We Are Not Poor, 

We Can Create Prosperity for All 

We Are Rich, We Do Not Have to Tolerate Poverty or Economic Gloom, There Is a Clear Path Forward  . . .
I present Three Solutions mid-way through this essay. 


Economy Doubles -- Incomes Drop -- What's Going On? 

Lawrence Mishel, a co-founder of the Economic Policy Institute,   reported on February 2, 2012 that, 
"Over the 1970-2010 period, the output of goods and services per hour worked [productivity] rose 119 percent and per capita disposable income [after all taxes] grew 114 percent." Unfortunately all the growth went to the top 20%, with 81% going to the top 5% of households. The output value of the economy more than doubled, and as University of California at Berkeley professor Saez reports here (and see graph below) the lower-earning 90% of households saw a 12% drop in incomes! This is outrageous. I hope it is just a matter of time before the U.S. public catches on. Look here, in this essay, just below for a recent graph issued by professor Saez on income growth.


Though the political Right and even the President are calling for cuts in social safety-net expenditures -- call it the austerity agenda -- the nation is very wealthy and can afford these necessary programs. How wealthy are we?  Each household in the U.S. enjoys a savings of  $481,000. You may be surprised to learn this. The total household worth is over $56 trillion. Divide $56.823 trillion - from this source - by 118 million households to reach the mean average $481,551 figure. Yet the bitter truth is that we have stark disparity of wealth and income. 25% of Americans live in households with "zero or negative" net worth --- no savings at all --- and another 12% live in households with less than $12,000 in savings. (See page 8) That means that 118 million Americans (37.1%, about 3 in 8) live very precariously with scant savings. The NBER conducted a survey of 1,500 adults asking if they could pay off an emergency $2,000 expense within 30 days. Almost half (44%) of U.S. adults report they could NOT. The average savings for the bottom 40% is $2,200 in 2009 while the national average is $481,000. As I report below, the median adult owns $53,000 in assets while the average owns $220,000, according to the World Wealth Report, 2011, Credit Suisse Bank.  And the wealthiest 1 million households have an average net worth (assets minus debt) of over $14 million in savings. That a $1 to $7,000 savings ratio between the bottom 40% of the population to the top 1%. The top 20% of households own 87.2% of everything (same source as above, page 5), and the top 5% own around 72% of all financial assets. 

Presently the poverty rate (16.0% or almost 50 million citizens) is the highest poverty rate in almost 50 years, and 45 million Americans would starve if it were not for Federal food programs. Our national problem should be quite obvious from these summary paragraphs. In Australia, as a contrast, the minimum wage is $15 an hour, double our $7.25 an hour. Australia also distributes its wealth much more equitably, having a median wealth of $220,000 per adult in contrast to $53,000 in the U.S.. There are models for improvement, we don't have to look far. We pay double for medical care in the U.S., our financial system is infamously predatory, and our political system is bought by the highest bidder. We stack the deck against ourselves. Examples In much of Europe and Japan show that civility is possible. The homicide rate in much of Europe and Japan is 1/5th the U.S. rate, and the incarceration rate is 1/7th to 1/9th the rate. Much of the disparity -- U.S. to the rest of the developed world --  results from the economic insecurity of the lower-earning working class. Class warfare has taken its toll in the U.S.. 

Class warfare since 1980 has knocked down the incomes of 90% of lower-earning families (see graph below), and it is time for the entire population to reverse the unhealthy effects of greed, ignorance and apathy.  
  
This economic insecurity, compounded with shrinking  employment and wage downsizing, is driving a majority of Americans to the brink. See this link. and this link for studies on insecurity. The wealthiest 20% of households own 87.2% (almost 90%) of all private property -- this link, page 2. Employment growth is not robust enough to solve the problem; it is just keeping up with population growth (see this link from the Chicago Political Economic Group).

My entry of Feb. 2, 2012, is very long, so I am summing it up with this briefer entry. -- Admittedly it is getting longer and longer as I tinker with it.

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Income Distribution in the U.S.
This is a tricky subject. First, look at the Social Security Administration report on income, wages only, for 2010. It shows 150 million workers reporting wage income of just over $6 trillion in wages, an average of $40,000 per worker. In comparison, look at the BEA data, that shows $6.5 trillion in wage income for 2010 Q4, not including "supplements". The average Social Security annual wage income (SSA report) is $40,000, and half of U.S. workers earn less than $26,363 a year in wage income. (The poverty level in 2011 for a family of four was $22,350, for comparison.) Looking at all sources of income, the total pre-tax personal income reported from the BEA, the total personal income increases to $12.846 trillion. Divided equally among 150 million workers, the average then increases to $85,640 per year. Half earn less than $26,363 and the average is $85,640, pre-tax and pre-transfer income. This is called inequality. 

