People are slowly but surely recognizing that there is no economic light at the end of the tunnel. In fact, it appears that we may be looking into a cave not a tunnel.
The U.S. economy has undergone a major transformation. Globalization, financialization, privatization, deregulation, and liberalization, to mention just a few of the developments that define this transformation, have created an economic system that rewards only a very few people.
The chart below shows these are good times for those at the top–economic profits are up and the stock market is soaring over this expansion period. But what about for the great majority? Growth is slow and even more importantly median household (HH) income has actually fallen by 3 percent.
The following two charts highlight some of the pressures facing working people. The first shows that the average earner, the one at the 50th percentile, has suffered a 2.7 percent real decline in hourly wages since 2007. The decline has actually been much greater since 2009, when the recession allegedly ended and the good times began. Even those at the 95 percentile have suffered real hourly declines since 2009.
The second shows that family income has fallen for almost all income groups over the period 2007 to 2012. We can get some idea of the transition period by comparing income trends in the three periods shown. Suppressing wages is one way to boost profits and stock prices in a period of slow growth.
As I said above, people are beginning to recognize that current trends are no aberration. A recent Rutgers University poll asked Americans how they viewed the Great Recession and its aftermath. The figure below present the results.
Here is what the Rugers researchers had to say:
The survey finds 71 percent saying the recession left us with “a permanent change in what are normal economic conditions in the country.” Moreover, the belief that the economic downturn created irreversible shifts in the economy grew from 49 perent in November 2009 to 56 percent in September 2010, and to 60 percent in Janary 2013. Now, 71 percent of Americans think the economy has changed permanently, which represents a broad consensus.
At least some people are drawing the appropriate conclusion—they are taking direct action to improve their working and living conditions. As the Guardian reports:
America’s fast food workers are planning their biggest strike to date this Thursday (September 4th), with a nationwide walkout in protest at low wages and poor healthcare.
The strike is the latest in a series of increasingly heated confrontations between fast food firms and their workers. Pressure is also mounting on McDonald’s, the largest fast food company, over its relations with its workers and franchisees. . . .
Workers from McDonald’s, Burger King, Pizza Hut and other large chains will strike on Thursday and are planning protests outside stores nationwide, in states including California, Missouri, Wisconsin and New York.
The day of disruption is being coordinated by local coalitions and Fast Food Forward and Fight for 15, union-backed pressure groups which have called for the raising of the minimum wage to $15 an hour for the nation’s four million fast-food workers.
Thursday’s strike will be the seventh since fast food workers in New York walked out on their jobs in November 2012. Each walkout has been bigger than the last and have been credited with spurring President Barack Obama to focus on an increase in the minimum wage.
Our current economic expansion is now past the five year mark and the gains for most working people are hard to find. Media attention has largely focused on the weak record of job creation. Less attention has been given to the lack of growth in wages and benefits.
As Bloomberg News explains:
Meager improvements since 2009 have barely kept up with a similarly tepid pace of inflation, raising the real value of compensation per hour by only 0.5 percent. That marks the weakest growth since World War II, with increases averaging 9.2 percent at a similar point in past expansions, according to Bureau of Labor Statistics data compiled by Bloomberg.
The chart below looks at the inflation adjusted growth in hourly compensation (wages and benefits) for 11 different economic expansions. The gains are for the first five years for those expansions that lasted longer. Full business cycle dating can be found here.
Clearly, business feels no pressure to boost compensation—and it is worth underlining that we are talking about wages and benefits—despite the severity of the past recession and the growing length of the current recovery. It is no wonder that many workers are even reluctant to believe we are in recovery.
To make matters worse, economists Martin Feldstein and Robert Rubin are now calling on the Federal Reserve to slow growth. In a Wall Street Journal op-ed they expressed their fear that new asset bubbles are growing dangerously large. However, as Dean Baker points out:
Given their enormous stature, Feldstein and Rubin undoubtedly expected their joint bubble warning to have considerable weight in economic policy circles. Of course this raises the obvious question, why couldn’t Feldstein and Rubin have joined hands to issue this sort of bubble warning ten years ago in 2004 about the housing bubble? If they used their influence to get a column about the dangers of the housing bubble in The Wall Street Journal in the summer of 2004 it might have saved the country and the world an enormous amount of pain. . . .
