 1933 through the end of the Depression, GDP rose and fell with government spending. By 1936 unemployment had fallen from 23% to 9%."

How could unemployment fall so rapidly? Answer: public job creation. SeeRutgers University professor Philip Harvey's solution and follow the campaign at the Full Employment web page.
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2011-09-28T09:45:00.000-07:00

A Very Short Course in the U.S. Economy

Often while talking on the phone to a friend I realize that he or she has a very sketchy concept of the economy and how to solve its problems. So I have put together some quick graphics, about 7 of them from web pages, with a short narrative connecting the story, plus some solutions. The reader can flip through the pages and graphs, and come out with an improved vista._________________________________

Photo originates here: New Deal 2.0, a good source.
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(Note: On October 15, 2011 my friend sent me a link to an article that is better than my summary here.
The title is "Here's What the Wall Street Protesters Are So Angry About . . ." Be sure to also read that article.)
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The general picture is that we've gone through several decades of growing income and wealth disparity while at the same time degrading the structure of the economy. We may never recover --- I would not joke about it --- and if we do we'll have to make some big changes. It's all here in a flash.

1.) Income disparity

What has been the economy's problem? A look at three graphs explains the inequality problem. The first and second show changes in income distribution 1979 to 2007; the third shows changes in wealth distribution, 1983 to 2009.

This comes from the Economic Policy Institute, a report by Lawrence Mishel and Josh Bivens, Oct 26, 2011. See the entire article here.

The next graph on income gains comes from Jared Bernstein's blog, titled ""The Policy Backdrop of Inequality and It Implications for 'Class Warfare'". His source is the Congressional Budget Office.

Imagine a pie cut into five pieces each representing the amount of income distributed to the five groups of 20% households. Over time the pieces get bigger and/or smaller. The top 20% piece is sub-divided. The top-earning 1% fared well over the past decades, their piece of pie grew from 7.5% to 17.1% (post-tax). The sizes of all four lower-earning 20% groups, representing 80% of the population, shrunk. That is the gist of this graph. It fails to show the relative sizes before or after the comparison, showing only the changes. According to the Tax Policy Center, the sizes (of the "income pie") per each 20 percentile household group in 2006 was 2.5%, 6.4%, 11.4%, 19.8% and 60.3% for the incomes of the five quintiles of households. This is pre-tax income. The top 20% received 60.3%. See my other essay previous to this one for similar comparisons. The income to the top 1% was approximately equal to the combined incomes of the lower-earning 60% of households.
See the Tax Policy Center for actual figures.

2. Wealth Disparity
Top 20% = yellow
Bottom 20% = not visible or 0.1%
20% to 40% = not visible or 0.2%
40% to 60% = 4%
60% to 80% = 11% (Source PBS News Hour)

For a full report on wealth see State of Working America's Wealth.
The graph on household wealth gains, 1983 to 2007, shows the same picture. It derives from Lawrence Mishel at the Economic Policy Intitute, September 15, 2011. The bottom 60% of households have lost savings since 1983. This is consistent with U.C. Berkeley professor Sylvia Allegretto's study that showed the bottom 80% of households on average lost 40% of their savings between 2007-2009.

Once again, the pie chart showing wealth distribution is missing. But here are some aids. State of Working America's Wealth, a 2011 report by U.C. Berkeley professor Sylvia Allegretto, pages 4 and 5, shows the relative sizes. The lower-wealth-holding 60% own a mere 2.2% of the total wealth.
Mother Jones magazine ran an article, "It's the Inequality, Stupid" in March/April 2011. Check out the graphs.

Combine this with the knowledge that the GDP/capita (the economic output per citizen) in the nation has more than doubled (an increase of 100%) since 1963, while the typical family or household's income has increased by 22% from 1967 to 2003. The economy more than doubled, the typical household saw income rising by a quarter. The St. Louis Federal Reserve Bank provides the first graph showing an amazing increase in output per human being. The next graph, from the U.S. Census, shows a less amazing distribution of output where the median household barely grows its income.

Real GDP per Capita in the United States (USARGDPC)

Edit Graph Print PDF Save

The majority of Americans did not experience the full benefits of a growing economy, in fact in our present decline, a majority are seeing declines in wealth back to levels of 1983, while income has not budged for individuals since the mid 1970s.

Now, if you are interested in learning about the recent recession, you can catch many graphs at this site, "The Legacy of the Great Recession" at Center for Budget and Policy Priorities. But you might skip that to avoid overload. But if you crave overload, look at Inequality.org, part of Demos.org.

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What is the solution:

Public Employment

Public employment worked in the 1930s and '40s, it may be our last hope to end the epidemic of unemployment and underemployment. About 30% of workers, or 45 million, are either out of work (9.2%), under-employed (5.8%), discouraged and dropped out (4.2%), or working full-time year-round for below poverty level wages (10.9%). It is a sick economy.

There are plans to create public jobs, professor Philip Harvey, Rutgers University, published on at Demos.org in January 2011, "Back to Work".

On page 11, Table 3, you'll see Harvey's plan would create 1,000,000 jobs plus 414,000 additional private sector jobs for a net cost of $28.6 billion. Harvey states, page 12, "We currently need about 8.2 million more jobs to reduce the nation's unemployment rate to 4.5%. Creating that many jobs in a program like the one described in Table 3 would require a net increase in federal spending of about $235 billion during the first year of the JLRS initiative. If the Bush-era tax cuts had been allowed to expire at the end of 2010, the federal government would have collected about $295 billion in additional revenue during 2011." I recommend readers look at the graph on page 2 and the table on page 11.

Marshall Auerback at New Deal 2.0 writes (in The Real Lesson from the Great Depression) that the "Roosevelt administration reduced unemployment from 25 per cent in 1933 to 9.6% per cent in 1936, up to 13 per cent in 1938 (due largely to a reversal of the fiscal activism which had characterized FDR’s first term in office), back to less than 1 per cent by the time the U.S. was plunged into the Second World War at the end of 1941."

There is no reason to review Auerback's essay in a very "short course", but you will be interested to know that the public jobs program built real structures, "It also built or renovated 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, and a thousand airfields. And it employed 50,000 teachers, rebuilt the country’s entire rural school system, and hired 3,000 writers, musicians, sculptors and painters, including Willem de Kooning and Jackson Pollock. So much for the notion that government jobs are not “real jobs”, as we hear persistently from critics of the New Deal!"

Restore Manufacturing

And finally look at Ron Baiman's essay of September 7, 2011, "What We Need to Do to Revive the Economy". He states that government spending is not enough to revive the economy, it needs restructuring. "In the absence of restructuring there is no magic date in the future after which point the economy will be able to grow without public or private deficits.5

The need for fundamental restructuring to revive our economy makes our current downturn more like a "Depression" than a "Recession". . . . The U.S. economy suffers from major macroeconomic imbalances and a three decade loss of productive capacity that cannot be corrected by a decade long spree of public infrastructure spending (though this would certainly help in the short-term and the long- term)."

He further states,

"We don't need to "shrink the size of the public sector" ([which is] what the real underlying "deficit" debate is all about about). Rather, we need to dramatically increase it. We need to vastly expand our taxing and spending in order to reorient our economy away from a rentier [finance dominated] and back to a productive [manufacturing] and balanced advanced economy configuration by enacting a massive federal jobs program that will expand public and private sector employment in: a) social services, b) infrastructure, c) new green technologies (CPEG 2009, 2011). We desperately need a new New Deal."

The graphs on unemployment, page 3, and the conclusion beginning on page 5 are very instructive.

Also look at the articles at New Deal 2.0 by William Lazonick and John Rynn dealing with restoring manufacturing industry to the U.S.

At this point you might try my essay, February 2011, in which I try to offer 6 or 7 indispensable changes needed. It's a "basic solutions" essay.

In Short

There is no happy ending. It is a royal mess.

The economy should not serve only those who seek fabulous fortune. Greed has perverted the society. What if the GDP/capita graph (from the St. Louis FRB) that showed 100% growth between 1963 and 2007 had matched the median household income graph? And what if the other wealth and income graphs had even growth for all income sectors? And why shouldn't they? Between 1947 and 1979 those graphs did match; there was even growth for all income sectors.

In Contrast, the years since 1979 are starkly different:

Source: U.S. Census Bureau, Historical Income Tables: Families, Table F-3 (for income changes) and Table F-1 (for income ranges in 2009 dollars).

These two graphs come from Inequality.org, and originate at the Economic Policy Institute. The EPI created a web page called State of Working America.

See this interactive graph at State of Working America, and compare the share for the bottom 90% before and after 1969. You will notice as you swing the pointer pre-1969 that the blue sector is visible, indicating the 90% of households made income gains. What do you see when you swing the pointer post-1969? We had growth for all sectors 1947 - 1979, but the top earners still captured half or more the growth. The income tax bracket was over 90% on income above $200,000 from 1951 to 1964. (See this table.) Or we could just establish a maximum wage set at 20 times the median household income. There are plenty of solutions for curbing inequality.

Ben Leet

You finished this session. Now go to the next:
THIS BLOG: My February 2011 essay, the Six Point Program, is a comprehensive proposal to restore prosperity. I recommend it. Go the the column at the right, click-on February, 2011. Look for the Contents page also, December of 2010. We can do two major things in this nation: we can make sure all jobs pay a decent wage -- they don't, believe me --- and democratically we can create jobs for everyone.
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I left this comment to the article I cited above, "Here's What the Wall Street Protesters Are So Angry About . . ." Here it is:

Excellent. Add this: 40% of the savings of the typical family (the median household) were lost between 2007-2009, their savings dropped from $105,000 to $65,000, down to savings level below 1983 levels. This is according to Sylvia Allegretto, U.C. Berkeley professor, writing in State of Working America's Wealth. The wealthiest 1% own 225 times more than the "typical" or median family. 1 in 4 households have "zero or negative" net worth (savings) and another 1/8 have less than $12,500. Our economy generates over $47,000 per year yet 15% of the population lives in poverty. The St. Louis Fed also has a chart showing that the average worker contributes over $100,000 yearly in output to the economy, but the median income is around $30,000. And the National Bureau of Economic Research conducted a survey and half the adults said they would not be able to handle a $2,000 emergency within 30 days without borrowing or selling something. And add that about 30% of the young people below 18 years old get their food from the Food Stamp program. The economy is a mess. The Labor Department reports that manufacturing workers in China earn $1.36 an hour, and in the U.S. $34 an hour or about $70,000 a year. This is why 1/3rd of U.S. manufacturing jobs were lost in the past ten years. In fact, in the year 2000 the economy had more private sector employment, 110 million workers, than today in 2011, 109 million workers. Protest or lose what little you have. Excellent report. See my blog, http://benL8.blogspot.com for more. Excellent report here.

This photo credits: http://www.socialistproject.ca/bullet/553.php -- a good source of socialist thought.

If 80% earned $1 dollar, what would the top 1% earn?

2011-09-16T09:52:00.000-07:00

A New Look at Inequality of Income

Data comes from U.C. Professor Emmanuel Saez, "Striking It Richer". Year is 2008.

Contrast this with the figures from the Citizens for Tax Justice report "All Americans Pay Taxes".

Top 1% received average (pre-tax) income of $1,328,000 in 2009.

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If Income Were Distributed at 1970 Ratios,

Instead of 2007 Ratios:

80% of households would have $15,000 more income.

The Tax Policy Center lists the percentage of income received by different percentiles of households.

In 1970 the highest ten percent of households received 30.5%, in 2007 it received 42.0%. 63.6% of the all income increase went to the top 10% (see the graph below). The figures from the E. Saez report show an increase, 1980 to 2007, of the top 10% households from 35% to almost 50%. Using the Tax Policy Center figures, the annual incomes of all of the lower 80% of households, about 90 million households, would rise by around $15,000, the median rising from $49,000 to $64,000, with the same distribution as in 1970. The lowest-earning 20% of households would average not $12,000 but $27,000 a year; the next income quintile's income would be not $25,000 but $40,000 a year on average. And so on. This is using the averages from the Citizens for Tax Justice report, cited above. The total incomes for the Citizens for Tax Justice report are confusingly low. The median household income from the U.S. Census is around $50,000 a year. But the distribution ratio change is not confusing.