Furthermore, 1/6th of workers, 25 million workers, earn less than $5,000 a year, another 1/6th earn between $5,000 to $15,000, and another 1/6th earn between $15,000 and $26,363 a year. Three sixths are equal to 1/2, which equals 75 million American workers, half the work force. The average yearly wage income for the lower-earning half of U.S. workers is below $13,000 a year, which is a little more than 1/3rd of the average wage income for all workers which is $40,000 in wages. One must remember that wage income is less than 2/3rds of total personal income as there is also Business Income (7.1% of all income) and Capital Income (11.0% of all income) and "other" income (17.3% of all income) -- this breakdown comes from the Tax Policy Center report on income for 2006. The "other" income (17.3% of total income) breaks down into pension income, Social Security income, and government transfer to social safety net income, according to the TPC. The BEA figures for 2010 Q4 show 60.0% of all personal income accruing to "compensation of employees" including "wages and salary disbursements" and "supplements". 

Looking back at the report from the S.S.A., the top-earning 25% of workers, all earning over $50,000 a year, receive 63.3% of all wage income, the lower-earning 75% of workers receive 36.7% of all wage income. If you multiply 36.7% (wage income) times 64.5% (the percentage that wage income is of total income), then you arrive at the conclusion that less than 25% of all personal income in 2010 went to the lower-earning 75% of workers as compensation for labor. Three-quarters of all workers get one-quarter of all income. INEQUALITY. 

The Tax Policy Center, part of the Urban Institute and Brookings Institute, issued their report in 2006, but the income distribution trends are somewhat stable. It shows that 28.2% out of 100% of income went to the lower-earning 80% of households deriving from "Labor Income". It requires some simple calculation to multiply and add those amounts, and the book State of Working America, 2006-2007, page 69, shows the calculation. So, 28.2% out of 100% is the wage income portion of employees in this country. Not a very large portion. It matches my calculation from the SSA report showing 75% of workers receive almost 24% of all income.  

It's a tricky subject. 
The average after-tax income per household (note: household not worker) in 2011 was about $98,000 per household among 118 million households. (See page 30 of Joint Committee on Taxation, Feb. 2012) The median (middle) household income is about half the average, which should tell you something about inequality of distribution of income. Half (56%) of the nation's personal income goes to 19% of households earning over $100,000 a year, the highest-earning 19%. The Tax Policy Center's report, for 2006, showed the lower 80% of households receiving 40%, not 44%. One should remember that personal wage Income above $110,000 is untouched by the Social Security taxation. (See this report for an analysis of raising the cap on income subject to SSA taxes.) Disposable income (meaning after taxes income) according to the Bureau of Economic Analysis, Department of Commerce, was above $11.6 trillion in 2011, and spread among over 118 million households the average is above $98,000 a year. In other words, we are very wealthy as a nation. (Go to BEA web page, click Section 2, Personal Income and Outlays, and then click Table 2.1) 

The Joint Committee on Taxation released an income and taxation report, February 2012, showing the distribution of income on page 30. As I've argued before, if the income distribution ratios of 1979 were the same in 2012, all the 94 million lower-earning households, 80% of a total of 118 million households, would receive approximately $10,000 more income per year each year. This in itself would solve the unemployment and economic crisis. 

The web page TooMuch.org, March 12, 2012, shows a graph from U.C. Berkeley professor Emmanuel Saez that reports a drop in income of almost $4,000 since 1973, a drop from $33,795 to $29,840, for the lower-earning 90% of households. So, in spite of the economic output per citizen of the nation doubling (a Federal Reserve graph) since 1973, 90% of U.S. households have seen a drop of income of 12% on average. Even more, average hours worked per household has increased by 10% according to State of Working America. 

Wealth Distribution in the U.S.
The typical Australian adult has 4 times the wealth or savings as the typical American adult, $220,000 vs. $53,000. "Typical" here means median, or middle, in a scale from least wealthy to most among all 234 million U.S. adults. The U.S. lags behind most advanced nations in the ratio of median net worth per adult  compared to average net worth per adult. According to Credit Suisse Bank's World Wealth Report, 2011, the median adult's net worth, or wealth, in the U.S. is $52,752, but the average wealth among all 234 million adults is $248,395,  and this is median to average ratio of 21%. 
Australia on the other extreme has a median to average ratio of 56%. That is, in Australia the wealth is distributed among adults such that the median (middle) person has an amount that is 56% of the average wealth. In the U.S. that median adult only has a wealth amount of 21% of the average. Even India and China have higher distribution ratios than the U.S.  If the U.S. ratio equaled the Australian ratio, the typical U.S. adult would own not $52,752 but $140,000, and in a family of two adults, the net worth would be $280,000 at the median instead of $62,200 in 2009 (see page 6). The typical Australian is 4.5 times wealthier than his American counterpart. 