It would have been great if Feldstein and Rubin had used their stature to warn of the dangers of the housing bubble in 2004, but they were otherwise occupied. Feldstein was on the board of AIG (yes, that AIG), where he was pocketing several hundred thousand dollars a year for his services. Rubin was a top executive at Citigroup, which was one of the biggest actors in the securitization of subprime mortgages. He walked away with over one hundred million dollars for his work. So it was easy to see why Feldstein and Rubin could not have been bothered a decade ago to warn about the housing bubble.
Making matter worse, their current warnings are completely misplaced. The Fed has to concentrate on trying to promote growth and getting people back to work. The risk from the inflated asset prices that they identify are primarily a risk that some hedge funds and other investors may take a bath when asset prices (like junk bonds) move to levels that are more consistent with the fundamentals. . . .
So there you have it: two extremely prominent political figures who got rich off the housing bubble, now taking time from their busy schedule to call on the Fed to raise interest rates and destroy millions of jobs. In the “show no shame” contest, this looks like a real winner.
To this point, Janet Yellen, the head of the Federal Reserve Board, has wisely resisted their advice. But the problem is that the status quo is far from satisfactory.
If the well-being of our children is an indicator of the health of our society we definitely should be concerned. Almost one-fourth of all children in the U.S. live in poverty.
The Annie E. Casey Foundation publishes an annual data book on the status of American children. Here are a few key quotes from the 2014 edition (all data refer to children 18 and under, unless otherwise specified):
- Nationally, 23 percent of children (16.4 million) lived in poor families in 2012, up from 19 percent in 2005 (13.4 million), representing an increase of 3 million more children in poverty.
- In 2012, three in 10 children (23.1 million) lived in families where no parent had full-time, year-round employment. Since 2008, the number of such children climbed by 2.9 million.
- Across the nation, 38 percent of children (27.8 million) lived in households with a high housing cost burden in 2012, compared with 37 percent in 2005 (27.4 million). The rate of families with disproportionately high housing costs has increased dramatically since 1990 and peaked in 2010 at the height of the recent housing crisis when 41 percent of children lived in families with a high housing cost burden.
As alarming as these statistics are, they hide the terrible and continuing weight of racism. Emily Badger, writing in the Washington Post, produced the following charts based on tables from the data book.
Children live in poverty because they live in families in poverty. Sadly, despite the fact that we have been in a so-called economic expansion since 2009, most working people continue to struggle. The Los Angeles Times reported that “four out of 10 American households were straining financially five years after the Great Recession — many struggling with tight credit, education debt and retirement issues, according to a new Federal Reserve survey of consumers.”
Wealth inequality isn’t just growing among individuals. It is also growing among corporations—and that is not good for the U.S. economy.
According to Bloomberg News:
Eighteen American businesses held 36 percent of corporate wealth in 2013, up from 27 percent in 2009, according to a report from Standard & Poor’s, a credit rating firm in New York. The bottom 80 percent have lost ground, with just 11 percent.
The top 1 percent includes all the big companies you might well imagine, including Microsoft, Google, Apple, Coca-Cola, and Ford Motor Company.
The top companies are holding ever more of their wealth as cash and outside the United States. The wealthiest 1 percent of corporations raised the share of their assets held as cash from 20.4 percent in 2009 to 23.6 percent in 2013. The rest of the corporate sector held cash balances that were worth less than 7 percent of their total assets.
- Apple is holding 78 percent of its $40.7 billion in cash overseas.
- Cisco is holding 93 percent of its $47.1 billion in cash overseas.
Among other things this behavior means that corporations are dramatically cutting their tax obligations to the U.S. government. The congressional Joint Committee on Taxation estimates that this corporate strategy cost the U.S. Treasury over $83 billion dollars in revenue this fiscal year.
