The Middle Class Crisis and Income Inequality (yay charts!!)

[Skjellyfetti]

The income of a typical working-age family grew considerably in the late 1990s. Around 2000, it stopped growing. In 2007, it started falling.

Adding to the mystery is the remarkable de-coupling of productivity and real hourly compensation for all workers, including college graduates. Productivity kept growing through the 2000s. Compensation didn't. It even hit a wall for college graduates.

Where did the gains from productivity go? Well, they went to the top. Household income, adjusted for inflation, has grown 12X more for the top 1% than for the middle 20% ... and 24X more than the bottom 20%.

The full story of income inequality cannot simply be told with wages, where the 40-year growth gap between the top 10% and the rest is "only" about two-to-one.

To understand the full story, you have to look at capital income -- from assets like housing and stocks and bonds. This is where income growth for the top 1% has positively exploded, taking income inequality to record highs.

Since 1960, average effective tax rates have fallen dramatically for the top 0.1% -- much of it thanks to preferences for capital gains income. Progressive taxation won't fix the middle class crisis, Mishel pointed out to me over the phone, but it can discourage sky-high CEO salaries and provide more public funds to pay for infrastructure, education, and a safety net.

So, there's your crisis. And it's not something we can fix with a tax tweak for the top 2%.

http://www.theatlantic.com/business/arc ... ts/266074/" onclick="window.open(this.href);return false;

[∞∞∞]

Productivity kept growing through the 2000s. Compensation didn't.

Why did they mentioned the 2000s specifically? It seems like that trend suddenly started around ~'80-'81 and has kept going ever since. Now what happened during that era to get the train trolling is my question?

Otherwise, interesting data.

[Baldy]

Kinda thought it was interesting until I read this idiotic comment....

"We need to get unemployment down rapidly. We need to greatly change our labor standards. We need to raise the minimum wage."

After that statement, I realized this person was a fool and I wasn't going to waste any more time reading the article.

[Baldy]

Productivity kept growing through the 2000s. Compensation didn't.

Why did they mentioned the 2000s specifically? It seems like that trend suddenly started around ~'80-'81 and has kept going ever since. Now what happened during that era to get the train trolling is my question?

Otherwise, interesting data.

Looks like it started int he mid 1970's.

What happened? My guess is that is when the technology age really started.
One word....Computers.

[Pwns]

So in the past four years we have had a recovery in the stock market while unemployment numbers lag behind. Of course the millionaires with trust funds are going to recover better. This seems to be implying that wages fall for folks in the middle and at the bottom because mean CEOs and small business owners give themselves too much in compensation.

A useful thought experiment to perform...take what the 1% has gained in this time and split it evenly among the bottom 99%. It's not going to be a whole lot.

[AZGrizFan]

So in the past four years we have had a recovery in the stock market while unemployment numbers lag behind. Of course the millionaires with trust funds are going to recover better. This seems to be implying that wages fall for folks in the middle and at the bottom because mean CEOs and small business owners give themselves too much in compensation.

A useful thought experiment to perform...take what the 1% has gained in this time and split it evenly among the bottom 99%. It's not going to be a whole lot.

SEEMS to be implying?

[Ivytalk]

Late at night, JellyBelly pins blowups of his charts on the ceiling of his bedroom, puts them under a black light, and fantasizes...

[Ibanez]

Late at night, JellyBelly pins blowups of his charts on the ceiling of his bedroom, puts them under a black light, and fantasizes...

Oh yeah. That's big. Look at the difference. Oh man. The size of this CEO's compensation isn't the only thing growing...slow down. Slow down...ahhhhhhhhhhhh. Where's my sock?

[CitadelGrad]

So in the past four years we have had a recovery in the stock market while unemployment numbers lag behind. Of course the millionaires with trust funds are going to recover better. This seems to be implying that wages fall for folks in the middle and at the bottom because mean CEOs and small business owners give themselves too much in compensation.

A useful thought experiment to perform...take what the 1% has gained in this time and split it evenly among the bottom 99%. It's not going to be a whole lot.

The recovery in the stock market is illusory. It's probably about 40% overvalued (maybe a bit higher) because quantitative (ZIRP and NIRP) has forced capital into riskier asset classes and caused a rise in the price of those assets, but not justified by economic fundamentals.

The unemployment figures are also illusory. I won't blame the BLS for fudging the numbers (much). All the data you need to figure the actual unemployment rate is contained in their data. I blame the media who reports only the U-3 number in a headline and draws very shallow and distorted conclusions from it. I also blame an uneducated and uninformed public that is too stupid to understand they are being fed bullshit.

[Ivytalk]

So in the past four years we have had a recovery in the stock market while unemployment numbers lag behind. Of course the millionaires with trust funds are going to recover better. This seems to be implying that wages fall for folks in the middle and at the bottom because mean CEOs and small business owners give themselves too much in compensation.

A useful thought experiment to perform...take what the 1% has gained in this time and split it evenly among the bottom 99%. It's not going to be a whole lot.