The report State of Working America's Wealth by U.C. Berkeley professor Sylvia Allegretto also shows that two out of eight Americans (75 million) live in households with zero or negative net worth (no wealth or savings), and another one in eight (37.5 million) live in households with less than $12,000 in savings (see  page 8), even though the average wealth per household in the U.S. is $481,000 per household. (See Statistical Abstract of the U.S., aggregate net worth of all households, $$56.823 trillion in 2010, divided by 118 million households: $481,000 per household.) This is the state of distribution of wealth in the U.S.   
See Statistical Abstract of the U.S. table 722, page 440)

Wealth Distribution in the World
According to the Credit Suisse report, the wealthiest 0.5% of adults own 38.5% of all assets, and the wealthiest 8.9% of adults own 82.1% of everything that can be sold. See page 14 of the above link to the report. We are so poor only because the resource of money is so unequally distributed. And money you might say is only ink on paper. But cash is king, even in a putative democracy. There are sensible ways of ameliorating this extreme inequality, and it is the political and economic imperative of our times to execute the leveling of income and savings to the benefit of the whole of society and the world. 

In contrast, U.S. Poverty

Yet, some 50 million citizens, nearly one in six, lived in poverty, 16.0% of all Americans in 2010, according to the revised US Census report, http://www.census.gov/prod/2011pubs/p60-241.pdf  -- see page 5. Yet the nation is very wealthy. The number using the food stamp program, SNAP, is also very high, and 14.5% of households were "food insecure" during 2010. That's about 45 million U.S. citizens. See http://www.ers.usda.gov/Publications/ERR125/ERR125_ReportSummary.pdf


A recent Rockefeller Foundation report, Economic Security at Risk, states that
"In 2009, projections suggest, approximately one in five Americans experienced
a decline in income of 25 percent or greater." This rate contrasts with that of 1985 when 12.2% experienced such a drop in income.

                                            

We are not paralyzed, we can repair the economy and cause it to function to the benefit of all. The political options as presented by the Republican Party and the Democratic Party are woefully inadequate and should be rejected. 

Solutions --- One -- Two -- Three 

Here are two articles and one report that will help citizens understand the needed steps. 

One

1) James Crotty's article in In These Times, "How the people can fight back against plans to cut the social safety net." This proposal rejects both Obama's and the Republican Party's position that deep cuts are necessary. He shows a simple two-step process to solve the federal revenue deficit: end the Bush tax cuts, decrease the military budget. This is just the beginning of his remedies. A longer, more thorough piece by Crotty can be found at PERI. Two interviews are available at The Real News Network.  Crotty's longer paper is the best analysis I've read giving a rear-view and present-day-view of government's interaction with the economy. It is a professional job on the topic I've been trying to write about. I plan to write more about it. Some data are simply amazing -- regarding the RepublicanParty's plan to halve the size of the federal government, Obama's partial surrender to the austerity agenda, and how incredibly expensive our medical care system is.  If we spent the same portion of GDP on medical care as Canadians do, the net savings to US households would be $1.6 trillion per year, or 10% of GDP, or $13,500 distributed yearly and evenly among all 118 million US households. Is that incredible?  The "cost" of reducing our nation's health care costs would be slightly higher taxation to pay for this universal care system.
Two

2) John Miller and Katherine Sciacchitano's article "The United States Is Not Greece" published in Dollars and Sense magazine, explains why "cutting deficits right now will only weaken a still-fragile recovery, and that weakening the recovery will only increase deficits". Very clearly written. They pin the blame on the German policy of suppressing wage growth to the average German worker, thereby driving the German export surplus across the Euro zone, and cutting growth and competitiveness in the periphery countries. 
Three 

3) The most important contribution comes from Dr. Doom and his co-authors: Nouriel Roubini, Robert Hockett, and Daniel Alpert's report "The Way Forward" published by The New America Foundation. This report presents a "three pillar" program to 1) create public jobs, a $1.2 trillion program over 5 years, 2) a debt-restructuring proposal that "we believe will unclog the real estate and financial arteries", and 3) a program to "correct the current imbalance in global supply relative to global demand."  A YouTube video shows the three authors presenting a summary of their proposal, see this link. In two hours you can learn more about the economy than you could in 2 years of reading. You'll have to listen closely. For instance, at the beginning Daniel Alpert describes the build-up of debt in the U.S. since 1980 to a level of $52 trillion, or 362% of the level of GDP. The federal government in 2011 is in debt by 102% of GDP (see Statistical Abstract here, Table 470). The rest of the 362% of GDP debt (260%) goes to household, financial corporations and non-financial corporations. Jack Rasmus's book Epic Recession, page 220, reports in 2008 total "Domestic" debt of $50.666 trillion, 23% to consumers, 17% to federal government, 22% to non-financial business, and 38% to financial corporations. Financial corporations increased their total debt from 1978 to 2008 by an incredible factor of 47 times, from $412 billion to over $19 trillion, in non-adjusted-to-inflation figures. As a portion of GDP, financial corporation debt exploded from 10% to 116%, 1970 to 2007 (see The Great Financial Crisis, by Magdoff and Foster, page 121). Financial corporation debt exploded since 1980, just as Daniel Alpert reports at the beginning of this presentation. This fueled the very fragile growth of the last 30 years, debt spending. And since the financial system's meltdown and self-destruction in 2007, their debt has been transferred to the public, off the corporation's balance sheet onto the federal government's balance sheet. Before 1980 the total national debt (all components) was equal to GDP. What caused such an explosion in debt and easy credit? What can be done about it? It's worth your time. Watch the video twice or four times.  