The Economic Policy Institute would disagree with my figure of $15,000 more for every family. Their chart shows an increase of $9,220 for the median, instead of my $15,000. I took the ratio of distribution from 1970 and applied it to 2011. Assume that the ratio had not changed since 1970, and you can also assume that the growth rate would have increased. But then you have to understand how inequality drags on growth by suppressing aggregate demand.

Or check out State of Working America, their section on income inequality. This is their graph:

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Comparing the 1% to other earnings' groups

A nutshell explanation:
If the lowest-earning 60% of U.S. households (almost 68 million households) in 2006 earned on average $1, then the next 39% of higher-earning households earned on average $4.65, and the top 1% earned over $54.40.

Or the lower-earning 80% (92 million households) earned on average $1, the next 19% earned on average $4.38, and the top 1% earned $36.80.

Or the lower-earning 99% (113 million households) earned on average $1 while the top 1% earned $22.32.

Where did I get these figures? See Citizens for Tax Justice, All Americans Pay Taxes, April 2010.

See also their report from 2009, Is Tax Day Too Burdensome for the Rich. Only recently did I find the more recent 2010 report. These pages show the effective overall tax burdens for all income sectors, that is, the total taxes paid to all government agencies (not just federal income tax) and the real rate as a percentage of actual income. The wealthiest pay 30%, the lower-earning 80% pay 24%, roughly. The higher-earning 1/5th who receive almost $6 dollars of income to every $1 dollar of income for the lower 80%, pay a rate of 30%, while the lower 80% pay an "effective overall" rate of 24%.

The income distribution data matches data from the Tax Policy Center, and from the Tax Foundation (see Table 5), if you are really curious. In 2008 the Tax Foundation reports that 67.38% of all pre-tax income went to the top 25%. The Tax Policy Center reports in 2006 that the top 20% received 60.3%. Roughly the same ratios as the Citizens for Tax Justice.

Since the We Are the 99% and Occupy Wall Street have become movements they might show that while each household in the bottom 99% get $1 dollar of income --- the top 1% get almost $24. The average income for the bottom 99% is $56,200, the top 1% average is $1,328,000. This is a ratio of $1 to $23.62.

The Math of Comparing

If 60 receive $1 each, or 20.3% of the total, their share of total income is $60.

Then 39 receives $4.65 each, this is 61.3% of the total, or $181.35.

Then 1 receives $54.44, or 18.4% of the total, or $54.44.

There are 100 participants, they receive 100% of all income, and total income amounts to $295.79. The average income ratio is 1 to 4.65 to 54.44.

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If 80 receive $1 each, or 40% of the total income, their share of the total income is $80.

Then 19 receive $4.38 each, this is 41.6% of the total, or $83.20 total income.

Then 1 receives $36.80, equal to 18.4% of the total, or $36.80 total income.

There are therefore 100 participants, they receive 100% of all income, and total income amounts to $200. The average income ratio is 1 to 4.38 to 36.80.

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Tax Policy Center
The lower-earning 80% of households received 28.2% of the nation's income from wages and salaries.

A part of the Brookings-Urban Institute, the Tax Policy Center is deep into the numbers. This report was subsequently published in State of Working America, 2006-2007, page 79. The note on page 79 states, "Source: Author's analysis of Urban-Brookings Tax Policy Center Microsimulation Model (version 0305-3A)." See these reports from the Tax Policy Center.

The distribution amounts for all 5 quintiles, from lowest to top, are 2.5%, 6.4%, 11.4%, 19.8%, and 60.3%. This is pre-tax income. The top one percent received 18.4% of total income (a portion of the 60.3%), an amount almost equal to the bottom 60% which received 20.3%. Professor Emmanuel Saez of U.C. Berkeley publishes a similar description in his report "Striking It Richer" and the Citizens for Tax Justice also publish a similar distribution, and if one were to look at the Joint Committee on Taxation or at the Tax Foundation one would find two other similar descriptions.

A disproportionate distribution amounts to leakage, a hole, in the economy. What escapes? Aggregate demand that would circulate and create jobs and incomes.

These are pre-tax income percentages. Looking at the overall effective tax rates for all income deciles, available at Citizens for Tax Justice (see link above), a subsidiary of the Institute on Taxation and Economic Policy (http://www.ctj.org/pdf/taxday2009.pdf) we note that the top one percent paid 30.9% in taxes, the 80th to the 99th percentiles paid from 31.5% to 32.2% in taxes, and the bottom 80% paid on average 24.5% in taxes. (Overall means "to all government agencies, federal, state and local" and effective means "as a percentage of income") Post-tax distribution ratios are roughly similar to pre-tax distribution ratios. From the report: "The total federal, state and local effective tax rate for the richest one percent of Americans (30.9 percent) is only slightly higher than the average effective tax rate for the remaining 99 percent of Americans (29.4 percent)."

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Looking at the Citizens for Tax Justice figures (2009) for average income, the average income for the bottom 99% of households is 4% for the average of the top 1% ($55,600 to $1,445,000). That's a ratio of 1 to 25. When I plug in the ratios from the Brookings-Urban Institute, 99 receive $1, and 1% receives $22.32. It's sixth grade math, and I won't explain how I did it. I was a fifth grade teacher, and that's why I haven't forgotten my arithmetic.

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If we use the pre-tax income percentages reported by U.C. Berkeley professor Emmanuel Saez for 2007, the top one percent received 23.7% of total income, not the 18.4% reported by the Tax Policy Center.
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This graph comes from Inequality.org, see "income -- inequality".

Source: Congressional Budget Office, Average Federal Taxes by Income Group, “Average After-Tax Household Income,” June, 2010._______________________________________________________________

Want to see it again? This time it's better. The source is an article at New Deal 2.0.

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The United Nations Human Development Report lists the Gini coefficient for the U.S. at 40.8 in 2010. This measure of inequality places the U.S. last among developed nations.
Among the top 50 nations in human development the U.S. ranks 44th in "Income Gini coefficient."
Among the top 30 the U.S. ranks 28th.
(UNHDI, 2010, page 152 --- http://hdr.undp.org/en/media/HDR_2010_EN_Complete_reprint.pdf )

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Only recently the director of Economic Policy Institute, Lawrence Mishel, published a report titled "Huge disparity in share of total wealth gain since 1983", September 15, 2011.
http://www.epi.org/publication/large-disparity-share-total-wealth-gain/
In the 26 year period 1983 to 2009 the top five percentiles received 81.7% of wealth gain. The lower 80% of households had a net loss in wealth. See the report. The top 1% gained $4.5 million per household, the next 4% gained $1.2 million per household, the bottom 60% lost wealth. This is also consistent with Sylvia Allegretto's report, State of Working America's Wealth, May 2011. This is indicative of the distribution of annual income over time.

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See the article in Dollars and Sense magazine, July-August 2011, by James Cypher "Nearly $2 Trillion Purloined from U.S. Workers in 2009". The top earning households "pocketed . . . an estimated $1.91 trillion that 40 years ago would have collectively gone to non-supervisory and production workers in the form of higher wages and benefits." Some 88 million workers would share $1.91 trillion or on average $23,875 per household. This would raise the median among the lower-earning 80% of households by 66%, from $36,000 a year to $60,000. See http://www.dollarsandsense.org/archives/2011/0711cypher.html

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I left this comment on an article at New Deal 2.0 October 18, 2011.

Our economy generates over $47,000 of output per human being, all 312 million Americans, per year, but the median income for all workers, over 150 million (including part-time workers), is around $30,000/year. Half make less than $30,000. U.S. income distribution Gini coefficient is the lowest among the developed (industrial) nations, maybe it's #73 worldwide. The average personal income I think is around $82,000 a year. The St. Louis Fed Reserve has a graph showing average output per worker is $100,000 per year. Recently the share of income going to wages has dropped. 30% of the workforce is either out of work (9.2%), working part-time involuntarily or discouraged (8%), or working full-time for below poverty level wages (10%). And if you include the drop in labor force participation since 2000, it's even worse. I got those figure from njfac.org, the unemployment numbers. I might mention, 28.2% of all personal income is the amount received by the lower-earning 80% as wages and salaries, see State of Working America, 2006/2007, page 79. About 20 miles south of San Diego, California, the minimum wage is $4.50 a day, and 60% of Mexican workers earn less than 3 times $4.50, or $13.50 a day. In China the manufacturing workers get $1.36 an hour, or under $3,000 a year. In the U.S. manufacturing jobs pay about $34 an hour, almost $70,000 a year. The rules of the economy, the laws, should serve the majority who live under those rules. The top one percent earn almost the same as the lower-earning 60%, see http://www.ctj.org/pdf/taxday2010.pdf. Beth Shulman and Paul Osterman deserve our attention.

Finance's Debacle, a nutshell explanation

2011-09-08T16:39:00.000-07:00

The Financial Collapse in a Nutshell

Here is a quantitative analysis of the destruction of the banking system. On September 5 I left this comment on an article by Jack Rasmus at www.jackrasmus.com -----

On page 220 of Epic Recession you list the Federal Reserve Flow of Funds report showing increases of debt, 1978 – 2008, from four sectors,

government debt up 8.0 times,

Consumer debt up 10.3 times,

non-financial corporations up 9.4 times,

and financial corporations up 47 times.

Financial corp. debt from 1998 – 2008 rose from $6.3 trillion to $19.5 trillion, tripling in ten years. (These are Flow of Funds Report figures from the Federal Reserve, 2009)

The book The Great Financial Crisis by Foster and Magdoff shows a chart, page 121, that financial firm debt rose from

10% of GDP in 1970,

to 22% in 1980,

to 45% in 1990,

to 83% in 2000,

to 123% in 2007.

Relative to GDP the financial sector grew by 12 times since 1970.

During 1998 to 2008 the inflation adjusted GDP rose 28% or so, while the financial corporation debt burden tripled in nominal dollars, and inflation adjusted increased by 127%. Financial sector debt very much out-shot economic growth, over-extended. And, financial corporation profits also tripled, there’s a graph in Foster and Magdoff, page 123.

After the crash, banks in the U.S. were "originally committed" $11.5 trillion, were "currently provided" $3.5 trillion in government funded bailout according to Zandi and Blinder report (page 3), of which all but $1.6 trillion will be recovered, they said, but the final amount is yet determined. Another accounting from the New York Times reports that "Through April 30 [2011], the government has made commitments of about $12.2 trillion and spent $2.5 trillion --- but also has collected more than $10 billion in dividends and fees." (Trillions/billion -- the government has collected 0.4% of what it spent.) And many of the large banks are still insolvent. Europe's banks suffer similar weakness but are not insolvent, but they face tremendous losses according to Rasmus' article. The U.S. public is stuck with paying for the bailouts, which raises the national debt. A greater price is paid in terms of low employment, foreclosures, stagnant wages, and reduced government. And hysteria over government debt. Since the lender dictates the terms of any loan, and has more knowledge of the risks, he should take his share of the loss. There was a Plan B in 2008, government taking over the banks, it never was discussed. Be sure to read the section at the bottom of this essay that purports that 30% of mortgage loans were "liar's loans" and over-stated borrower income by 50% during the year 2006.

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Inequality as the Original Cause

The problem here is inequality of income and wealth over decades, though at first glance it appears to be exuberant loan making. My conclusion is that all that surplus wealth was mis-allocated in the first place into the hands of a wealthy minority. (See U.C. Berkeley Professor Saez report "Striking It Richer" showing the major upward shift of income since 1980.) With a balanced distribution of income real human needs are taken care of, the entire society rises together, and the top-heavy wealthy are deprived of funds to create this monster of a financial system that knows only one law, "more". If economic surplus was distributed in a balanced ratio, more of the wealth would reach the accounts of more households, and more households would spend on real needs such as health, education, housing, city development. And the spending would spill over to inefficient use, but mostly it would produce security and intelligently planned lives for a majority.

