Pew Study: The Economy is lagging because the middle class is broke
finance.yahoo.com
finance.yahoo.com
Look, I have relatives with their own businesses. What is the primary reason for job loss, government. How about new rules like vehicles of a certain weight are suddenly subject to a host of new regulations which result in having to sell said vehicles at a loss or pay many times the fees just to keep it. How about inspectors showing up at a friends hair care business checking every single brush for a hair, which is a two hundred dollar fine. How about not knowing what your tax rate will be next year because people in Washington won't make the tax rates permanent.
How do they exist people or business to operate in an environment run completely on the whim of a bunch of politicians. it is politicians who are the one percent. Yeah the rich have lots of money and money buys influence but its the politicians who decide what it costs to do business. They just have been damn good at recasting it as a rich versus poor thing and too many people fall for it.
sorry for the rant, but having family also in politics makes me realize where the real scum are.
The one thing that has changed dramatically in surveys from businesses: a lack of demand. when private consumption is down, historically it has been observed that public consumption should pick up to end the cycle.
Even under Regen, states and municipalities received a lot of aid, and the public sector helped to pull up the economy. That's one aspect of a robust economic rebound, which includes an increase in public debt (which, adjusted for inflation, is negative -- i.e., a 10-year Treasury Bill for $1,000 will be worth less in 10 years -- people are paying us to hold onto their money because U.S. is so secure).
The point here is that one party is gone off so far to the right that Congress isn't able to effectively deal with this issue. We have Republicans warning of the dire consequences of sequestration (large cuts) and blaming Democrats for wanting to slightly increase revenue, when all along all the GOP wanted was large cuts...
I could ramble for awhile longer, but I think it's more nuanced than Washington can't fix anything. One party has been taken over by extreme ideologues.
Edit: (Increase in outstanding public debt)/(GDP) was actually only 8.1% in 2011. Lots of people prefer to define the deficit as "the budget deficit," but this is beyond silly.
The modern GOP, however, believe that we have a debt crisis (we don't; the U.S. has held a much higher debt-to-GDP ratio, WWII, over 100%; Japan currently has a much, much higher ratio, like close to 200%). Long term, yes, we have to deal with the debt. Medicare and Medicaid are going to grow a great deal over the coming decades (both programs serve the elderly and disabled to a great extent, a growing population). The Affordable Care Act takes some measures to control the growth of the programs. So does Ryan's plan, although his plan essentially avoids any real work and offloads the cost on citizens, drastically changing Medicare. A good overview here: http://www.tnr.com/blog/plank/106298/guide-to-medicare-debat...
Interestingly enough, while they (the GOP) say we have a debt crisis, they refuse to increase revenue by any means. In fact, they want to lower taxes (one of the largest drivers of debt because of Bush tax cuts v1 and v2), largely for the wealthy (although both Romney and Ryan and the GOP as a whole claim they'll make cuts revenue neutral by ending _unspecified_ loopholes, which, according to the Tax Policy Center (can find link, but it has been in the news) would result in ending loopholes for middle class brackets (i.e. mortgage deduction, etc.).
In short, I don't know a specific answer, but providing aid to states and municipalities would go a long way in picking up growth.
If something radical isn't going to be done (such as printing money to pay off household debts - see http://www.debtdeflation.com/blogs/manifesto/ ) then at least some classical government stimulus borrowing is needed to (partially) compensate for the household sector's debt reduction and soften the landing.
It would cause some inflation but that would be largely compensated for by the cash handout.
The main entities that would suffer would be the banks as their balance sheets would shrink as people paid back their debts. The current quantitative easing process of printing money and giving it to the banks isn't really stimulating the economy just keeping asset prices up.
Read some of Steve Keen's stuff, his mathematical model of the economy seems highly plausible to me and he is one of the very few to have modeled and predicted the economic crisis well before it occurred.
Planet Money has a piece on it recently: https://www.npr.org/blogs/money/2012/06/22/155596305/episode...
So there you have it - less money and jobs for middle class and more money for the wealthy importer. Thanks US Government for not only allowing this to happen, but for encouraging it with your environmental restrictions, high cost of employees (far beyond their wage) and wide open trade with China who devalues their currency so no-one can compete :(
Perhaps ubiquitous availability of sophisticated robots might allow people to have their needs met with fewer relative resources at their disposal, though it will also exacerbate the problem as productive jobs become more scarce. People can now be entertained more cheaply than ever, with free access to content made by their peers. People can virtually travel the world without leaving their homes. Can we at least ease the pain of not being in the top 1%?
I don't pretend to have a great answer for "how our community is equipped to address such an issue in any meaningful way," except perhaps to suggest that we try to find more tech solutions to "bigger" problems (energy, grid infrastructure, etc.) instead of inventing more social widgets. That, and trying to hold politicians more accountable to interests besides those of the super wealthy.
edited to add link to CBO inequality report: http://www.cbo.gov/publication/42729 (shows that 1979-2007 top 1% income grew by 275%, the next 19% grew by 65%, next 60% grew by 40%).