Corporations, fearful that the government might take steps to force them to invest this money in the United States economy, are exploring new strategies. For example, some are merging with foreign companies so that they can legally establish themselves in lower tax countries.
Bloomberg News ends its story as follows:
“You could argue that companies that make a billion dollars and don’t pay taxes are freeloaders,” said Mitch Rofsky, president of the Better World Club, an insurer based in Portland, Oregon, and member of the American Sustainable Business Council, a group of small employers.
“It’s basically an issue of do our economic models work, is infrastructure supported, does government have the money it needs,” Rofsky said. “It’s unfair.”
Unfortunately under capitalism fairness is besides the point. What matters is power and our challenge is to build popular support for effective policies that privilege the public interest over the private.
According to a June 2014 Russell Sage Foundation report, the average U.S. household experienced a real wealth decline of more than one-third over the 10 years ending in 2013.
Table 1 below shows that the net worth of the median household fell from $87,992 in 2003 to $56,335 in 2013, for a decline of 36%. In fact, the last ten years were hard on the overwhelming majority of American households. Only the top 2 groups enjoyed wealth gains over the period. Also noteworthy is the tiny net worth of households below the median.
Figure 1 below provides a longer term perspective on wealth movements. We can see that most households enjoyed growing wealth from 1984 to the 2007 crisis, with wealth falling across the board since. However, the median household is now significantly poorer than it was in 1984. Only the richer households managed to maintain most of their earlier gains in wealth.
These trends highlight the fact that we have a growing inequality of wealth as well as of income, trends not likely to reverse on their own.
According to the Stockholm International Peace Institute, the United States remains the world’s top military spender. In fact, U.S. military spending equals the combined military spending of the next ten countries. And most of those are U.S. allies.
Although declining in real terms, the U.S. military budget remains substantial and a huge drain on our public resources. As the following chart shows, military spending absorbs 57% of our federal discretionary budget.
Notice that many so-called non-military discretionary budget categories also include military related spending. For example: Veteran’s Benefits, International Affairs, Energy and the Environment, and Science. We certainly seem focused on a certain kind of security.
Economists continue to celebrate the free movement of goods, services, and capital. However, faced with slowing economic conditions in core countries, it is now third world growth that is highlighted as proof of the gains from unregulated globalization.
As the United Nations Conference on Trade and Development points out:
The crisis and its fallout have accelerated the trend towards a greater role of developing countries in the world economy. Between 2006 and 2012, 74 per cent of world GDP growth was generated in developing countries and only 22 per cent in developed countries. This is in sharp contrast to their respective contributions to global growth in previous decades: developed countries accounted for 75 per cent of global growth in the 1980s and 1990s, but this fell to a little over 50 per cent between 2000 and 2006.
Africa, in particular, has become the new toast of investors. A 2011 African Development Bank report celebrating the rise of the African middle class offers the following reason:
Strong economic growth in Africa over the past two decades has been accompanied by the emergence of a sizeable middle class and a significant reduction in poverty. Also rising strongly has been a robust growth in consumption expenditures as a result of this growing middle class.
The report estimates that Africa’s middle class reached “nearly 350 million people” in 2010. And, as Jacques Enaudeau comments:
Since then the estimated number of middle class Africans has been arbitrarily set at 350 million, sometimes delivered as the more dramatic sound bite “one in three Africans”. The African Development Bank goes on to explain that, given their higher revenues from salaried jobs or small business ownership, and the ensuing economic security, “Africa’s emerging consumers are likely to assume the traditional role of the US and European middle classes as global consumers”.
Marketing is everything, well almost everything. There are two big problems with this growing celebration of African progress and the free trade process said to be responsible.
The first problem concerns the African Development Bank’s definition of middle class. The Bank defines the middle class as those with a daily consumption of between $2 and $20 in 2005 PPP (purchasing power parity) dollars. At the lower end we are talking about a U.S. life style based on a yearly expenditure of $730! It takes quite a stretch of imagination to see that as a middle class life style.