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Here is a comment I left at In These Times after Crotty's article: 

A complementary article to Crotty's is "Why the United States Is Not Greece", published at Dollars and Sense Magazine. See: http://www.dollarsandsense.org/archives/2012/0112millersciacchitano.html 

The U.S. economy produces $47,000 of economic output per human citizen per year -- over 310 million people times $47,000 equals the GDP of over $15 trillion. Each worker produces over $109,000 in output, on average according to the Federal Reserve Bank of San Francisco. The Disposable Income is over $11.5 trillion each year, that is after tax income. Even after all taxes, there is over $75,000 per worker available as income, and that includes all the not-working, unemployed workers. Yet according to the Social Security Administration, the median income for 150 million workers was $26,263 in 2010; half of all workers, 75 million, had incomes below that $26,363. 

What has happened since 1980 is a growing disparity of income among workers, and the CBO issued a report showing that the top one percent increased its income share from 8% to 17% (after-tax and after-transfer income) and this 9% shift in income share came out of the income shares of the lower-earning 80% of households, 93 million households. The lower-earning 90% of households received only 9% of all growth, 1979 - 2007, while the top 10% got 91% of all growth. See this web page and make your own confirmation: http://stateofworkingamerica.org/who-gains/#/?start=1979&end=2007. (Move the two markers to the two years 1979 and 2007 and note the % going to the top one percent.) The middle 60% of households grew their income by 38%, the top one percent grew their income by 277%, according to the graph on display (top graph of this blog entry) from the CBPP. The CBO report  "Trends in Household Income Distribution Between 1979 and 2007" echoes these other reports.  (Read my entry for November 20, 2011 to learn about the CBO report, as well as the most previous entry, January 2012, a short paragraph.)

Crotty's argument is very important to grasp. We can publicly employ the unemployed, and thereby generate growth, the type of growth that is sustainable and actually improves the standard of living. Obama and the Republicans have offered an option that is wrong, based on the false premise that the rich cannot be taxed. Most readers of In These Times know all this, especially after reading the article. My blog is http://benL8.blogspot.com where I make the above case.  

In France the Socialist Party candidate for president, Sarkozy's top rival, is calling for a top marginal tax rate of 75%, a step in the right direction. (See this report)

Here are two more reports about inequality, if one wants an abundance of facts: One and Two. 

At TooMuchonline.org, Sam Pizzigati reports on the highest tax rates, and the effective tax rates. "The effective tax rate on Americans who make over $1 million currently averages around 25 percent. In 2013, under the Obama budget, millionaires would likely average a federal income tax bill that equals somewhere between 30 and 35 percent of their incomes.

Not chopped liver. But not adequate either. The current White House tax vision for 2013 and beyond simply leaves too much money on the table — money the rich have siphoned off from America's 99 percent, money that could be rebuilding the American middle class.

A little history can be useful here. In 1953, the heart of our middle class golden age, taxpayers who made at least $1 million — in today’s dollars — paid far more of their incomes in federal income tax than millionaires would pay in 2013 under the new White House budget. Our 1953 rich, after taking advantage of every loophole they could find, paid taxes at nearly a 55 percent effective rate." For 13 years, 1951 to 1964 (read this table), the highest tax rate stayed at this level. So, 25%, or 30 to 35%, or 55% tax rate only on incomes over $1 million a year? That's the choice. After the great income shift, it's appropriate to return the tax rate to the former level when the economy benefitted families at every income level, not just the super rich. It is also appropriate to raise the minimum wage to $12,30 an hour and double the Earned Income Tax Credit (see my article here), increase union participation and encourage corporate cooperative enterprises, all towards equalizing income and wealth distribution. (See my Six or is it Seven Point Program, here.) 