This is about the end of this essay. Read on only if you like details.

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See Robin Hahnel's article at Z Communications, Financial Reform, July 2010, for a breakdown on needed reform.
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The surplus from production accumulates in the hands of too few. The top 5% of households own 60% of all assets and about 70% to 75% of all financial assets (see Allegretto, State of Working America's Wealth, page 11). What do they do with their liquid assets? Do they build more businesses and employ more? Yes and no. When there's more surplus than they can use productively or make a profit from, they create a monster of finance. And the record of the financial industry is that it is willing to self-destruct if it brings personal profit. Someone has to police finance, and that means reducing it's size to 1970 levels, 10% to 25% of GDP. Leo Panitch, a Canadian economist, seriously proposes a government take-over of the banking system. It is a utility after all. (See link at bottom, Public Banking)

There are several avenues, apart from take-over, to curtail the financial industry, and I'll mention seven steps below. But more important is to reform the ratios of distribution so that all can participate in economic security. As noted earlier, in 2011 the National Bureau of Economic Research conducted a survey asking adults in the U.S. if they could deal with an emergency expense of $2,000 within 30 days. Half of respondents said "No". Our economy generates over $47,000 per human being each year, and on average over $100,000 per worker (including all the part-time workers). The St. Louis Federal Reserve has a graph showing average value of all workers, and it's over $100,000. Half of all workers receive less than $30,000 a year. When the average value of each worker is over $100,000, how is it that only a mere half of adults can come up with $2,000 in an emergency? Distribution is flawed. Unbalanced. Incomes must rise for the majority.

Granted that loans do drive economic growth, but healthy loans still need a base of income earners to realistically generate future earnings to repay the loans. We do not have future earnings for enough workers. The next decades present a future of out-sourced jobs in the millions through advanced tele-communications, and continued off-shoring of manufacturing jobs. Since 2000 about 6 million jobs were lost in manufacturing, a third of total, and it's almost impossible to compete with Chinese manufacturing labor that pays $1.36 an hour versus $34 an hour in the U.S. (that's $2,800 a year versus $70,000 a year) -- (see Monthly Labor Review, March 2011, Department of Labor). High paying manufacturing has been the backbone of a middle class that produced the expansion of the past 70 years. Growing the financial system is no way to grow the economy.

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L. Randal Wray posted this article "Bye-bye to Bernanke's 'Insidious Banks': End 'Too Big to Fail' in 2 Easy Steps", published at New Deal 2.0, March 22, 2010.

http://www.newdeal20.org/2010/03/22/bye-bye-to-bernankes-insidious-banks-end-too-big-to-fail-in-2-easy-steps-9120/

Clearly there was a dramatic concentration of banking over the 1990s and early 2000s. Not coincidentally, this coincided with the explosion of innovations that changed the focus of the biggest banks away from making and holding loans in the case of commercial banks, or from underwriting and placing corporate equities and bonds in the case of investment banks, to trading. In 1999 Washington eliminated any separation between investment and commercial banking, allowing all of the big institutions to focus more of their business on marketing risk — earning fee income by selling products (largely derivatives, including asset-backed securities) to money managers, as well as trading for their own account. . . .

Lowenstein also rightly argues that the Wall Street institutions no longer serve any public purpose: “At Goldman, trading and investing for the firm’s account produced 76 percent of revenue last year. Investment banking, which raises capital for productive enterprise, accounted for a mere 11 percent.” And what kinds of trades and investments does Goldman pursue? It helps Greece and other clients hide debt, and then it bets they will default. These firms act against the public purpose, as Blankfein uncannily admitted to the Financial Crisis Inquiry Commission when he said that “we represent the other side of what people want to do.” You want to buy a house, build a factory, or provide government services to your citizens? Goldman wants to bet that you will fail. . . .

So how do we get to the elimination of Bernanke’s “insidious” too-big-to-fail institutions? We will not get there through increased regulation or supervision; we will not get there by improving system “resilience”; and we will not get there by propping them up with trillions of bail-out funds whilst waiting for them to fail so that we can resolve them.

So let’s try a much simpler, two-pronged approach.

1. After January 1, 2011 the FDIC will no longer provide deposit insurance to any financial institution that holds more than a one percent share of insured deposits. For the purposes of calculating market share, a bank holding company must include deposits of all subsidiaries — with the one percent share restriction applying to the aggregate total.

2. After January 1, 2011, institutions that issue FDIC-insured deposits are restricted to holding cash, reserves at the Fed, whole loans and corporate and government bonds. They may not hold any securitized products or derivatives; they may not move anything off-balance sheet; and they may not hold interest in any subsidiaries that are not subject to the same rules.

These two measures will eliminate most of the advantages to bigness.

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The Federal Reserve Bank in St. Louis has a FAQ section with this question

Why is the government reluctant to let large financial firms file for bankruptcy protection?

Federal Reserve and Treasury officials believe that bankruptcy is not a viable option for resolving very large financial firms because, under current law, bankruptcy proceedings can be protracted and entail considerable uncertainty, which would tend to exacerbate a financial crisis. FDIC Chairman Sheila Bair recently argued that "the legal features of a bankruptcy filing itself triggered asset fire sales and destroyed the liquidity of a large share of claims against Lehman ... The liquidity and asset fire sale shock from the Lehman bankruptcy caused a market-wide liquidity shortage."* Federal Reserve and Treasury officials have asked Congress to enact legislation for new authority and procedures for resolving failures of large financial institutions.

*Congressional testimony, May 6, 2009. Seehttp://www.fdic.gov/news/news/speeches/chairman/spmay0609.html.

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William Tabb, author of The Amoral Elephant (2001Monthly Review Press), warns of the enormous global capital flow that washes into to various pools of profit opportunity. It takes capital resoures, the fruit of economic surplus, and feeds on more profit. The allocation of resources is determined by only one criterium, profit.

Tabb, page 205, The Amoral Elephant,

"The basic ideas are simple enough. Citizens could demand structural changes in economic relations to comply, as I've suggested, with the principles of the Universal Declaration of Human Rights. Written in a postwar period of great energy devoted to seeing that humans would be wiser in the future and avoid the causes of war, it declared that everyone has the right to work, to free choice of employment, to just and favorable conditions of work, and to protection against unemployment. That is all in Article 23. 'Everyone who works has the right to just and favorable remuneration ensuring for himself [which we now understand can be read as himself or herself] and his [or her[ family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.'"

Tabb continues, "In an age in which capital's audacity seems boundless in its efforts to impose a new feudalism, in which the masters of the universe can use an internationalized state and its local subsidiaries to remake the world in their image, it does not seem amiss to celebrate the fiftieth anniversary of the Universal Declaration of Human Rights, to remind ourselves what the global financial institutions, the transnational corporations, and the governments that do their bidding are attempting to steal. People's rights come before capital's. . . . It is the organization of class-conscious political movements that know what they want and are willing to struggle to achieve their goals [that can make a difference]."

The world's richest 20 percent now receive 86 percent of the world's gross domestic product, the poorest 20 percent have only 1 percent, and the middle 60 percent just 13 percent [year 2000]. . . . The world's richest three people have assets greater than the combined output of the forty-eight poorest countries. . . . Consider: the 1999 United Nations World Development Report says that for $40 billion, basic health and nutrition, basic education, water sanitation, reproductive health, and family planning could be extended to the entire world's population. . . . A Tobin Tax on all international financial transaction would raise $45 billion a month [$540 billion a year], and then there are those military budgets. Finding the money hardly seems a problem. Getting those who have it now to give it up, ah, there's a problem."

From his last paragraph,

"I would conclude then, as I began, by reasserting that in the current situation of increased globalization, the universalization of capital is a long-standing process, but one that takes on specific meanings in our time. Rank-and-file citizens of the world must have a position not simply on trade issues and collective bargaining, but a political position on capital controls and other legislation that empowers progressive politics by limiting the power of finance capital. We are being forced by history to learn to think in systemic terms. Were we to do so with any consistency, we would be drawn to a return as well to our more radical social traditions."

Should Chinese labor have independent democratic unions? Should we allow the products of slave or near slave labor to enter onto our merchants' shelves? If Disney pays 16 cents an hour in Haiti, and Nike pays 25 cents an hour in Indonesia, and Apple pays $1 an hour in China, and Sony pays 80 cents an hour and Ford $1.20 an hour in Hermosillo Mexico -- should those products be for sale in the U.S. market? Should finance be free to jump into and out of national markets instantly without penalty? Is there a place for a more severe short-term capital gains penalty? Can we afford or is it morally neutral not to have an opinion?

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Here are six short suggestions about limiting finance:

1. Banks that fail should be declared bankrupt and dissolved. No more bail-outs. Let shareholders and management be aware. In the U.S. companies that run their business into the ground go out of business. Government's role is to take over management temporarily, settle debts, run the corporation until private investment bids to buy out government, as we did with Chrysler in the 1990s. As Sweden's government did when their banks failed.

2. A short-term capital gains tax penalty. Presently capital gains on assets held for less than one year are taxed at normal income rates, and assets held longer are taxed at 20% (or is it 15%?). This should change to normal tax rate for assets held more than 3 years, an additional 15% tax on assets held one to three years, and an additional 30% on assets held less than one year.

Investment not speculation is the rewarded behavior. Where to explore ideas about capital gains rates? I do not know.

3. A Tobin tax on financial transactions. The Chicago Political Economic Group claims that over $800 billion a year could be raised in the U.S. alone. (See this essay.) In France there is a group Attac, the Association for the Taxation of Financial Transactions for the Aid of Citizens. Many economists have advocated this tax since Tobin first introduced the idea. See Widipedia.

4. Jan Shakowsky presented an alternative federal budget proposal in February 2011 in which $77 billion of tax-expenditure would be eliminated (a net revenue increase of $77 billion annually). The expenditure allows financial corporations to deduct the interest payments on their loans. This is a government subsidy to an industry that needs no subsidy.

5. The foreign derivative market is immense and needs regulating if such derivatives are sold in the U.S. But Treasury Secretary Geithner will not support transparency or regulation of such derivatives. The entire derivative market needs a progressive response and re-ordering.

6. Shadow banking, Special Investment Vehicles, should be legislatively eliminated. Regulated banking now is less than half of the financial market. I'm not an expert, and I do not know where to seek out progressive proposals.

7. Futures trading should be managed and restricted to participants who have a distributive function in the market. Speculative participants should be eliminated from the destructive playing and manipulation of these markets. Speculation in grain prices raised the price of tortillas in Mexico touching off large protests.

I wrote a long essay about the original problem, the finance industry. What follows is my case against them. A further essay should explain how to cut it back to size. And a further should explain how to increase income for the majority, but the February 2011 is my standard answer thus far.

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The Consequences of the Financial Crash

Chairman Greenspan said in 2004, "Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient." And in 2008 Senator Christopher Dodd said, "we're literally days away from a complete meltdown of our financial system, with all the implications here at home and globally." (Quotes from Foster and Magdoff, pages 125 and 112)

In the report State of Working America's Wealth, University of California at Berkeley professor Sylvia Allegretto reports "The destruction of wealth that resulted from the Great Recession was widespread but not uniform. From 2007 to 2009, average annualized household declines in wealth were 16% for the richest fifth of Americans and 25% for the remaining four-fifths." I will explain it this way: In 1998 the average wealth index is at 0, nine year's later in 2007 it's at 56, and in 2009 it drops back to 11. So we saw that the GDP had grown by 28% (1998-2008), but wealth grew by 56% (1998 - 2007). That's double the rate of growth for GDP. And then wealth dropped off in a crash. So wealth grew by 11% 1998 - 2009. But it went up as high as 56% before the drop-off. The wealth pie got bigger, then smaller. The output (GDP) pie got bigger, and then shrunk by 5.1% for 18 months till the end of the recession, and then recovered it's pre-recession shape (GDP) in July 2011.