As I said before, there is certainly a structural component that means that education and skills can command even more of a premium than they always have, but that's not the majority of the story behind this inequality growth.
From what I can see there are two ways to do this; both of which effectively force _all_ high income people (both natural and legal) to employ and pay more. Both of these methods are generally denigrated in the US media, and I suspect by a largish number of the people who would benefit most by these methods.
Taxes and unions. Both of these lead to higher pay and employment, one is forced and paid for by the government, the other is forced by employees and paid for by employers.
Can anyone think of any other options that would force all high income people to re-distribute their income largely together?
EDIT: I should have said distributed by government and distributed by employers, not paid.
A failing economy or, failing that, an economic meltdown?
The problem I see with taxes as a solution is that it generally doesn't redistribute wealth to the middle class (if that is your goal) as much as it does redistribute wealth to those with political connections, and the rhetoric tends to catch the upper-middle class in the crosshairs - which, if I'm reading this correctly, would make the problem worse.
Also, an area where I feel government does a good job of driving economic growth is infrastructure; these tend to employ more in the lower income brackets, the "builders" and and middle income brackets, the "designers" and "managers". Obviously you can have too much infrastructure, like some examples of housing in China. However I don't think the US is suffering too much from over infrastructure.
Another point is that government jobs could be paid more, especially for critical jobs for "future proofing" like teachers, however in the US there is a disconnect between federal taxation and local / state employment in teaching, especially at the earlier age portions of education.
Another idea may be to extend unemployment benefits if you elect to work part-time for your local / state / federal government on short term projects; I realise that normally short term and government don't always wind up on the same page.
So, I assume today's middle class have to afford MORE than a 50 inch TV, a Macbook, an iPhone, an overpriced house, a wedding ring, and a iPad?
It's easy to say (and true) that they should quit spending beyond their means. However, that's problematic. If they quit buying that stuff, then it's going to harm American businesses, and the economy is going to go into a slump.
(I realize my choice of tense is a little bit silly. Pretend that last sentence was written in 2007 and not 2012.)
Not even for bay area white collars is that reasonably the median, given how expensive houses are here. Most rent unless they're past 30-40 or won the startup lottery.
Benefits are also a large part of compensation.
1. It looks like it tracks the average compensation, which is easily skewed by a few high income earners whose wages grew disproportionately (investment bankers, lawyers).
2. It doesn't say anything about the hours worked. Even when hourly compensation is up, total income can be down if the number of hours worked goes down.
A better analysis: http://www.epi.org/publication/ib330-productivity-vs-compens...
In reality, since inflation tends to be overstated, real wages have probably grown by even more than the graph indicates.
Once PG wrote an essay on exactly this topic (http://paulgraham.com/wealth.html) in which he argues convincingly that wealth inequality isn't really relevant because while we can expect that technology will act as a lever to make the absolute differences bigger than they are now, at the same time everybodies relative wealth will get closer and closer together.
And that is true. I know a guy who has a higher networth than I is likely to ever earn. He has a Masaretti, a plane, a nice house, etc.
But while the absolute differences between the two of us are great, the relative differences between us are small, compared to what they would have been historically -- after all we eat mostly the same food and while he can fly first class that is not going to get him to the destination much faster than me in coach.
200 years ago, he would have been the owner of a corporation, making a ton of money and living in a that would look like the set of Downton Abbey. I would have been living in some shack somewhere with no running water and and outhouse that was likely to be frozen in the winter.
So yeah, I don't give much of a crap about income difference and I don't buy that the middle class is bankcroupt due to the very rich (1% isn't very rich, btw). I believe the middle class wealth has grown slightly less than it used to because it hasn't produced as much as it used to.
Remember wealth is not a static quantity, it can be created and it can be destroyed. It is created only when people produce and as far as I can see, the middle class has not produced very much at all.
Of course the wars in Iraq and Afghanistan have a great deal to do with the destruction of wealth too, as have the bloated government system.
"The reason the decline of the middle class is important is not just about fairness. It's about the health of the economy as a whole."
So, even a hypothetical world where even the poorest person in the country has a stellar quality of life would be bad if there was no middle class, specifically because the economy would suffer. Corporate revenue would be hobbled, and so would R&D. You'd get a country of happy people that didn't do anything. A few decades of this and it would be quickly left behind by the rest of the developed world. Those few citizens who are motivated to actually do things (like found companies) will move to countries with economies that can actually support commerce.
What makes you think that someone who is unemployed or making minimum wage, can afford to fly coach? Contrary to your implication, there are in fact people in the US living in shacks without running water, and their number is growing.