This month: Income Inequality 1976 - 2007, a chart 
   The 30 Year Trend, According to the CBO
    Finding the Average Worker Income
             -- Inequality on Steroids
  The Money Chart -- a graphic on Income Distribution
  Functional Finance, around since 1946. Money is a flexible human artifact, and  government may simply issue currency, debt free, for projects that increase the common welfare.

This is a long blog post, many words. Central is the fact from the Congressional Budget Office that the top 1% increased their income from 8% of total personal income in 1979 to 17% in 2007, and the lower-earning 80% of households in the U.S., which include 93 million households, would have more than $11,000 per year more income if the distribution rates had remained at the 1979 rate levels. That's the consequence of growing inequality. It is important on many levels, even for people who are happily well-off, who disdain public intrusion in the economy, and disparage government programs benefitting the poor among us. They are blissfully, and perhaps arrogantly insouciant (worry free). But even the top 20% of households in income would be far better off, living in a far happier society, though they care not a single acorn about economic fairness. Such is stubborn arrogance and indifference among many Americans who lack a social conscience. What can one do to make a dent in these minds and hearts?

A Tale of Two Thirty Year Periods, Income Distribution from
Center for Budget and Policy Priorities. Between 1976 and 2007, the U.S. gross domestic product (GDP) grew 66 percent per person, adjusted for inflation.  But the average income for the top 1 percent of Americans increased by 280 percent, in inflation-adjusted terms, while the average income of the bottom 90 percent of Americans stagnated, growing just 8 percent over this 30-year period [see graph].

The third graph comes from the Center for Budget and Policy Priorities, an excellent article by Stone, Shaw, Trisi and Sherman.

In 1979 the top one percent's collective yearly income was $920 billion, and today it is $1,955 billion, adjusting to today's dollar value. Their share of the national personal post-tax and post-transfer income increased from 8% to 17%, according to the Congressional Budget Office (see this report, page xiii and pages 35, 36, 37). The shift of 9%, from 8% to 17%, coincided with a decrease of 9% in the incomes of the lower-earning 80%. This amounts to $1.035 trillion shift in after tax income that today goes to the top one percent  that in 1979 went to the lower-earning 80% of households. Reversing this $1 trillion transfer would 1) be fairer, 2) would create more purchasing demand and stimulate growth in employment, and 3) workers would tend to serve and produce for themselves not for the super wealthy, and this would create a healthier society. 


What if?  
What if the same income distribution held as in 1979? 
The incomes for all 80% of households, (93 million households) would be about $11,000 more per household. evenly distributed.
I have to state that "evenly distributed" is not the same as "same income distribution". The lower-earning groups would not receive a full $11,000 more by restoring the earlier distribution rates, but indeed they would if we took the composite transfer, the 9% shift that the top one percent took to their own incomes during 1979 - 2007, and evenly distributed it across the entire lower-earning 80% of households. All households in the lower-earning 80% receive $11,000 a year.  



In other words, the 20th percentile household would earn today, before taxes and transfers, not $14,851 but almost $26,000 per year. 
Maybe it's income would grow to $30,00 a year. In 2007 the 20th percentile received income of $14,851, and post-tax and post-transfer its income was $18,979, or $4,000 higher than pre-tax. The market is flexible in income levels, as can be seen by comparing 1979 levels with 2007 levels. The Earned Income Tax Credit added to this income group's annual income. But the growing inequality took away from its income which would have been $26,000 a year instead of $14,851. 

The 40th percentile would earn today not $28,618, but almost $40,000. In 2007, after all taxes and transfers, the 40th percentile  income was $29,729, $1,000 higher than its market income, but it was not the $40,000 a year level it would be if 1979 ratios were in effect.


The 60th percentile would earn today not $45,192 but $56,000.  Its 2007 post-tax and post-transfer income was $42,202, about $3,000 less than pre-tax income).

The 80th percentile would earn today not $70,578 but almost $82,000. Its 2007 post-tax and post-transfer income of $60,557, was almost exactly $10,000 less than pre-tax income. 


These figures do not include state and local taxes, which include sales taxes, property taxes, etc.  For 40% of U.S. households their post-transfer income is higher than their market income due to government transfer, mostly the Earned Income Tax Credit that was funded at $58 billion in 2011. 


The 80th to 99th percentile would not be effected by the hypothetical transfer back to the 1979 distribution ratios. 


The top one percent would earn not today's $347,421 but 165,049.  Their 2007 post-tax and post-transfer income  was $252,607, about $95,000 less than pre-tax income. Of course the $347,421 figure is the threshold into the top one percent who in 2010 earned on average over $1,300,000 per household. Their share of total income would decrease from 17% to 8%, the 1979 level, and they would see a collapse of income. But this would benefit the economic health of the nation.   