Remember that 87% of the assets are held by 20% of the households, and that banks own 61% of all housing equity. The net worth of the country, between 2007 - 2009, dropped by 16%. But for the household in the middle, the median or typical household, net worth 2007 - 2009 dropped by 41%, from $106K to 62.2K, to levels below the 1983 level. Since 1962, 47 years ago, the wealth of the typical (median) household has increased by 22%, from $52.2K to $62.2K. The economy's economic output per capita expanded by 64%, I think, close to 64%. The lower 40% of households own 0.3% of the nation's net worth, their net worth on average is $2,200. (I don't think anyone can take in all those numbers, so don't worry. I can't just state something uncomplicated, you have to stretch a little.) I sometimes cite a 2011 study from the National Bureau of Economic Research: half of adults in the U.S. could not deal with a $2,000 emergency within 30 days without borrowing or selling something. They asked about 1,500 people, "If you had an unexpected expense of $2,000, could you handle it from savings within 30 days?" No, said half.

This sort of number description may drive you crazy or bore you to death. It does bore most people, but not me. It means that the wealthy households actually got richer relative to others during this crash period and the middle level households lost a lot of savings, about $40,000 for the middle family. To me, my interpretation, the financial industry created the method of deceiving millions and millions of home owners that their residences, their houses, were worth far more money than they really were. This deception lasted about 8 years before it crashed. When the artificial bubble burst, the people who lost money were the poorer borrowers, and the richer lenders did well, made money. Here's a source with a cool graph: http://designandgeography.com/2011/05/17/inflation-adjusted-housing-prices-by-state-1991-2010/housing/

Was it deceit or incompetence? If bankers did not understand what was going on, they were incompetent, if they did understand they were thieves. What do you make of Greenspan's statement above? I'm putting Greenspan, Bernanke, the Ph.D.s working for the Fed and mutual funds, securities traders, and most heads of major banks into this rogues gallery of unflattering masterminds. The latter may have been too busy making millions to analyze what societal effects they were having, but any rational person would have noticed the major risk facing all of society.

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Sources for information:

I recommend essays at New Deal 2.0 and Robert Kuttner's analysis at American Prospect for understanding society's role in managing banks and the financial sector.

A graph of this same data I used in this essay can be found in a recent magazine article by Allan Sloan in Fortune Magazine, September 2011, and his source, the St. Louis Federal Reserve Bank.

http://finance.fortune.cnn.com/2011/08/18/how-washington-is-destroying-the-economy/

http://research.stlouisfed.org/fred2/series/GFDEBTN

And a series of graphs from the Center for Budget and Policy Priorities

shows the course of the economy through the recession:

http://www.cbpp.org/cms/index.cfm?fa=view&id=3252

And the Economic Policy Center has many graphs and studies.

I like this one about the labor market.

http://www.epi.org/publication/labor-day-by-the-numbers-2011/

And State of Working America also has a long series of graphs

to help simplify this complex phenomenon, the economy:

http://www.stateofworkingamerica.org/

The Chicago Political Economy Group
Eisenhower Era Income Tax Rates on the Upper 10% of Families Would Immediately Erase the Federal Deficit, this paper states, "Though media pundits and political leaders have incessantly claimed that we cannot solve the federal budget deficit simply by taxing the rich so that the middle class "must accept some pain," estimates shown in this paper demonstrate that this is not true (see Section 4 below). In fact, as Section 2 below shows, the bottom 90% of families (or everyone except what can only be called the "upper class") have been "accepting pain" for 35 years while the highest income and especially the very highest income, families have been reaping massive and ever increasing rewards for the same period of time."

http://www.cpegonline.org/workingpapers/CPEGWP2011-2.pdf

The St. Louis Federal Reserve Bank has a series of charts and graphs.

I don't find them very helpful, but they are official. Take a look.

Increase of monetary base:

http://research.stlouisfed.org/fred2/series/BASE

Public debt

http://research.stlouisfed.org/fred2/series/GFDEBTN

http://research.stlouisfed.org/fred2/series/USAEPRNA?cid=32267

http://www.cpegonline.org/workingpapers/CPEGWP2011-2.pdfhttp://www.cpegonline.org/workingpapers/CPEGWP2011-2.pdf

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This post deserves a few more references for readers:

Here is an article that spells out how the ten largest banks issue half the mortgages in the nation, and the largest five banks own 95 percent of the derivative market, and together the large banks own the industry (and Congress).

The article fails to spell out that banking corporations are a minority in the world of finance and debt creation. Hedge funds and other institutions that fall outside the regulatory purview control more assets. From Epic Recession by Jack Rasmus, page 217, "The summary showed that the shadow banking sector in late 2007 was even larger than the commercial sector (disregarding the latter's participation in the shadow sector). Shadow banking assets were worth $10.5 trillion compared to commercial banking's $10.0 trillion."

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Public banking is an alternative to the commercial stranglehold of the largest banks. This web page has an educational video explaining it.

Yet public banking does nothing to alleviate the greater problem of extreme concentration of wealth.
See inequality.org --- http://www.inequality.org

________________

This 2011 article by William K. Black in Dollars and Sense magazine sums up the harm the banks have wreaked.

Made the systemically dangerous megabanks even more dangerous
Made our financial system even more parasitic, harming the real economy

Here's a sample from Black's essay:

"According to Credit Suisse, for instance, 49% of all mortgage originations in 2006 were stated-income loans, meaning loans based on applicants’ self-reported incomes with no verification."

From the Mortgage Bankers Association:

One of MARI’s customers recently reviewed a sample of 100 stated income loans upon which they had IRS Forms 4506. When the stated incomes were compared to the IRS figures, the resulting differences were dramatic. Ninety percent of the stated incomes were exaggerated by 5% or more. More disturbingly, almost 60% of the stated amounts were exaggerated by more than 50%. These results suggest that the stated income loan deserves the nickname used by many in the industry, the “liar’s loan.”

(My note: 30% of all mortgage loans in 2006 were "exaggerated by more than 50%." The "sample was only "100 stated income loans", but doesn't this indicate the need for an investigation? Jack Rasmus states that $17 trillion of mortgage loans were issued 2000-2007, so about $2 trillion mortgage loans were issued in 2006. 30% of that amount is $600 billion. If they were clearly fraudulent, if the sample's pattern holds, then a $600 billion major fraud was perpetrated in just one year, and no one is in jail.)

Black asks:

Why would scores of lenders specialize in making liar’s loans after being warned by their own experts and even by the FBI that such loans led to endemic fraud? (Not that they needed any warnings. Bankers have known for centuries that underwriting is essential to survival in mortgage lending. Even the label “liar’s loan,” widely used in the industry, shows that bankers knew such loans were commonly fraudulent.) How could these fraudulent loans be sold to purportedly the most sophisticated underwriters in the history of the world at grossly inflated values blessed by the world’s top audit firms? How could hundreds of thousands of fraudulent loans be pooled into securities, the now-infamous collateralized debt obligations (CDOs), and receive “AAA” ratings from the top rating agencies? How could markets that are supposed to exclude all fraud instead accommodate millions of fraudulent loans that hyper-inflated the largest financial bubble in history and triggered the Great Recession?

13.6%, More Realistic Unemployment Rate

2011-08-28T20:18:00.000-07:00

The Real Unemployment Rate Is 13.6%,

not 9.1%, in July 2011

see Section One

and

Less Than One Job Was Created, 2000 to 2010,

for every Ten Who Increased

the Potential Work Force

Here's a graph from Paul Krugman's blog, December 2, 2011. Note that the drop from 2001 to 2012 is about 6%, and that six percent represents over 7.5 million potential workers sitting idle. The BLS states 8.75 million jobs were lost 2007-2010.

_____________________

Between 1990-2000 total jobs increased by 15.2%. In contrast, between 2000-2010 total jobs increased by only 1.6%. And the number of private sector jobs decreased. The potential working population increased roughly by the same rate in both decades, but during 1990-2000 77.5% found jobs, and 2000-2010 only 8.6% found jobs.

See Section Two
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With the same labor participation rate as in January 2000 (67.3% in January 2000 vs. 63.9% July 2011) today's pool of labor would enlarge from 153.2 million to 161.3 million. But the number of jobs would not increase. The unemployment rate, U3, would be higher. An additional 8.1 million workers would join the unemployed. There then would be 22 million unemployed in a labor force of 161.3 million, and an unemployment rate of 13.6%.

There are 239.7 million in the July 2011 civilian non-institutional population. Of that 239.7 million only 63.9% participate in the labor force, much lower than the 67.3% participation rate of January 2000. With the 2000 participation rate today's labor force would increase to 161.3 million, not 153.2 million as reported. With only 139.3 million working in July 2011, that would leave 22.0 million unemployed. 22.0 divided by 161.3 equals 13.6. That's the unemployment rate today if the participation rate of January 2000 were in effect. The workforce pool would swell by 8.1 million additional unemployed workers, but the number of jobs would stay the same. Today's 13.9 million unemployed would have 8.1 million added to their number. The unemployment rate would rise from 9.1% to 13.6%.

For twenty years, 1988 to 2008 the labor participation rate rarely dipped below 66%, and for almost 4 years was above 67%, but today it stands at 63.9%. One has to wonder, what is the true labor participation rate? Does it oscillate according to workers' whim, or is it decreased by poor economic conditions? Is it just a measure of how well or poorly the economy is performing? Discouraged workers are statistically relevant for only 12 months, and then they are dropped out of the workforce. Stating a smaller workforce makes the unemployment rate appear smaller. My point is, the same portion of the population would be willing to work, over 67%; the U3 unemployment measure is misleading.

The year 2000 had a high participation rate, as high as 67.3%, and low unemployment, 4%, proving that a large portion are willing and ready to work. What does a drop in participation indicate? It shows the attraction of the economy to draw workers to work. But today it appears to serve only as a disguise of the severity of the actual unemployment rate. Read Section Two below to see how poorly job creation has served the growing labor force over the past decade. Private sector employment stood at 110 million in 2000, and today it stands at 109 million despite a growth of the civilian non-institutional population by 25 million adults (from 212,557,000 in 2000 to 237,830,000 in 2010).

The labor participation remained above 66% for 20 years, 1988 - 2008. See labor participation rate (or shall I call it the "labor willingness rate") From 1997 - 2001 the unemployment rate was below 5%. But in 1992 unemployment hit 7.5% and still maintained a participation rate of 66.4%.

To this adjusted 13.6% unemployment rate, add 5.5% who work part-time but are looking for full-time. The combined unemployed and under-employed rises to 19.1%. Add to 19.1% some 10.7% who work full-time and year-round for below poverty level wages and you arrive at 29.8% who constitute the misery rate. Over 48 million (nearly 1/3rd) workers or would-be workers are struggling in the country whose economy generates over $47,000 a year per human being, and over $100,000 per worker.

The misery rate stands at 29.8% --- that is 48 million out of work, not enough work, or poverty level work.

A look at the rate of and composition of under-utilized workers shows that low income workers suffer most from under-utilization. The higher one's income the less probable the problem of unemployment or under-utilization; the lower half of the earners are approximately 3 to 4 times more likely to be under-utilized. (See Center for Labor Market Studies, Northeastern University, report on Labor Under-utilization Problems, page 4 --- http://iris.lib.neu.edu/cgi/viewcontent.cgi?article=1025&context=clms_pub ----)

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SECTION TWO --- Number of New Jobs

Falls through the Floor

Here's an added depressing look at the labor force and unemployment.

Let's take a close look at the labor force growth between 2000 and 2010.