The recovery in the stock market is illusory. It's probably about 40% overvalued (maybe a bit higher) because quantitative (ZIRP and NIRP) has forced capital into riskier asset classes and caused a rise in the price of those assets, but not justified by economic fundamentals.

The unemployment figures are also illusory. I won't blame the BLS for fudging the numbers (much). All the data you need to figure the actual unemployment rate is contained in their data. I blame the media who reports only the U-3 number in a headline and draws very shallow and distorted conclusions from it. I also blame an uneducated and uninformed public that is too stupid to understand they are being fed bullshit.

As H.L. Mencken said, nobody ever went broke underestimating the intelligence of the American people. Just ask BHO.

[Chizzang]

The recovery in the stock market is illusory. It's probably about 40% overvalued (maybe a bit higher) because quantitative (ZIRP and NIRP) has forced capital into riskier asset classes and caused a rise in the price of those assets, but not justified by economic fundamentals.

Um...
The FOMC would would disagree with you on that
(of course we've just moved in to round for QE4)

[CitadelGrad]

The recovery in the stock market is illusory. It's probably about 40% overvalued (maybe a bit higher) because quantitative (ZIRP and NIRP) has forced capital into riskier asset classes and caused a rise in the price of those assets, but not justified by economic fundamentals.

Um...
The FOMC would would disagree with you on that
(of course we've just moved in to round for QE4)

Actually, I don't think any members of the FOMC would disagree. A number of them have made statements that are very much in agreement. The problem that all members of the FOMC recognize is that the Fed has to be seen doing "something" but can't really do anything effective since the fundamental problems in the economy have no monetary solution. The Fed is implementing very flawed monetary policy to facilitate very flawed fiscal policy. There really isn't much more to it.

The only thing QE4 can do is further fuck up credit markets, just as QE1, QE2 and Operation Twist did.

[Ivytalk]

Um...
The FOMC would would disagree with you on that
(of course we've just moved in to round for QE4)

Actually, I don't think any members of the FOMC would disagree. A number of them have made statements that are very much in agreement. The problem that all members of the FOMC recognize is that the Fed has to be seen doing "something" but can't really do anything effective since the fundamental problems in the economy have no monetary solution. The Fed is implementing very flawed monetary policy to facilitate very flawed fiscal policy. There really isn't much more to it.

The only thing QE4 can do is further **** up credit markets, just as QE1, QE2 and Operation Twist did.

So QE4 is to be tied to 6.5% unemployment and the rate of inflation, huh? Markets underwhelmed. Impeach Bernanke.

[AZGrizFan]

The Fed is implementing very flawed monetary policy to facilitate very flawed fiscal policy. There really isn't much more to it.

The only thing QE4 can do is further fuck up credit markets, just as QE1, QE2 and Operation Twist did.

Truer words have not ever been spoken.
Or typed.

[Chizzang]

Actually, I don't think any members of the FOMC would disagree. A number of them have made statements that are very much in agreement. The problem that all members of the FOMC recognize is that the Fed has to be seen doing "something" but can't really do anything effective since the fundamental problems in the economy have no monetary solution. The Fed is implementing very flawed monetary policy to facilitate very flawed fiscal policy. There really isn't much more to it.

The only thing QE4 can do is further fuck up credit markets, just as QE1, QE2 and Operation Twist did.

They sure posture like "They're doing something"
However I'm inclined to believe your post is accurate

[JohnStOnge]

I'll have to come back later and read this some more but for now I'll just comment that "productivity" is greatly influenced by technology. So the implied thing about "productivity" increasing meaning wages should increase is a fallacy.

[JohnStOnge]

A useful thought experiment to perform...take what the 1% has gained in this time and split it evenly among the bottom 99%. It's not going to be a whole lot.

Incomes for the top 1% have fallen as well recently in inflation adjusted terms. You can see that in the CBO report at http://www.cbo.gov/.../43373-06-11-Hous ... dTaxes.pdf" onclick="window.open(this.href);return false;. It's a 2012 report and looks at 2007 through 2009. But I think it still shows what's been happening. In 2007 the average income of the top 1% of households was $1.9 million. In 2009 it was $1.2 million.

[kalm]

Bank of Boston vs. Belotti and Buckley vs. Valeo both happened in the mid to late 70's. At the same time, we had a President who in amazing moment of truth for a politician implied , IE, that the enemy was us...especially regarding energy consumption. The competitive economic advantages of the post war period were winding down, unions and sane banking regs had created stability for the strongest middle class the world had ever seen, but we were experiencing our first real slump since the depression.

Then Reagan came along, said 'America' real loud and often, and rather than gracefully settle in to a slow decline of the empire, we said 'fuck it! let's go all in on debt and trickle down economics and bluff our way out it.'

There's a reason really, really smart business dudes like Sheldin Adelson and the Kochs spend 100's of millions on campaigns and think tanks. It's a combination of ROI and a superman/objectivity complex that says the unwashed masses don't work as hard as me and only deserve what I feel they should get. Like I've said ad nauseum, reaganomics never really went away.