Mainstream economists do not condemn the disastrous effects of extreme inequality. Read below about the U.S. gini coefficient as it compares to other nations. These effects harm output growth, output itself, employment levels and societal health. The book The Spirit Level by Pickett and Wilkinson does make this case, as does The Acquisitive Society by Tawney. Read about them at www.toomuchonline.org, where Tawney states that the human energy of a nation is "diverted from serious work, which enriches it, to making trivialities, which impoverishes it." Too Much is a great web page that I recommend to all readers. 


The line graph above comes from State of Working America, the growth of family income. Note that from 1979 to 2009 the growth has been negligible, only 11%. The economy doubled its output in inflation adjusted dollars. The total GDP in chained dollars increased by 117%. The first graph above states that per capita GDP grew by 66%. Concurrently women in the workforce increased from about 51% to 56%. 


Lawrence Mishel, co-founder of the Economic Policy Institute wrote recently, "Over the 1970-2010 period, the output of goods and services per hour worked [productivity] rose 119 percent and per capita disposable [after-tax] income grew 114 percent." Now this is a bit confusing. He uses a period that is 9 years greater than the CBBP report above that states a 66% gain per capita of the GDP. Instead of 66%, Mishel states 114%, with only 9 more years included in his span. Mishel's knowledge of the economy is prodigious, he knows more than just about anyone. Either way, 66% or 114%, the vast majority of the population did not keep up. The top one percent saw a rise in income by 280%. And the Gini coefficient measuring inequality of income for the country was high to begin with, and it's higher now.   

Inequality -- On Steroids? 

The Difficulty in Finding the Yearly Average Worker Income






Go to State of Working America, to see rise in household median income, 15% between 1973 and 2009, 36 years. Mishel states that productivity of workers rose by 119%, and after-tax income per capita rose by 114% between 1970 and 2010, 40 years. 8 times faster: the per capita income increased almost 8 times faster than the median household income. 
Yes it is very complicated, and statistics are often manipulated, but doesn't this give any and everyone an uncomfortable feeling?  




Average Income per U.S. Worker?
But what is the average income for all 154 million in the workforce? Dividing the "disposable income" for 2011, $11.5 trillion, by the workforce, 154 million, equals $74,670, the average income per worker. But since only 140 million were working daily, that yields an average of $82,000 annual income. See BEA site. (Click Table 2.1 for disposable income and 1.1.5 for GDP) The ratio for average worker income, $82,000, and average worker  contribution to GDP, $109,000 equals 75%. ($82,000 divided by $109,000 equals 75%) This roughly matches the gross figures. The ratio for disposable income divided by total GDP  ($11.613 trillion disposable personal income divided by $15,294 trillion GDP) equals 75%. --- So, $82,000 a year is my average income for the 140 million who are working each day. Yet over 150 million work each year, according to the Social Security Administration.


James Crotty article in In These Times
This article proposes a progressive government response to the Austerian -- cut spending -- program that both Obama and the Republicans are promoting. It's an important read, and a clear road-map to greater equality and prosperity. 

I'm afraid I can't solve the "average worker income" problem. Whether it's $82,000 or just below $75,000 a year, it definitely is not near, any way near, the $26,363 figure given by the Social Security Administration as the median income for 150 million workers. See here for a link to the SSA figures.  


The Floyd Norris article in the New York Times shows that wage and salary income today is trending lower as a percentage of GDP, while corporate profits may be at an all time high. (You must click the link to see the entire line graphs.) 





As far as I can tell "average worker income" in the U.S.A. is never mentioned in BEA or other economic studies. I've only seen the median income mentioned at the Social Security Administration site, and this includes only salary and wage income. But this is not good enough. According to the Statistical Abstract for 2010, salary and wage income was 64% of total personal income.  One often  sees the figure for median household income, below $50,000 a year in 2011, and this includes all sources of income.  

I take the total national income (including wage and salary income, capital gain income, proprietary income and other income) and arrive at $75,000 for the average post-tax income per U.S. worker, all 154 million workers. 


The Federal Reserve Bank of San Francisco states the average worker contribution to GDP at $109,000 per year. 


The Social Security Administration released figures on income for 2010, showing that of the 150 million workers submitting W-2 forms, the median income was $26,363. One sixth of workers earned between $0 and $5,000, one sixth earned between $5,000 and $15,000, and one sixth earned between $15,000 and $26,362. For a breakdown of income figures, salaries and wages only, go to this site.  

So how does one make sense of $109,000 per worker contribution to GDP, and the $75,000 average income per worker, and the $26,363 median wage income per worker for 150 million workers? It is a complicated subject. Call it inequality on steroids.  

Originating at the S.F. Federal Reserve Bank, http://www.frbsf.org/csip/data/charts/chart17b.cfm

"Trends in Distribution of Household Income Between 1979 and 2007" by the Congressional Budget Office, CBO, shows precisely how much household income levels have  gained over that 28 year period.