It turns out, according to Bank statistics, that 61% of Africans still live below the $2 a day poverty line. Approximately 21% more live just above that amount, between $2 and $4 a day. The Bank, while including them in the middle class, also calls them a “floating class.” If we are being honest we would have to acknowledge that after decades of growth, more than 80% of Africa’s population still struggles with poverty.
Moreover, as Enaudeau also points out:
Also sobering is the geographical dispersion of the African Development Bank’s middle class: most of the African upper middle class (spending $10-$20 per day) lives in North Africa, which does not bode well with all the talk of frontier markets stimulated by a new white collar generation south of the Sahara.
The second problem concerns the forces driving Africa’s recent growth. Africa remains highly dependent on the export of primary commodities. China’s massive drive to export manufacturers has turned the country into a major consumer of primary commodities, pushing up their prices and serving as Africa’s main source of growth. As the Asian Development Bank explains:
Developing Asia became a major commodity-consuming region during the last decade, turning the region into a net commodity importer. Its relative importance has increased even more since the 2008–2009 global financial crisis started, as the economies of the major industrial countries slowed significantly. . . .
The PRC [People's Republic of China] is Asia’s largest commodity consumer by far. It even overtook the US in the consumption of major metals and agricultural commodities in the late 2000s, making it the world’s largest consumer of many commodities. The PRC consumed in 2011 about 20% of nonrenewable energy resources, 23% of major agricultural crops, and 40% of base metals.
The PRC’s share of consumption of agricultural products, such as oilseed soybeans, doubled over the past decade, driven by a change in diet to foods richer in oil.
Unfortunately, growth based on the export of primary commodities tends to create few jobs. Take Nigeria as an example. As Jumoke explains:
While the last decade was marked by higher economic growth, the unemployment rate actually increased from 5.8% in December 2006 to 23.9% in January 2012. Note that this number measures the percentage of workers actively looking for work, and does not include the rate of the chronically unemployed who have stopped looking, and the underemployed working poor. Tellingly, the poverty rate actually doubled over the last five years and now affects 112 million Nigerians, meaning that 112 million Nigerians are consistently without food, clean water, sanitation, clothing, shelter, healthcare and education.
Moreover, the steady decline in U.S. growth has meant a decline in Chinese exports to the United States and a fall in key commodity prices (see chart below). Thus, Africa’s boom, such as it was, appears nearing the end.
Relying on market forces is not going to do it for Africa, or for that matter Latin America, whose growth was also fueled by primary commodity exports to Asia and is now declining, quickly undermining the economic gains of the past decade. As the Wall Street Journal reports:
A decade long commodity boom in Latin America that lifted millions out of poverty is showing signs of fatigue, as fading demand in China hits consumers and corporate earnings from Bogotá to Brasilia.
If economists are looking to the third world to lead the way growth-wise, we are all going to be disappointed.
Now here is an idea worth serious consideration—a four day work week to combat stress.
The Guardian newspaper reports:
One of Britain’s leading doctors has called for the country to switch to a four-day week to help combat high levels of work-related stress, let people spend more time with their families or exercising, and reduce unemployment.
Bringing the standard working week down from five to four days would also help address medical conditions, such as high blood pressure and the mental ill-health associated with overwork or lack of work, Prof John Ashton said.
The president of the UK Faculty of Public Health said the five-day week should be phased out to end what he called “a maldistribution of work” that is damaging many people’s health.
“When you look at the way we lead our lives, the stress that people are under, the pressure on time and sickness absence, [work-related] mental health is clearly a major issue. We should be moving towards a four-day week because the problem we have in the world of work is you’ve got a proportion of the population who are working too hard and a proportion that haven’t got jobs”, Ashton said.
“We’ve got a maldistribution of work. The lunch-hour has gone; people just have a sandwich at their desk and carry on working,” added the leader of the UK’s 3,300 public-health experts working in the NHS, local government and academia.
Full article here.
Growth is slow, job creation minimal, and real median earnings are in decline. However, for a small group of powerful people things are just dandy. The following chart from an Economic Policy Institute study highlights the enormous gains enjoyed by top CEOs relative to their production/nonsupervisory workers.