I summarized this section much later, on September 12, 2011, when I commented on an article by Dean Baker. This section is so very complicated the summary is helpful. Here's a summary:

I looked at the figures about increase in labor force. Comparing the decade 1990- 2000 with 2000- 2010 you see a stark shift. During both decades the expansion of the civilian non-institutional population was about the same, around 12% (12.3% and 11.9%). But how many entered the labor force is a much different picture (13.2% vs 7.9%). And by how much did the number employed increase? Answer: 15.2% in 1990-2000, and 1.6% in 2000-2010. You (Baker) say that the reason for the fall off in the increase in the labor force has to do with the baby-boomers. Not so. Private sector employment growth 2000-2010 is a negative number, 110 million vs 109 million. Conclusion: the drop-off in the growth of the labor force is a function of job availability. The private sector has not created enough jobs. During 1990-2010, 71% who came of age (net increase) joined the labor force, 2000-2010 only 44% joined the labor force. Obviously I worked on these details one day, and I wrote about it at http://benL8.blogspot.com, August 2011. We have been in a sort of recession since January 2000 when the labor participation rate was much higher and employment was below 4%. The real unemployment number is 13.6%, not 9.1%. Thanks

Now, for the part I wrote in August: It's so complicated the summary is helpful.

Between the years 2000 - 2010 the civilian non-institutional population grew by 11.9%

(some 25,253,000 added, from 212 million to 237 million).

The civilian labor force grew by 7.9% (some 11,306,000, from 142 million to 153 million).

This says that of the increase in the population of potential workers (25 million), 44.8% entered the labor force (11 million), and 55.2% (14 million) did not enter the labor force.

The employed civilian labor force grew by 1.6% (some 2,173,000, from 136,891,000 to 139,064,000). (My confusion here has to do with the ages of those who decided not to participate in the labor force. I imagine that most of the missing participation occurred with older workers, a slow discouragement led to a persistent leakage out of the work force -- that's my guess.)

Out of the 25 million increase in civilian non-institutional population, 8.6% found jobs. 25 million were added to the first (population), 2.2 million were added to the second (jobs). Restated: For every 12 people added to the population of potential workers, 1 job was added to the total employed!

Of the 44.8% who entered the labor force, a low percentage of total civilian population growth, (44.8% amounts to a total of 11,306,000 entering the labor force), only 2,173,000 jobs were created for those 11 million. For 9 million there was no job available. Heidi Sheriholz at epi.org states that the job deficit is 11.2 million, not the labor department's 8.8 million who lost their jobs 2007-2009. She probably believes that more than 11 million would have entered the labor force, but how many more? Those additional would swell the numbers of workers who could not find work.

Immediately it is apparent that job growth was insufficient. The job creation

number (2,173,000) was 8.6% of the population growth number (25,253,000), and 19.2% of the growth of number joining the labor force (11,306,000). If the economy can only provide jobs for an additional 19.2% of those who enter the labor force, and 8.6% for the total increase of population, what hope have we for maintaining our present standard of living?

This looks pretty bleak.

Let's compare, from the same BLS table, the growth numbers for 1990 to 2000.

The civilian non-institutional population increased by 12.3% (23,353,000).

The labor force increased by 13.2% (16,737,000). (71% joined the labor force, not 44% during 2000-2010)

The number employed increased by 15.2% (18,098,000).

Out of the increase in the population, 77.5% found jobs.

In comparison, to repeat, the figures for 2000 to 2010 are:

The civilian non-institutional population increased by 11.9% (25,253,000).

The labor force increased by 7.9% (11,306,000).

The number employed increased by 1.6% (2,173,000). As I previously stated, private sector employment decreased by 3.4% during the decade.

Comparing the two decades, 1990 - 2000 to 2000 - 2010:

--- population increase: 12.3% to 11.9%,

--- work force increase: 13.2% to 7.9%,

---- number employed increase: 15.2% to 1.6%.

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Most striking, the number employed between 1990-2000 increased by 15.2%, but 2000-2010 the number employed increased by 1.6%. And, of the increase in population, 1990 - 2000, 77.5% found jobs, but 2000-2010 only 8.6% found jobs.

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(A reader told me he hated how I changed colors and size. I hope the last paragraph doesn't bother you. I should make it twice its size and enclose it in flames, if I could, but I'm controlling myself. Yes, I understand, too many numbers, very confusing. That's why I highlight some details.)

__________________________________________________________

Section Three --- Rutgers University Employment Report

Here are two highlights from two Rutgers University professors,Seneca and Hughes, report, Economic Soft Patch 2, August 2011.

But, at the very same time—the end of the fourth quarter December 2010—total private-sector employment in the United States remained 7.6 million jobs, or 6.6 percent, below its pre-recession peak. Consequently, as 2010 came to a close, the nation was producing the same economic output with 6.6 percent fewer private-sector jobs—i.e., with 7.6 million fewer private-sector jobs.

and

Prolonged and subdued recoveries follow deep financial crises. The current situation is no different. The United States is still feeling the effects of the worst financial crisis since the Great Depression. The nation lost an unprecedented 8.8 million private- sector jobs during the Great Recession. Through June 2011, 2.2 million jobs (rounded) have been recovered, or about 24 percent—leaving a deficit of 6.7 million jobs. There is still a very long road to traverse before achieving full job recovery, but the employment recovery process is under way.

I think one should read Jack Rasmus' August 7,2011 article on employment before concluding that the employment problem is actually improving. I find some fault in the Hughes and Seneca report, which I won't bother any readers with. But the report adds another dimension to understanding.

________________________________________________________

Section Four

How Inequality Screws Up the Entire Economy

I seem to repeat this argument in every blog entry I make, so here it is again.

The Great Depression was caused by inequality of income. This is the conclusion of Marriner Eccles, Chairman of the Federal Reserve from 1934 to 1948. Writing in his 1951 memoir, he elaborates on the role of inequality as the cause: "Instead of achieving that kind of [fair] distribution of current produced wealth [meaning current income], a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. . . . Had there been a better distribution of the current income from the national product -- in other words, had there been less savings by business and the higher-income groups and more income in the lower groups -- we should have had far greater stability in our economy.”

Today our nation's economy suffers from maldistribution of income.

John Maynard Keynes also advised Franklin Roosevelt before he took office in a public letter to create public jobs. He stated that of three options for creating additional purchasing demand, only one could be relied upon, and the government must play that role, saying, ". . . public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money... It is, therefore, only from the third factor that we can expect the initial major impulse.”

Purchasing power, or consumer spending amounts to 70% of economic activity in the nation's economy. Who has the money to spend today? Purchasing power is dried up. In the almost fair years of 2006 the bottom 80% of workers received just 28.2% of the nation's total personal income through their labor. In fact with pensions, government pensions, social transfer payments, and alimony payments, the total portion of income received by the lower 80% totals 40%. The top 20% receive 60%. See the Tax Policy Center's 2006 report on source of income and distribution by income percentile.

The real rate of unemployment is not 9.1% but about 14.7%. Yet, with under-employment it's actually closer to 20%, and adding those who work for poverty wages in year-round full-time work, the Misery Rate is over 30%.

The nation's income is infirm, weak, debilitated by the very low purchasing power of the vast majority. And this rebounds in low employment.

Between 1940 and 1980 the top 10% of households never received more than 35% of all personal income, today the portion received by the top 10% reaches close to 50%, and as I've said above, the top 20% receives 60% of all income while the bottom 80% receives 40% (with 28.2% deriving from wages and salaries). (See Professor Emmanuel Saez' study "Striking It Richer" August 2010 Update)

Sources:

Unemployment rate over the years, BLS figures

http://data.bls.gov/timeseries/LNS14000000

BLS, labor force participation rate

http://data.bls.gov/timeseries/LNS11300000

BLS, unemployment rate July 2011

http://www.bls.gov/opub/ted/2011/ted_20110810.htm

Status of civilian non-institutionalized population

http://www.bls.gov/cps/cpsaat1.pdf

The best article I've read on employment comes from professor Jack Rasmus' recent article of August 7, 2011. http://jackrasmus.com/

Tax Policy Center for Sources of Cash Income by Cash Income Percentile, All Tax Units, 2006

http://www.taxpolicycenter.org/numbers/displayatab.cfm?Simid=85

August 28, 2011, B. L.

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180 foot monster

2011-07-24T07:29:00.000-07:00

The Distribution of Wealth in America

--- July 22, 2011 ---

If we could magically transfer just 5% of the nation's total assets ($2.7 trillion) from the wealthiest 10% of households (who own over $37.8 trillion) to the lowest 40% of households --- this would reduce the share of the top 10% of households from 70% to 65% of all assets --- then the lowest 40% of households (47 million households or 125 million Americans) would increase their average net worth from $2,200 to $60,000 per household. Is that dreaming irrationally? Is that being un-American? Why do the least wealthy 40% own only 0.3% of the nation's total wealth? Would that improve the quality of life? What prevents such a wealth distribution?

You may read the following as a facetious story, but no, not on this blog. It's only too true. True Detective True. I draw my facts from the report "State of Working America's Wealth" by Sylvia Allegretto, published March 2011 by the Economic Policy Institute. (more on her research below)

I'm dreaming. In the middle of the night I dream a friend invites me to his house; I agree. He says, "Let me introduce you to my housemates." I agree. I walk in the door of his house, and the first thing he says is, "The median height of everyone living here, all 20 people in this house, is 6 feet tall." That's a little odd. "The median height? What is he talking about?" I remember, the scale from shortest to tallest, the guy in the middle is the median, and he is 6 feet tall, half shorter and half taller. Why does he bring this up. I nod, OK. It's a tall group. I don't ask a lot of questions because I'm dreaming. That's my height, too.

Then he says, "But the average height is a lot taller, something like 21 feet tall." I wonder, "What the hell is he talking about?" (The median is 6, the average 21 feet???) "Let me introduce you to the other 19 men and women who live here," he says, and I agree. He takes me to a room and opens the door and I see 8 little mice-like human beings running around on the floor, shouting and yelling. He closes the door abruptly. He says, "The average height in there is 1.4 inches high. Those 8 roommates are really short. We don't know exactly what to do about it." I nod and gulp. I noticed how fast he shut the door. How odd, what were those things? They could all stand on the handle-bars of my bicycle.

Then we go to the living room where he introduces me to 10 other residents, and they range from 5 foot four to 6 foot 6, normal looking adults, all pleasant and well adjusted -- except one is really tall, about 10 feet I guess. He shares the name of each one. I start to forget about the other room with the excited little 8 shrimp-anoids running around and shouting. I am happy to meet these ten people, they are all friendly. I say, "Larry told me he really enjoys living here and the company of his housemates, it's an interesting place to live. It' nice to meet you all." Or something like that. And I add, "Now I've met you and 17 of your housemates, where are the two other housemates?" He points outside. I gaze out the open door where I see two huge buildings that resemble airplane hangers or maybe where the blimps sleep at night. There are two giants in the two buildings. He says, "That's Oscar over there, the short giant, only 50 feet tall, and Horace, can you see him? He's enormous, 300 feet tall! He rests in that house pretty much all day long. Oscar is 50 feet tall, Horace is 300 feet tall."

"My God! How could that be? But I thought you said the median height here was 6 feet tall," I say somewhat stupefied. My friend replies, "Yes, that's true, the median height is 6 feet, but I did say the average height is 21 feet tall. The average went way up because of those two giants, Oscar and Horace, who you see out there resting in the shade of the dirigible hangers. Because one of them is 50 feet tall and another 300 feet tall, it brings the average to 21 feet tall." My head is swimming, I can't do all this math in a dream.

There are 20 people in this house. Total height of everyone: add up, 8 times 1.4 inches is about 1 foot; 9 times 6 feet = 54 feet, plus one whose is 10feet tall; plus one 50 feet, plus the 300 footer = 415 total feet. Divide by 20 equals almost 21 feet, the average. The median height (the middle guy in a scale from shortest to tallest) of all the 20 people is 6 feet tall. Eight of the people are midgets, 1.4 inches in height. Ten are normal looking, and the other two, 50 feet and 300 feet tall. Then I start thinking, maybe I should try to wake up from this dream. Time to awaken old sport, this is getting too weird.

But, this dream image accords with the distribution of wealth in America.