The CBO report states, page 37, the growth of income per quintile of households, between 1979 and 2007. I tediously calculated income gains for the four lower quintiles, and the top 1%. This is from page 37 of CBO report, "Market Income Plus Transfers Minus Federal Taxes" 1979 to 2007. The figures show the threshold incomes between one quintile group and its next higher quintile -- Quintile 1, up 23% from $15,411 to 18,979, 2 up 30% from 22,851 to 29,769, 3 up 39% from 30,341 to 42,202, 4 up 47% from 41,075 to 60,557, and top 1% up 118% from 115,965 to 252,607. In pie-shares or income shares, the lower 80% of households lost 9% of the pie, the top one percent gained 9% more pie in its share, from 8% to 17%, post-tax and post-transfer income.  

Households in the lower-earning 80% would have incomes greater by 23% today if the distribution ratios of 1979 still held today. The  maximum income for the lower 20% of households would not be $19,000 but $25,650, and the other quintiles maximum incomes would also increase. This is to say that income distribution is flexible according historical factors, which includes tax burden allocation. It can also be changed by direct government intervention, such as the EITC or other transfers.  This indicates  that income share is already subject to government intervention by way of taxation and transfer. 


To put this into a better context, the beginning, 1979, level of inequality was already high. The Gini index for income distribution in the U.S. is amazingly high. The CBO report, page 5, states "The Gini index for household market income rose from 0.479 in 1979 to 0.590 by 2007, and increase of 23 percent." Most of Europe has a Gini around the low 0.30s. Some countries are below 0.30. 

At this wikipedia site the Gini for Denmark is 29.0 and of France is 32.7 and Germany 27.0.

A Money Chart, including income distribution:

For a very interesting view of income distribution one can "google" the following: xkdc Money Chart, because the link from this blog does not connect.  

You will see that 1.3% of U.S. households, the top earners, received 20% of all income,
the next 9% received 20% of all income, 
the next 16% (74 percentile to 90 percentile) received 20% of all income,
the next 24% (50 percentile to 74 percentile) received 20% of all income,
and finally, the lower-earning 50% of households received the last 20% of all income.
The year is not given, but there is a reference site listed. It's a large interesting chart, the distribution section is in "Billions" area in the middle of the chart. 

This entry on my blog is irregular. I usually try for a more deliberate article on some topic. But this short entry will give readers some indication of worthy economic solutions that can be pursued.


About Unemployment, February 2012 
-- 20.6 million jobs needed



Writing about the recent unemployment report, Joe Persky, a professor at Univ. of Illinois, Chicago, states, “If we take a longer-run view, this last year has seen an increase of about 2 million jobs, or 166 thousand per month. That is better than the year before and the year before that. But this modest growth in employment is just doing a little better than population growth. The (seasonally adjusted) employment population ratio last January was 58.4%. This January, as noted above, it is 58.5%. In January, 2007 the same figure was 63.7%. At this rate it will take us half a century (52 years) to just get back to where we were before the panic and deep recession took hold. And keep in mind that the labor market in 2007 hardly represented full employment. In that year about 8.5 million workers were unemployed or underutilized by the BLS’s own measure. ”


If we had the same employment/population ratio as Jan. 2007, some 10.8 million more jobs would exist. If we had the same ratio as Jan 2000, 67.1%, some 20.6 million more people would be working.
1933-1937 the unemployment rate dropped from 25% to 9.6% because of public job creation according to this article by Marshall Auerback: http://www.newdeal20.org/2010/08/30/the-real-lesson-from-the-great-depression-fiscal-policy-works-18751/

Functional Finance -- or How to Avoid Deficits 


--- Instead of increasing the national debt by borrowing from private parties, the government instead can directly create revenue without taxation or borrowing. Congress directs the Federal Reserve to loan the U.S. Treasury x billion dollars for projects that serve the nation, and then directs the Fed to cancel the debt. This is creating money out of thin air, Functional Finance. The banks do not like it, the wealthy like it not. But the country can manage along quite well this way. 

Doesn't this dilute the value of the currency? Of course, but since it also strengthens the overall economy, it strengthens the currency. It facilitates financing of needed physical and/ or social infrastructure, and it re-balances income distribution by providing employment to perhaps 1 in 6 who do not have adequate employment. Both these developments far out-weigh the negative effect of diluting the currency. It democratizes the economy in part allowing democratic choice to allocate resources for needed projects. It does not overwhelm the private sector and create socialism. 

The World Wealth Report sponsored by Credit Suisse Bank, September 2011, states (page 14) that 0.5% of the world's adults own 38.5% of all wealth, and 8.9% of adults own 82.1% of the humankind's monetary wealth. The allocation of the world's resources -- capital, human and physical -- is determined by a motive for profit. But humans need a new way to choose which resources should be allocated for which advances and improvements. The profit motive must be modified by a more intelligent directive power.  Functional Finance is one such contribution. 