Wealth is created and destroyed, but it is a fact that the upper incomes have been growing faster than overall economic growth for many years now, while the middle and lower income levels have stagnated or regressed. We can argue why that is so, but it's clear that the top 1% are consuming a greater and greater share of an economic pie that is not keeping pace with their accumulation of wealth.
This "relative wealth" you speak on is an illusion, because it is based on debt. Debt enslaves you.
The true wealth of the top 1% is their freedom.
One miss-step, disease, misfortune, and you will cherish the power of money. You are standing on a thin, melting ice sheet and below is the abyss.
When you are below the poverty line, you will realize that this relative difference in wealth is not relative but absolute.
You claim that the middle class hasn't produced. What exactly do you mean by that? If you mean that workers for large (and small) corporations haven't produced as well as they have historically, then why are corporations making record profits? Certainly a small number of executives can't be making the difference.
How have the wars in Iraq and Afghanistan destroyed wealth? On the contrary, U.S. defense contractors (some very large employers) have made quite a bit of money as the defense budget has swelled. Hence the outcry over sequestration.
Every tank made represent a cost, indeed quite a high cost, as does every other piece of military technology. The money that has been spent on a tank cannot be spent e.g bridge repair in Minesota or even a nice vecation for you.
Yes the defence contractors have been hansomely paid for their services, and yes they have properly hired somebody who would not have had such a good job.
But have they made wealth? No. On the contrary. An engineer who works for a defence contractor cannot at the some time make a more fuel efficent car engine or a cheaper high speed train/monorail. The cost of the wars is not just the money and lives that goes in to it, but also what is not created. What could have been.
As for haven't produced I should perhaps be clearer -- if you expect that your standard of living should increase then what you can buy with your income needs to increase too (either things have to become cheaper or you have to make more money). That has not happened, and while I am not an economist it would appear likely that it is because most of the jobs the middle class have today is make work jobs (too many manager jobs, too many useless compliant jobs, too many lawyers, etc) jobs that, like our defences contractors above don't actually produce value.
Add to that the housing bubble and the higher cost of colleges (both fueled by the idea that no price is too dear for either and cheap credit) and a lot of people can appear to be productive for a long time before the mirage is revealed.
As for the record profits, that I suspect are mostly lagging indicators (e.g. RND being brought to the market, with nothing new in the pipeline) and a lot cheaper tech.
As for productivity, let me be more clear, too. Productivity per worker (i.e., widgets made) are also at historical highs. Corporations are very lean.
Comparing the results of this sort of survey over time isn't scientifically supportive of that claim because there is not a universally accepted academic model for class -- even the experts disagree.
The final, and most extreme self correcting option they offered – revolution, would probably come too late and have little effect on corporate and financial executives who have by then fled the country.
And so it may be, but nature often has a way of self-correcting that is not very hospitable to human life. Tectonic plates shift suddenly, causing earthquakes. Revolutions break out, leading to the deaths of millions. It might be prudent to use our powers of reason to consider how to make a soft transition rather than blindly letting nature take its course.
Now, if companies paid higher wages, it might accelerate the recovery certainly, but at the same time, people would likely just raise their standard of living, not necessarily pay off debt.
What our society needs to fix the long term economy is for the average citizen to be in a strong enough financial position to pay their bills and have enough left over to save some money and spend a bit extra on entertainment, vacations, toys, etc.
It's not about everyone being rich, if we are in a consumer based economy, we need people to be able to afford to buy things without causing financial ruin. It's not about bigger houses, more cars, etc. It's simply about being able to afford to buy things without going in to debt to do so.
But it's entirely obvious that the household debt overhang from the financial crisis is entirely what is holding demand/consumption back. We have had a historic buildup in HHold leverage for the last 30 years as consumers used debt as a substitute for stagnant wages, and after the housing crisis all this debt is no longer underpinned by adequate collateral.
Head in the sand.
http://truth-out.org/news/item/10710-super-rich-holding-21-t...
There are advantages to the fact that the American middle class sees itself as temporarily embarrassed millionaires, namely that it encourages the sort of risk taking that has put American companies at the top of the global economic charts. However, for every Gates and Zuckerberg, there are hundreds and thousands of people who actually end up struggling to make ends meet. Unable to accept their failure, they continue to believe in low taxes for the wealthy, thinking they'll be in that group as well one day soon.
Income equality would be nice in many ways, but if the inequality is a reflection of the underlying values of the culture, maybe we should quit trying to fight the culture.
The problem is that most individuals have grossly incorrect beliefs when it comes to the probability of them becoming successful.
Only a few bastions of wealth are associated with trickle-down economics: NYC, Switzerland; Beverly Hills, etc.
The ones who get obscenely rich are the ones who invest -- that is, they create or sustain productive businesses. Those who merely hoard don't make it nearly as far up the ladder.
Past tense: FASB changed the rules, the discount changed, employee participation (naturally) dropped, it stopped being cost effective to offer this plan.
ETA: moral/ethical "liability" included.
one word can largely sum up why... China