But if I convert these 20 dream images from height into weight, then we will see 8 tiny people weighing about 4 pounds, 10 people weighing about 200 pounds (some are obese to be sure), one huge guy at 1,560 pounds and another weighing 9,360 pounds. Still we preserve the essential ratio of wealth distribution. Imagine what a nightmare. But let's not be unpatriotic. "God bless America" and all that. The greatest place on earth. It has its virtues.

We would be a far better nation if we distributed income and wealth in a more equitable fashion. As far as income distribution, see the United Nations Human Development Index, the U.S. is the most unequal among developed nations, and ranks about 72nd among all nations on Earth, behind Egypt, Russian, Bulgaria and others. The link above is more interesting, placing the U.S. 24th in a list of the top 30 most developed countries, showing the quality of life for the lowest is still much higher than many nations. Inequality studies are very complicated.

See Sylvia Allegretto's report if you think I invented this dream. She reports that the "average" net worth is just below $500,000, the white household median $97,000, the fortieth percentile stands at $65,200, the African American median $2,200. The top 5% owns 60% of all assets, and about 72% of all financial assets (stocks and bonds). And the next top-most 5% owns 10% of all assets (from Edward Wolff's report at Levy Economics Institute). The average net worth of the bottom 40% is $2,200, and they own 0.3% of all assets. With those details one can determine the ratios as I did.

Page 2 is an eye-opener, a summation of fallout from 2007 to 2009. The nation lost 16% of its net worth, the bottom 90% lost 25% of their worth, the bottom 80% lost 40% of their worth. The bottom 80% own 12.8% of all net worth. The ratio of median household net worth (the 50th percentile) to the top 1% is 1 to 225, a new record. Almost 1 in 4 households have no net worth, 3 out of 8 have less than $12,000. House prices dropped 32% since 2006. Home equity as a percent of home value dropped from almost 60% to 36.2%, "meaning that banks now own more of the nation's housing stock than people do," for the first time on record.

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Our U.S. society has problems. Our incarceration rate is about 12 times the rate of Japan, and the homicide rate is 6 times the rate of Japan, Germany and much of Europe, to name two important metrics. Thoughtful and caring people ask themselves "why?'" Do our rules of organization (economics) and the opportunities available to some but not to all contribute? Why such alarming disparities between other advanced countries? Certainly avoiding human suffering is common sense. Personally, I worked at an elementary school in a poor and violent neighborhood, and I got sick of the conditions there. Poverty neighborhoods and criminal behavior are inseparable and ineradicable. But other advanced countries do not have it as bad. Why? Unfortunately we do not recognize our blatant problems, and a "What me worry?" ("or care?") attitude is normal. Or "America is the best, beyond question (ing)." Let's not be bothered with murder and mayhem, unless it's on the TV happening to some unfortunate poor soul. And when misfortune is reported, it serves more as an alarmist message that increases general fear and paranoia, not compassion or constructive thinking.

Recently a survey report originating from the National Bureau of Economic Research, the organization that announces the official beginning and end of recessions in the U.S., noted that half the population in the U.S. would not be able to come up with $2,000 within 30 days without selling something or borrowing from a relative or friend. Half. See CNN Money, May 14, 2011, "Half of Americans Don't Have $2,000 for a Rainy Day". Only one in four were certain they could handle the emergency.

The Credit Suisse Bank released "Global Wealth Report" in October, 2010. By my rough calculation, if the U.S. had the same wealth distribution as Japan almost all families would have over $100,000 in savings. Perhaps that is why people are not killing each other in Japan, at least not a the rate people kill one another in the U.S.. (See page 16 and 28) You might be surprised to learn that even poor communist China does better than the U.S. Though they have billionaires, by and large their distribution is more equal than most countries.

If we could magically transfer just 5% of the nation's assets from the wealthiest 10% of households to the lowest 40% --- reduce the share of the top 10% from 70% to 65% ---, then the lowest 40% of households (47 million households or 125 million Americans) would hold on average $60,000 instead of $2,200. Is that dreaming irrationally? Is that being un-American?

Scholars at Washington University in Saint Louis, at the Center for Social Development, Mark Schreiner and Michael Sherraden have proposed methods of asset accumulation for low-earning households. The "Individual Development Account" is the primary focus of their proposal and research. Their book "Can the Poor Save?" describes their research. A social program in San Francisco, SF Earns, see www.earn.org, provides incentives to low-earning families to save for education, housing, or business creation. I recommend that readers review the successful and encouraging personal stories on their web page. These programs are marvelous, but grossly under-funded.

In Germany, 40% of the banking system is publicly owned. See German Public Banks, a Wikipedia article. Assets do not have to be held privately, and accumulation beyond the sky's limit does not have to be the social norm. Such a norm contributes to mis-allocation of human and natural and especially financial resources.

This is just a beginning of a look at a very large and neglected problem, the 300 foot giant -- or is he a monster?

Ben Leet

Deficits, from Clinton and Bush

2011-06-27T10:52:00.000-07:00

Basic Facts

Year National Debt

1980 ----- 26.1% of GDP --- before Reagan

1992 ----- 48.1% of GDP --- after Reagan and G.H.W. Bush years, up 22.0%

2000 ----- 34.7% of GDP --- after Clinton, down 13.4%

2009 ----- 53.5% of GDP --- after G. W. Bush, up 18.8%

The publicly held national debt (debt not held by intragovernmental agencies such as Social Security Trust Fund) as a percentage of annual GDP has oscillated up and down and up. For 10 years, 1970 to 1980 the debt had held steady around 26% of GDP.

This graph originates from here, Data 360 web page.

See the graph at Wikipedia of the national debt levels:

http://en.wikipedia.org/wiki/File:USDebt.png

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There are fewer private sector jobs today than 11 years ago in 2000. And taxes were higher in 2000 by 6% of GDP, and that would be by $900 billion in today's money. Let me refer you to Hughes and Seneca of Rutgers University (America's Post-Recession Employment Arithmetic) for the first fact. Not since 1930s have there been fewer jobs after 10 years of stagnation. And Robert Borosage at Truthout.com two days ago for the second. In 2000 the portion of GDP converted into federal revenues was 20.4% and today it's 14.2%. And the private sector employed 110 million in 2000, 107 million today, in spite of a larger labor pool. The labor participation rate in 2000 was much higher than today, and if added onto the unemployment rate, today's U3 unemployment would be at 13%. Taxes --- raise them on the top one percent whose pre-tax income is approximately equal to the bottom 60% of households (!! Yes, see UC Berkeley professor Emmanuel Saez, Striking It Richer), and create public jobs with them. Thanks Joshua H. (I left this comment at Alternet, July 16, 2011)

John Miller, November 2009, Dollars and Sense Magazine,

How I Learned to Stop Worrying and Love the Deficit

http://www.dollarsandsense.org/archives/2009/1109miller.html

Robert Borosage, July 15, 2011, Truthout.com

http://www.truth-out.org/gop-dogma-taxes-spending-andrevenue-vs-facts/1310649524

Robert Reich, July 15, Truthout.com

http://www.truth-out.org/presidents-jobs-plan-not/1310666366

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The economy expanded by 76% over the six years between 1939 and 1944, the years of World War II. In 1939 it stood at 100, at the end of 1945 it stood at 176. This is a growth rate of 10% a year compounded. The workforce expanded by 42% (including the expansion of the military and the civilian workforce, "19.2 million additional people were either working or in the Armed Forces"), and even with additional workers, the unemployment rate dropped to 1.2% and below 2% during 1943 and 1944, proving that full employment is possible, not just a dream. This comes from American Economic Development Since 1945 by Samuel Rosenberg, page 20, 21. One can ask, How much of that growth was due to private sector investment and hiring? "Federal government purchases of goods and services, mainly military related, grew from $22.8 billion in 1939 to $269.7 billion in 1944. This increase is virtually identical to the overall increase in real GDP"

Today, 2011, there's a strong case to re-allocate federal resources. Congresswoman Jan Schakowsky has presented an alternative budget that reduces spending by $400 billion and provides for a $200 billion jobs program. The People's Budget also has a similar program. The war period, 1939 to 1945, demonstrates conclusively that government can influence the economy in a positive way. No one in 2011 would advise such huge stimulus spending, but the point is --- stimulus works. Military Keynesianism is the term for the Reagan stimulus of the 1980s. As shown above, he increased the public debt from 26% to 48% of GDP.

Since July, 2009, the depth of the recession, corporate profits have accounted for 92% of the economic rebound in the GDP gross amount, while in contrast aggregate wage income is still what it was in July 2009, and job growth has yet to happen. The private sector is sitting on almost $2 trillion and not hiring. The tax/GDP rate stood at 20.4% in 2000, Clinton's last years, while today -- as the graph shows in the Borosage article --- it stands at 14.2%, a drop of 6% of GDP less, which in today's economy is $900 billion. The entire debt this year is about 9% of GDP. Raising taxes to the 2000 level would almost eliminate the deficit. Creating public jobs would compensate for the private sector's inability to hire during a depression. About 30% of all workers, 45 million, are either unemployed, not fully employed, or working full-time and year-round for below poverty level wages. Two of eight Americans are connected to a family with absolutely no savings, and another one in eight is in a family with less than $12,000 in savings. That is a depression. The upshot would be a self-expanding economy, and corporations would begin to sell to paying customers again and could begin to hire and invest again. That's the case against freezing taxation.

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Increase in military spending
Clinton era --- 1994 --- $282 billion or 4.0% of GDP
2001 --- $306 billion or 3.0% of GDP

Bush era: -----2002 --- $349 billion or 3.3% of GDP
2009 --- $657 billion or 4.7% of GDP Clinton decreases military spending by 25%, Bush increases it by 42%.

I used inclusive dates for my calculations. The years 1994 to 2001 inclusive are 8 full years, as are 2002 to 2009 inclusive. The president’s budget begins October of the year he is sworn in, for Clinton October 1993, for Bush October 2001. Therefore the 1994 budget begins the Clinton years, 2002 begins the Bush years.

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Growth in National Debt as a % of GDP
Clinton era: down by 16.7% ---- from 49.2% to 32.5%
Bush era: up by 19.9%% ---- from 33.6% to 53.5%
In 1994 the federal debt stood at $3.433 trillion, or 49.2% of the size of the GDP.
By 2001 it had shrunk from 49.2% to 32.5% of the GDP, a reduction of 16.7%.
Bush’s debt began in 2002 at 33.6% of GDP and ended in 2009 at 53.5% of GDP, which was over $9 trillion.
Clinton knocked the debt down, Bush ran it up. The differential between the two presidents is 36.6% of GDP, that is $5.307 trillion, a very big number. If we had continued the Clinton momentum for another 8 years, instead of $9 trillion in publicly held debt we would have less than $3 trillion, or approximately 20% of GDP as a debt level, instead of 2010’s 60% level. Obama did not run up the debt, he inherited from his predecessor the greatest recession in almost 80 years. The forward momentum of the recession ratcheted up the debt from 53.5% of GDP to 60% in Obama’s first year.

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Tax Revenue as a percentage of GDP
Clinton era: 19.2%
Bush era: 17.0%

Bush inherited a short 6 month recession, March 2001 to September 2001. But the tax cuts lasted more than ten years. He used the 2001 recession as a justification for decreasing taxes, a Keynesian rationale that federal government should borrow money in a recession and run up the debt. Thereby the saved tax dollars are spent as investment or consumer demand, making up for the lost demand due to the economic downturn. But Bush’s taxes were generous to the highest earners and did little to stimulate widespread demand, and job creation was very weak taking four years to return to their former level, and the median household never recovered it’s lost income to pre-recession levels.
________________________________________________________________
Income Tax as a percentage of GDP
Clinton era: 9.05%
Bush era: 7.56%
The Economic Policy Institute claims that the Bush tax cuts cost $2.5 trillion in lost tax revenue over ten years. But these data show it to be $2.08 trillion less than the income tax level of the Clinton’s tax level spread over ten years.
_______________________________________________________________
Average Budget Deficit as % of GDP
Clinton era: -2.0% per year
Bush era: -4.76% per year
In today’s dollars, 4.76% of GDP comes to $690 billion of federal expenditures. Coincidentally, this is almost identical to our present military budget. For eight years, this was the Bush II level of deficit spending. The military budget for 2010, which was $689.1 billion, which is also 20% of all federal expenditures. But the true cost of the military is nearly double that amount yearly, $1.2 trillion.