[JohnStOnge]

See chart below. I don't have all the necessary data to do what I did on the entire period 1960 through 2004 but I do have data on 1979 through 2005. I got it from a spreadsheet that can be downloaded from the web page at http://www.cbo.gov/publication/20374" onclick="window.open(this.href);return false; (see "spreadsheets" to the right of the page). Effective total federal tax rates on the top 1% varied from 25.5% to 37% over the period. My first observation is that whatever has happened resulted in the US treasury doing better. I didn't do a full analysis of that because it's so obvious. In 2005 dollars (inflation adjusted terms), the average total federal "contribution" of households in the top 1% was $191,586 in 1979 and $486,252 in 2005.

The kicker is this: There is not sufficient evidence to conclude that, within the range of 25.5% to 37%, there is any association one way or another between the tax rate for the top 1% and what its per capita contribution to the treasury is. There is some suggestion that increasing revenue may increase per capita contribution if you just do a straight correlation. But if you remove the effects of "serial autocorrelation" as you're supposed to do with time series data you get p = 0.65 (by usual convention, p has to be less than or equal to 0.05 to indicate "significance," so it's not anywhere close). So there's essentially no evidence in the 1979 through 2005 data, at least in terms of just looking at the association between rates and per capita tax contribution, that raising rates increases revenue to the treasury. Of course there's also no evidence that cutting them does either.

What's clear is that the top 1% DOING better financially raised revenue to the treasury. Dramatically so.

[Chizzang]

Bank of Boston vs. Belotti and Buckley vs. Valeo both happened in the mid to late 70's. At the same time, we had a President who in amazing moment of truth for a politician implied , IE, that the enemy was us...especially regarding energy consumption. The competitive economic advantages of the post war period were winding down, unions and sane banking regs had created stability for the strongest middle class the world had ever seen, but we were experiencing our first real slump since the depression.

Then Reagan came along, said 'America' real loud and often, and rather than gracefully settle in to a slow decline of the empire, we said 'fuck it! let's go all in on debt and trickle down economics and bluff our way out it.'

There's a reason really, really smart business dudes like Sheldin Adelson and the Kochs spend 100's of millions on campaigns and think tanks. It's a combination of ROI and a superman/objectivity complex that says the unwashed masses don't work as hard as me and only deserve what I feel they should get. Like I've said ad nauseum, reaganomics never really went away.

I actually read your posts... (I liked this one)

[JohnStOnge]

I don't know how old you guys are but if you're old enough to remember what it was like in the 60s, 70s, and so on I can't believe you really think the "middle class," however that is reasonably defined, is materially worse off now. I mean, I can give you numbers. Like I can show you that according to the CBO the middle 60% of households had an average income in 2005 that was 68% higher in inflation adjusted terms than it was in 1979. I can say that according to the CBO the 2nd from the bottom 20 percent had a 52 percent higher income, the middle 20 percent had a 70 percent higher income, and the fourth 20 percent had an 80 percent higher income in 2005, in inflation adjusted terms, than each had in 1979. Meanwhile households in the middle 60 percent now, as well as in each 20 percent group within it, paid less in Federal taxes in 2005 than they did in 1979. And I'm not talking about just a lower rate. I'm talking about less in absolute inflation adjusted terms.

But it's like people don't want to hear it. They will seriously argue that a household is materially worse off even though it has something like a 70% higher income in inflation adjusted terms yet pays less in Federal taxes. It's ridiculous.

I would think, though, that those of us who are old enough to remember living in 1979 can just look around them and see that people in the "middle class" now, however "middle class" is reasonably defined, have more material things. Nicer material things too. More of them own houses. The houses are bigger on average. They have flat screen TVs and Ipods and smart phones and computers and all sorts of stuff. When I was a kid in a middle class home we had a black and white TV that you clamped an antenna wire onto then you had to go outside and turn the antenna to get the best reception. If someone in the "middle class" now got shipped back in time and had to live with what someone in the "middle class" lived with in 1979 they'd feel horribly deprived.

[JohnStOnge]

Then Reagan came along, said 'America' real loud and often, and rather than gracefully settle in to a slow decline of the empire, we said '**** it! let's go all in on debt

The debt thing did not start with Reagan and Reagan is not the fundamental reason for it. The fundamental structural reason for the chronic debt problem is accepting the premise that government is responsible for ensuring the well being of each individual. Also for controlling things so that nothing bad happens.

If you want to blame any single politician as being most responsible for it, blame FDR.

[JohnStOnge]

BTW, I'm going to be ad hominem and say that in my opinion the Economic Policy Institute has zero credibility. I first heard of that "think tank" just prior to the H.W. Bush/Clinton Presidential election. News reports came out about how a "private non partisan think tank" called the Economic Policy Institute had issued a report called "The Rich Get Increasingly Richer during the 1980s" and there were various statements. So I looked it up and saw that one of the "founding scholars" of this "private, non partisan think tank" is Robert Reich; who was on the Clinton campaign team at the time and later worked in the Clinton Administration. Also I saw that it stated its mission as "Alternative Liberal Analysis of Issues."

Then I obtained a copy of the "study" that had been referenced in the media and saw, as I expected, that it was total crap. Wrote a letter to the group saying the author had prostituted his academic credentials, etc. And I was right. He did.