The Earned Income Tax Credit, EITC, issues money directly to low income families, and cost the federal government  approximately $58 billion in 2011 and helped more than 26 million workers, while another 6  million failed to access the "free money".  Some 21% of the workers get or qualify for "free money" from the government simply because the government determined their wages were too low and they were raising children. See my January 2011 essay on a University of Massachusetts' plan to double the EITC. Functional Finance issues the money not to families directly but to government employment projects that serve society, and by-passes the taxation or borrowing routes. 

The poverty rate in 2010 was 16.0 percent (a newer revised figure), higher than it's been since the 1965 (see U.S. Census, page 14), and it would double without government transfer programs. The official poverty, most critics find, understates the actual poverty level. A doubling would means 1 in 3 Americans would live in poverty but for government action. According to this article at CBPP, "With anti-poverty programs under serious attack in Washington, here's something to keep in mind: a major new study from the National Bureau of Economic Research (NBER) finds that public programs keep one in six Americans out of poverty -- primarily the elderly, disabled, and working poor --- and that the poverty rate would double without these programs."

"Economic Crisis and the Fiscal Challenge of the State" describes a program for Functional Finance. This article by William Van Lear appears in Challenge Magazine, December 2011. I give the article another sub-title, "The Benefits of 'Functional Finance' Explored". The article is not available on the Internet. Van Lear is an economics professor at Belmont Abbey College in North Carolina. 

Van Lear's article and an article by Roubini, Hockett, and Albert,  "The Way Forward," are truly excellent, and with both I can  conceptualize our economy's ultimate solution.  

Van Lear's describes the economy's stagnation over the decades and the growing concentration of income, i.e., growing inequality.  He offers two solutions, 1) the historical New Deal type policy  actions, and 2) Functional finance. Central to Van Lear's and Functional Finance's premises are that 1) governments have to intervene, the economy is not self-regulating, and tends to stagnation; 2) the state's responsibility is to ensure a prosperous economy, 3) money is a creature of the state, it has to be managed, 4) government spending or fiscal policy should be directed in the light of its impact on the economy, 5) taxes should be levied for their economic impact, rather than to raise revenue. Most of that sentence I drew from the wikipedea article on Functional Finance. 


This provides for, in Van Lear's words, the "Unencumbered spending levels [of functional finance to] achieve full employment, and [such] financing flexibility ends the power of [private] finance capital to charge high interest rates and continually threaten financial crises." Much of this is occurring in Europe as private bond markets threaten sovereign nations' economies. Michael Hudson published an article about the antisocial behavior of banks at Alternet, February 3, 2012. In 1970 financial corporations' debt total equaled 10% of GDP and in 2007 it equaled 116% of GDP according to The Great Financial Crisis by Magdoff and Foster. Why so much more debt, 10 times more? This is symptomatic of concentration of wealth and inequality, leading to harmful, dangerous credit fueled asset inflation. 


Rules of Functional Finance, extracted from the wikipedia article: 
1. Government shall maintain a reasonable level of demand at all times. (This is a Rooseveltian notion about the economy.) 
2. By borrowing money when it wishes to raise the rate of interest and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain the rate of interest that induces the optimum amount of investment. 
3. If either of the first two rules conflicts with principles of 'sound finance' or of balancing the budget, or of limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2. 
The issue is who allocates resources, capital seeking nothing but profit or society seeking social benefits? 


Van Lear states, "Controlling inflation becomes a political economy issue of income distribution and reaching agreement on income shares." 



The wikipedia article on Functional Finance   http://en.wikipedia.org/wiki/Functional_finance , states,
"Principles of 'sound finance' apply to individuals. They make sense for households and businesses, but do not apply to the governments of sovereign states, capable of issuing money."
The sovereign state can issue money without taxation for purposes beneficial to the economic security of the nation, avoiding the usual taxation or borrowing avenues. 


In the book Web of Debt  author Ellen Brown discusses President  Lincoln issuing "greenbacks" to finance the Civil War as an example of functional financing.

Perhaps issuing a financial transaction tax would raise enough  financing to fund government job creation, and option one, New Deal type programs. But Van Lear's analysis is worth looking at. And Roubini's paper, The Way Forward, suggests "Three Pillars" for reform, 1) public job creation, $1.2 trillion over 5 years in infrastructure upkeep, 2) resolution of the debt overhang afflicting households and financial corporations. If banks had to "mark to market" they would be bankrupt. And 3) resoloving the U.S. trade deficit through a comprehensive new financial architecture 
agreement similar to the  Bretton Woods agreement.


This blog has several articles on direct job creation. See here and here. And my seven point reform essay here.