Clinton inherited the legacy of Ronald Reagan and G.H.W. Bush of excessive budget deficits. In 1980 when Ronald Reagan assumed the presidency, the publicly held debt as a % of GDP was 26.1%. Twelve years later after G.H.W. Bush (Bush I) it stood at 48.1%, an 84% jump in the size of the debt. At the last year of Clinton’s term the debt was down to 34.7% of GDP, a decrease of 28%. In 2009 the debt was back up to 53.5%, and increase of 54% relative to the size since 2001. It was more than double the size of 1980. “Deficits don’t matter,” is the advice of former vice-president Dick Cheney. “Reagan proved it.” Politically they don’t matter if your party is in power, when out of power deficits are the only thing that matters.

Franklin Roosevelt ran up huge debts, fortunately, or else we would still be in the Great Depression. See the Marshall Auerback essay that demonstrates the effect of the WPA spending that lowered the unemployment rate from 25% to 9.6% in four years, 1933 to 1937. It depends on how you spend or invest the borrowed money. (See this other excellent report by Auerback, February 2009.)
Roosevelt put workers back to work. Reagan and Bush I and Bush II spent it on the military while cutting taxes. Some call this “military Keynesianism”. The principle that Keynes advocated, increasing purchasing demand through government spending on jobs, was observed. Enlarging the military is not a great investment; better is to create things that do not explode, that improve the quality of life for decades to come. Sidewalks on the streets in my town of San Leandro still bear the inscription, “WPA 1940”.

The Historical Budget Data is non-controversial. The Congressional Budget Office presents basic numbers. It’s without argument that the budget is in deficit. I hope readers will consider the numbers, and draw their own conclusions.
________________________________________________________________

I love being brief, but there is always more in my writing.

***!!!! --- Back to 1976 ---- !!!!***

I'm going to restore the national income distribution of 1976 by transferring 15% of the nation's income to the lower 90% of households. It's an exercise in re-distribution of income.
You can reference two sources that show the percentage of all personal income going to the top ten percent, U.C. Berkeley professor Emmanuel Saez' report "Striking It Richer" page 7, or the Tax Foundation, Table 5 in their report. The share of personal income going to the top ten percent remained below 35% between the years 1940 to 1980, and today it approaches 50%. I've reported this over and over on this blog. That's my central goal for reform: to restore an appropriate income distribution. This morning I calculated that restoring the previous distribution ratios, 1940 to 1980, transferring 15% of all income that the top ten percent now receives, up from 35% between 1942 to 1982 to almost 50% in 2007, would entail a transfer of $1.319.7 trillion from the top ten percent to the lower 90%. In summary, if the distribution ratio of of 1980 remained the same in 2007, then $1.319.7 trillion would go to the lower 90% of households.

Divided evenly between all households in the lower 90%, each household would have an average increase of annual income of $12,569. The median would rise from around $50,000 to $62,000, and since the average income for the bottom 20% of households is $13,000 according to a Citizens for Tax Justice report, the lower income families would in some instances double their incomes. It's just a fantasy towards which the nation could aspire. I'm not an economist, I'm a dreamer. Dream along with me.

Certain analysts claim that the top income earners pay too much of the federal income tax, which is just 45% of all federal revenue. They never complain about how much more of the nation's income the top income group now receives. To find the overall effective tax rates for all income groups, go to the Citizens for Tax Justice report here, and discover that most households pay taxes in a close range of their total incomes, contrary to the alarmists for the wealthy group.

(Using the Tax Foundation report, Table 3, we see that the Adjusted Gross Income amount for the bottom 50% of taxpayers came to $1,078 billion in 2007, and the top 50% received $7,720 billion, roughly a 1 to 8 ratio, arriving at a total AGI for the nation of $8,798 billion. To $8,798 billion I take out 15%, or $1,319.7 billion, and divide that amount among 105 million households or 90% of the nation's households. This yields an income increase of $12,569 for each household.)

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Let’s cut to the chase: the federal government needs to raise taxes by about 30%. But before it destroys the economy by raising taxes it should create public jobs and get everyone working as we did in the 1930s and 1940s. Then we, the shapers of government policy, should aim to restore the income distribution to the ratios of 1976 when the top ten percent of households received less than 35% of all income, not the 49% it presently receives. “Back to 1976” is my radical cry. Then we can raise the taxes by 30% and have a balanced budget.
Imagine three large pizza pie plates, because I cannot graphically create them. Or imagine three clock faces. The first contains all the GDP with one slice representing the federal government’s expenses. That one slice is about 14 minutes on the clock face. Most advanced nations have a larger slice. The federal government was 19% during the Clinton years, and then it expanded to 24%.

Now, imagine the second clock face. This represents all federal spending, and the slice portion, 12 minutes (or 20% of spending) of the clock face, represents the portion not paid for, the deficit during the Bush II years. Clinton eliminated this slice.

Now, the third clock face, it is 17 minutes (or 28% of spending) as a slice size। When you take out all the federal expenses that are paid for by payroll taxes, the Social Security and Medicare parts, you have a smaller pie. Instead of $3.5 trillion, the pie is now $2.4 trillion, and the unpaid part, 17 minutes ---which amounts to 28%---is the part that the Bush II government neglected to collect, its real deficit. To balance the budget G.W. Bush would have had to raise income and corporate taxes by 28% for all the eight years of his presidency.

Three clock faces: 14 minutes, 12 minutes, and 17 minutes.
24% ------20% ------------28%

The People’s Budget and the budget proposed by Representative Jan Schakowsky are responsible alternatives to what either the Republican Representative Paul Ryan presents or to what the Obama administration proposes. Both do damage to our nation, in my opinion. We should look for a responsible plan. Opinions of course vary, and intelligent people often disagree. Let’s be intelligent and disagree intelligently.

The Tax Policy Center, part of the Urban Institute, has a Briefing Book that explains much of the pie chart business. The President’s Budget and the Congressional Budget Office also explain the various expenses, for those who wish to explore at the source.

June 27, 2011

Jobs and Recovery

2011-06-19T10:07:00.000-07:00

THIS BLOG: My February 2011 essay, the Six Point Program, is a comprehensive proposal to restore prosperity. I recommend it. Go the the column at the right, click-on February, 2011. Look for the Contents page also, around November or December of 2010. We can do two major things in this nation: we can make sure all jobs pay a decent wage -- they don't, believe me --- and democratically we can create jobs for everyone. Today there are not enough jobs, as you should know, and we can create them. About 16% of all jobs are government jobs today, we can create more, we are rich enough to do so. And the lower 80% of workers earn only 28.2% of the national income through their jobs. One dollar in income at the bottom 80% is matched with $6 in income at the top 20%. That is an insane income distribution; no other advanced country is as bad. We can change the wage ratios with taxes, incentives and income credits. The economy generates $47,000 per person, per human being, per infant, child, adult, elder, everyone, $47,000 a year. That's about $141,000 for every family of three, on average. We are rich enough. We have a broken system. We need more jobs, and higher wages. It's your future, your family's future, and your and their happiness.

Jobs and the Recovery

Officially the economy has recovered. How do we know? Economic production, the GDP, has recovered to its pre-recession level, but 7 million jobs were lost in the process. So is it a real recovery? The Great Recession lasted from December 2007 to June 2009 when the GDP declined by 4.2%, it reached its nadir or trough. The economy then began to grow, an 18 month rebound which recaptured its pre-recession level. The drop and recovery had a symmetry to it, 18 months for each. Since the trough, corporate profits have increased by nearly 40%, or $465 billion, accounting for 92% of the growth in national income. The casualty of the rebound was the American worker who saw the elimination of over 7 million jobs. The economy shed 8.750 million jobs according to the Bureau of Labor Statistics (Monthly Labor Review, April 2011). The economy has since recovered 1.3 million jobs, far below the bare minimum rate needed to absorb new workers entering the work force, leaving a 7.45 million job deficit. At the Economic Policy Institute one researcher places the net job deficit at 11 million when one adds on the influx of unemployed new workers to the workforce. Economists estimate that the economy is performing at 10% below of its capacity.

A staggering 45% of the unemployed have been unemployed for over half a year as of May, 2011. Heather Boushey reporting at the Center for American Progress, June 2011, states, "The share of workers who are long-term unemployed — that is, out of work and searching for a job for at least six months — ticked back above 45 percent in May. This share has hovered above 40 percent for 18 months. Those are highs not seen since the Bureau of Labor Statistics began tracking these data in 1948."

Since the recession's trough the aggregate wages and salaries of workers have actually gone downward even further, so the “recovery” has yet to affect wages in the least. The median wage earner has earnings 0.6% below the June 2009 level.
Is the word “recovery” truly apropos in this condition? Recovery for whom? For people who create the economy, or for the economy as a concept? Was there prosperity for most before the Great Recession? The GDP per capita, the amount of economic production per citizen, is over $47,000 a year, therefore would not poverty and income inadequacy be difficult to explain?

Arguably, the largest casualty of the Great Recession was the wealth of the bottom 80% of households. U.C. Berkeley professor Sylvia Allegretto reports, “Average wealth of the bottom 80% was just $62,900 in 2009 --- a dropoff of $40,900 from 2007 and slightly less, in inflation-adjusted terms, than it was more than a quarter-century ago in 1983.” This 39% drop in wealth, from $103,800 to $62,900, resulted from the 32% decline in housing prices; the median family holds 95% of its wealth in home equity. Homeowner equity or “home equity as a percent of home value fell from 59.5% in the first quarter of 2006 to 36.2% in the fourth quarter of 2009. For the first time on record, the percent of home value that homeowners own outright dropped below 50% --- meaning that banks now own more of the nation’s housing stock than people do.” As most people know, the banks are doing much better, they have recovered. Housing prices have not recovered, in fact after a year of stability they have recently been falling. The foreclosure epidemic continues apace, as well --- no recovery there.

Allegretto reports that in 2009, “nearly one in four households had zero or negative net worth, while 37.1% had net worth of less than $12,000. In other words, more than a third of U.S. households have wealth holdings that are so low they are extremely vulnerable to financial distress and insecurity.” My own “other words” are: three out of eight Americans are hanging by a thread in the wealthiest nation on earth where the per capita economic production is over $47,000 a year.
This is the greatest or one of the greatest problems our nation faces.

Corporate profits on the other hand have increased since June 2009 by almost 40%. The Center for Labor Market Studies, May 2011, reports, “Annualized corporate profits in constant 2010 dollars rose very strongly . . . Over the first seven quarters of recovery, this would represent a gain of $465 billion in corporate profits or just under 40%.” From a profit level of $1.203 trillion in the second quarter of 2009 to $1.668 trillion in the first quarter of 2011, profits increased by just under 40%. The S & P 500 Stock Index rose by 44% in this same 21 month period.

The May 2011 report adds that in the 21 months of recovery from the recession’s trough, “corporate profits accounted for 92% of the growth in real national income while aggregate wages and salaries declined by $22 billion and contributed nothing to growth.” “To date,” the report concludes, “through the first quarter of 2011, the nation’s recovery from the 2007-2009 recession is both a jobless and a wageless recovery. Aggregate employment still has not increased above the trough quarter of 2009, and real hourly and weekly wages have been flat to modestly negative. The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders.” Allegretto’s wealth report shows that 80% of stock market wealth is owned by 10% of U.S. households.

If the economy had the same labor participation rate as 2007 the unemployment rate would rise from 9.1% to 11.5%. And if the participation rate were equal to 2000, the present U3 unemployment rate would be 13%. An amazing 29.0% of Americans workers --- 45 million adults in all --- fall into the unfortunate categories of either being out of work (11.5%), involuntarily without enough work (5.5%), discouraged from looking for work (1.4%), or working year-round and full-time for less than poverty level wages (10.6%). The purchasing power, which drives the economy, is severely limited by low wages, under-utilization of labor, and very sluggish private-sector job creation. Recovery does not apply to the labor market.