The next chart, from a different Economic Policy Institute study, highlights one reason for the divergent economic experiences of those at the top and almost everyone else.
As we can see, companies have generally been successful in maintaining a steady growth in real net productivity. They have also been successful in suppressing any increase in real hourly compensation for production/nonsupervisory workers. The growing gap between the two trends is the basis for these divergent economic experiences. Workers continue to create wealth but an ever greater share is being captured by those at the top.
The New York Times offers this look at the recent movement in median household income. Worthy of note is the fact that the decline continues despite the fact that the economy has officially been in expansion since June 2009.
As I previously discussed, a disproportionately large share of all new jobs created in the current economic expansion are low wage ones. Therefore, it should come as no surprise that growing numbers of people have concluded that economic expansion alone is insufficient to improve majority living and working conditions.
One consequence is the increasingly popular effort to push for a $15 an hour minimum wage. There are those that claim that such a high minimum wage is unthinkable. However, as the chart below from a Huffington Post article shows, if the federal minimum wage in 1968 had been adjusted annually by the rate of productivity growth it would have reached $18.30 in 2013.
It is important to add that many of the firms employing the greatest number of low wage workers have also enjoyed above average rates of productivity growth. One example is Walmart. As the New York Times explains:
[Walmart] is a remarkably innovative exploiter of the latest technologies . . . The economists Barry Bosworth and Jack E. Triplett of the Brookings Institution find in a new book, “Productivity in the U.S. Services Sector” (Brookings Institution Press), that retailing in general has contributed substantially to the nation’s productivity boom since the mid-1990′s. And Wal-Mart is the industry leader.
The Seattle, Washington city council recently approved a $15 an hour minimum wage for workers in the city. As the Guardian newspaper reports:
A University of Washington study (pdf) commissioned by the council said the increase would benefit 100,000 people working in the city, reduce poverty by more than one quarter and save the government money by reducing the number of people claiming food stamps and other welfare payments. The pay of full-time workers on the existing minimum wage would increase by about $11,000 a year.
Opposition to the increase in Seattle has centered on claims that it will drive enterprises with slender profit margins out of business and force restaurants, which employ the largest number of minimum wage workers in the city, to lay off people.
But studies of significant minimum wage increases (pdf) in San Francisco, Santa Fe and San Jose show no evidence of job losses.
This is just one of many efforts by people to change the way our economy operates. Hopefully these efforts will multiply and learn from each other, as well as broaden in terms of their constituencies and demands.
We have the money and the know how to tackle most of our social problems. Certainly unemployment, houselessness, and poverty. So, why don’t we?
In large part it is because our socially created wealth remains outside social control. Critical economic decisions are driven by private interests not the public good. One result is hipster economics.
If you are not familiar with hipster economics, I recommend Sarah Kendzior’s The Perils of Hipster Economics. Here is the first part:
The Perils of Hipster Economics
On May 16, an artist, a railway service and a government agency spent $291,978 to block poverty from the public eye.
Called psychylustro, German artist Katharina Grosse’s project is a large-scale work designed to distract Amtrak train riders from the dilapidated buildings and fallen factories of north Philadelphia. The city has a 28 percent poverty rate – the highest of any major US city – with much of it concentrated in the north. In some north Philadelphia elementary schools, nearly every child is living below the poverty line.
Grosse partnered with the National Endowment of the Arts and Amtrak to mask North Philadelphia’s hardship with a delightful view. The Wall Street Journal calls this “Fighting Urban Blight With Art”. Liz Thomas, the curator of the project, calls it “an experience that asks people to think about this space that they hurtle through every day”.
The project is not actually fighting blight, of course – only the ability of Amtrak customers to see it.
“I need the brilliance of colour to get close to people, to stir up a sense of life experience and heighten their sense of presence,” Grosse proclaims.
“People”, in Grosse and Thomas’s formulation, are not those who actually live in north Philadelphia and bear the brunt of its burdens. “People” are those who can afford to view poverty through the lens of aesthetics as they pass it by.
Urban decay becomes a set piece to be remodeled or romanticised. This is hipster economics.
The rest of the article is here.