The National Jobs for All Coalition reports, "In April, 2011, the latest month available, the number of job openings was 3.0 million." Thus with an 18.4% unemployment rate, as I have calculated it, or 28 million full-time job seekers, there are more than 9 workers seeking every one job opening. Using only the usual U3 unemployment rate, 9.1% in May 2011, the Economic Policy Institute reports that the ratio has exceeded more than four workers for every job opening for the entire past 28 months. New job hiring has not recovered.

There were more private sector jobs in December of 1999, eleven and a half years ago, than today (110 million versus 107 million); and the economy is barely adding on jobs at the rate of growth of the labor force, according to researchers at Rutgers University. (See September 2009 and July 2010 reports) Not since the 1930s has the nation had a decade of net job loss.

The nation is in a strange policy vacuum. Most people recognize that employment is the central problem, yet the major political parties limit their discussion to the size of cuts in government services and expenditures, indicating they are at a total loss to discuss job creation proposals. The Bush tax cuts of the 2000s cost the government $2.5 trillion over ten years in lost revenue, and the Republican Party insists on extending these cuts for the wealthiest minority whose fortunes have recovered, and who arguably needed recovery less than the poorer majority who lost a greater portion of their savings. The low tax policy after ten years has proved to be a total wash-out; job creation in the 2000s matched the housing bubble.

Running in contrast to this paralysis, on April 14, 2011, 40% of the Democrats in the House voted for a public job creation proposal costing $145 billion a year. This was the “People’s Budget” from the Congressional Progressive Caucus. Other Congress members have proposed direct public job creation: Representative Conyers is sponsoring again the Humphrey-Hawkins full-employment bill; Representative Jan Schakowsky has presented a budget that would devote $200 billion to public jobs. Demos in January 2011 published professor Philip Harvey's plan "Back to Work" that for less than $200 billion a year would create a net of over 8 million jobs; and the Economic Policy Institute, the Chicago Economic Political Group, the National jobs for All Coalition, Jobs for Justice, and many others are putting forward proposals for public job creation.

At the New Deal 2.0 web site, Marshall Auerback wrote (8.30.09) that between 1933 and 1937 Roosevelt’s job creation program reduced the unemployment rate from 25% to 9.6%, indicating the power of the federal government to ameliorate the economic doldrums when the private-sector refuses to hire.

Political power is as unevenly distributed as income and wealth: the top ten percent of households earns nearly 50% of the pre-tax yearly income and owns over 70% of all wealth. The disparity in political power is just insurmountable, and the poor remain powerless and unemployed -- wageless and jobless. The nation seems locked into a depression with lower wages and record rates of long-term unemployment. Simultaneously, the Recovery continues with high corporate profits. Housing prices are again falling, and one wonders how long corporate profits can stay high with a diminishing purchasing base.

But not to worry. The wealthiest 1% has an average wealth holdings 225 times the median household, which ratio has increased from 125 times in 1962, and 131 times in 1983. If you converted the wealth holdings of the nation’s households into piles of $100 bills, you would have a wide circle with half the piles less than one inch high, and an inner circle of piles representing 40% of the households each pile reaching 14 inches, a still inner circle (9%) with piles reaching six feet high, a center of the circle representing 1% rising to over 50 feet high, and in the very center a few piles reaching over 20 miles high. This is our America today.

Comment section:
“Apres moi le deluge” was said by a) Louis XV, or b) George II --- ?

My friend read this essay and replied:
I don't think it's a policy vacuum. I think the analysis works better if you assume that the government is totally controlled by multi-nationals who's purpose is to rob all world-wide populations of any wealth. Eisenhower warned us 60+ years ago. Then don't worry. I could send you more articles that I notice, but not really any point in it. Your own numbers say only 40% of democrats voted for public jobs. That is not contrast - it's a sign of who controls democrats.

Foreign Derivative Swaps

2011-05-25T14:47:00.000-07:00

This is my first reform effort for the financial industry. I think it's thought provoking. The Americans for Financial Reform (dot org)posted a letter to the same committee stating a similar argument. I'll try to remember to link to it soon. The final concept here is that
finance has not contributed to prosperity, it has diverted our attention. It should be much smaller. The book The Great Financial Crisis is a good source of info that I should review (and I'm writing to myself, as usual). Written around May 12, 2011

To the U.S. Treasury,

Re: Regulations on international “swaps” and the exemptions rule.

This is my suggestion.

You are about to exempt international “swaps” from regulations in the Dodd-Frank Commodity Exchange Act. I object.

I surmise from my reading that the financial system is much too large, and the U.S. Treasury should do its utmost to reduce its size. I gathered the following facts from the book Epic Recession by Jack Rasmus, a professor at St. Mary’s College in northern California. He was commenting on the growth of debt in the U.S. since 1978, and he drew from Federal Reserve’s Flow of Funds Report, Q1 2009.
Total U.S. Debt, 1978 to 2008:
Government debt up 8.0 times (all are ‘78 to ‘08),
Total Consumer Debt (including mortgages) up 10.3 times,
Non-Financial Corp. debt up 9.4 times,
Financial Corp debt up 47.0 times. Financial corporate debt jumped from $412 billion in 1978 to $19.5 Trillion in 2008 — Federal Reserve Flow of Funds.
As Marshall Auerback wrote at New Deal 2.0 in May 14, 2011, “The whole boom of the last 25 years was predicated on financial deregulation, massive fraud, and a huge build up of private debt as a consequence of inadequate fiscal policy to generate full employment and rising incomes.”

I commented, “The huge increase in financial corporate debt had no matching component in real world investment. There were relatively few projects to fund, as the figures prove. But there were corporate mergers and buyouts, and CDO securitization and credit default swaps and financial engineering. Real financial intermediation which is the true function of finance and credit was replaced by financial engineering, and often that resembled gambling more than investing. How else can you explain the numbers that increased financial corporation debt by a factor of 47? Financial corporations’ profit as a portion of all corporate profit also grew, Our financial system has yet to resolve the “frozen negative assets” (a phrase ‘coined’ by H. Paulsen and B. Bernanke) that they hold, and housing prices are expected to decline another 15%. The losses must be faced and absorbed privately, not transferred to the public. Then we need an economy modeled on growth that serves the majority of citizens. “Mark to fantasy” has replaced Mark to Market. “Extend and pretend” is the new banking norm. Banks own over 60% of U.S. home equity since the recession stripped value from mortgage holders. But the book value which the banks show does not reflect the true, reduced value of these housing assets. As Auerback claims, the banks are still bankrupt.”

Another book that makes a similar argument is The Great Financial Crisis by Foster and Magdoff, two socialists. On page 20 they display a graph that shows from 1959 to 2007 two measures, “Debt as percentage of GDP” and “Total goods production as percentage of GDP”. From an index of where both items begin at 100 in 1959 the Debt figure rises to 250, the Total Goods figure falls to 65. “The search by capital for profitable outlets for its surplus despite the stagnation of investment opportunities within production, coupled with the belief that asset prices as a whole went only one way -- up --, generated a secular financial explosion.” But, they conclude with Karl Marx, “The real barrier of capitalist production is capital itself.”

Using the findings of another report we see much the same trend.
Thomas Palley (Financialization: What It Is, Why It Matters, PERI, U.Mass/Amherst, 2007) shows that financial corporation profits as a percentage of all corporate profits grew from 20% to 43% between 1973 to 2005 (Palley, page 37). Financial corporation debt as a percentage of GDP grew, 1973 to 2007, from 9.7% to 31.5%, increasing by a factor of 2.4 times (Palley, page 38) . Non-financial corporate debt decreased from 90.3% of GDP to 68.5% (Palley). Mortgage debt, 1973 to 2005 increased from 48.7% of GDP to 97.5% (Palley).

Palley's findings show a rapid growth of financial corporation debt (by a factor of 2.4), but not as rapid as the findings reported by Rasmus or by Magdoff and Yates (showing an increase by a factor of 6) in The ABCs of the Economic Crisis, page 77. The Magdoff and Yates figures align with the Rasmus figures. Perhaps Palley's definition of a financial corporation was more restricted, not including the 'shadow' banking corporations. (See also Palley's 2009 paper, America's Exhausted Growth Paradigm: Macroeconomic Causes of the Great Recession, for more analysis along this line.)

So, why ?, I ask myself, is the Treasury exempting “swaps” from regulation?

My suggestion comes from another book, The Keynes Solution by Paul Davidson. He proposes an International Monetary Clearing Union (IMCU). “All international payments, whether for imports or financial funds crossing national borders, would go through this clearing union.” (page 136) You can read the rest of the chapter for yourself. But I’ll shortly quote his three objectives:
1. Prevent a lack of global effective market demand for the products of industry from occurring due to liquidity problems whenever any nation holds excessive idle reserves by saving too much of its internationally earned income. . . .
2. Provide an automatic mechanism for placing a major burden of correcting international trade imbalances on the nation running persistent export surpluses.
3. Provide each nation with the ability to monitor and, if desired, to control movements out of the nation of:
a. Financial funds ... moved .. to avoid paying taxes on such funds.
b. Earnings from illegal activities leaving the nation.
c. Funds that cross borders to finance terrorist operations.

I want to remind you of a few uncomfortable facts: since Nov. 2009 one in four children in the U.S. get their food by way of food stamps, and now it is about 29% of all children, one in seven of all citizens, over 44 million. 24.1% of all households have “zero or negative” wealth or savings, probably almost one in three have less than $5,000. Our nation produces a GDP/capita of over $47,000. We have tremendous inequality. The top one percent now own 225 times more than the median household, an all time high. The median household has just lost over $40,000 (or 40%) in savings. (These figures come from Sylvia Allegretto’s report State of Working America, Wealth, published by Economic Policy Institute, March 2011.)

Inequality is widening, opportunities are shrinking, precarious security is infecting more and more. Various forces could tip the balance in catastrophic ways, which would really be tragic (food prices, gas prices, housing prices, more unemployment, disruptions). The people at the Treasury should have a bigger outlook than what I presently see. They seem to be protecting the private holders of financial assets, the status quo, the wealthiest people on the face of the earth who themselves created a monumental mess. The arrogance of the mighty creates suffering for those who did least to create the problem.

In addition to Foster and Magdoff, and Paul Davidson, and Sylvia Allegretto, I recommend you read the facts at inequality.org, see the side-bar links to income and wealth inequality. I also have a blog, http://benL8.blogspot.com, in Feb. 2011 I posted a 6 point program. Raise wages, increase minimum wage, increase EITC, create public jobs, impose tariffs and quotas, emplace a values added tax on multi-national corporation’s imports. I just collected ideas from scholars and writers, it’s not my own creation. I will add a 7th proposal, drawing from Rep. Jan Schakowsky’s deficit reduction plan, eliminate the interest payment deduction enjoyed by financial corporations, a savings of $77 billion a year. Raise capital gains tax to normal marginal tax levels, and if sold before 12 months raise that rate to 70%.

Lawrence Mitchell wrote The Speculation Economy, a financial history centered around the 1900s when the stock market began to overshadow productive industry. Perhaps it is time to reel-in speculation. The world lost between 2007-2009 about $35 trillion (17% of all value) because incentives were poisonous, incentives that U.S. government officials nurtured. It’s time to think deeply.

I hope this gives you a glimpse of a new world of prosperity, justice, endeavor, and growing enjoyment of life. We should all be working less, doing art, visiting friends, but not worrying that the foundation is about to crack and sink into the Ocean of Chaos. The German worker works 9 weeks less per year, the Gini level in Germany is 25, not the 41 in the U.S. Time to humanize the system.

Yours, Ben Leet, I live in San Leandro, CA, May 12, 2011
I am a retired public school teacher, not an economist.