For 99 percent of Americans, the Obama recovery has been no recovery at all
AEIdeas
Liberal economist Emmanuel Saez has updated his much-referenced income inequality research. Here’s how the recovery is going after the Great Recession:
In 2010, average real income per family grew by 2.3%, but the gains were very uneven. Top 1% incomes grew by 11.6% while bottom 99% incomes grew only by 0.2%. Hence, the top 1% captured 93% of the income gains in the first year of recovery. Such an uneven recovery can help explain the recent public demonstrations against inequality. It is likely that this uneven recovery has continued in 2011 as the stock market has continued to recover.
National Accounts statistics show that corporate profits and dividends distributed have grown strongly in 2011 while wage and salary accruals have only grown only modestly. Unemployment and non-employment have remained high in 2011.
This suggests that the Great Recession will only depress top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s. Indeed, excluding realized capital gains, the top decile share in 2010 is equal to 46.3%, higher than in 2007.
Looking further ahead, based on the US historical record, falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented and prevent income concentration from bouncing back. Such policy changes took place after the Great Depression during the New Deal and permanently reduced income concentration until the 1970s.
1. So this isn’t exactly an endorsement of the Obama recovery is it? I mean, for 99 percent of Americans there has been no recovery, according to Saez. In other news, Wall Street paid its employees more than $40 billion in bonuses the past two years.
2. Saez embraces and promotes the back-to-the-1950s nostalgia economics of Obamanomics and modern liberalism: “A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II—such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality.” Indeed, Saez thinks the top marginal tax rate should more than double to 80 percent.
Economist Daren Acemoglu explains the forces driving inequality much differently and more persuasively: “One is that technology has become even more biased towards more skilled, higher earning workers than before. So, all else being equal, that will tend to increase inequality. Secondly, we’ve been going through a phase of globalisation. Things such as trading with China—where low-skill labour is much cheaper—are putting pressure on low wages. Third, and possibly most important, is that the U.S. education system has been failing terribly at some level.”
3. As I have mentioned before, I am dubious of the accuracy of the picture that Saez’s long-term numbers attempt to present.
4. Saez’s analysis seems to suggest that the inequality numbers are going to climb all the way to the sky. Isn’t it more likely that we are approaching some sort of a ceiling, especially given a) rising labor costs in China, b) the rebound in U.S. manufacturing jobs, particularly in the energy sector, and c) the decline in labor force participation?
5. Just what is the right level of inequality? And how much economic growth is Saez willing to sacrifice to get it?
6. Could some of the rise in inequality in recent decades be due to, say, a cultural breakdown in some segments of U.S. society?
7. Let me repeat this bit from a 2008 study on income inequality from the Federal Reserve Bank of St. Louis:
It is important to understand that income inequality is a byproduct of a well-functioning capitalist economy. Individuals’ earnings are directly related to their productivity. Wealthy people are not wealthy because they have more money; it is because they have greater productivity. Different incomes, thus, reflect different productivity levels. The unconstrained opportunity for individuals to create value for society, which is reflected by their income, encourages innovation and entrepreneurship. Economic research has documented a positive correlation between entrepreneurship/innovation and overall economic growth. A wary eye should be cast on policies that aim to shrink the income distribution by redistributing income from the more productive to the less productive simply for the sake of “fairness.” Redistribution of wealth would increase the costs of entrepreneurship and innovation, with the result being lower overall economic growth for everyone. Income inequality should not be vilified, and public policy should encourage people to move up the income distribution and not penalize them for having already done so.
Had the GOP and conservative Dems allowed a real stimulus package and not demanded draconian cuts at the state and local level, the recovery would have been much better. But, instead, at a time when capital was being horded and hidden government was also cutting back.
Blaming this on Obama is like blaming the unicorn drowning on Noah. He did what he could, but the unicorn balked.
I think is is not only inaccurate but also sad to think of Obama as having saved everybody but the unicorn from drowning.
The lack of growth is a direct result of Obama’s stimulus and other growth-suppressing policies. We would have been better had he done nothing.
Who is this “We” you refer to that would have been better had he done nothing?
How was the stimulus a “growth suppressing” policy?
Laughable: If only we had given MORE money for “a real stimulus.”
“…the unicorn balked.” So the American people are at fault for their economic problems because thay are lazy or stupid (as Obama has asserted). Ridiculous.
“So the American people are at fault for their economic problems because thay are lazy or stupid (as Obama has asserted). ”
Never happened. Talking point, no independent verification, mindless repetition.
The idea that the stimulus required draconian cuts at the state and local level is the exact opposite of what really happened. The stimulus failed because it was directed primarily at the public sector at the state and local level so it did nothing to stimulate aggregate demand. It preserved a bunch of public sector union jobs who conveniently contributed lots of money back to Obama.
Not even close. http://www.recovery.gov/Pages/default.aspx
Life is great for crony capitalist crooks like Buffett, Pelosi, and Soros.
The rest of us have been annihillated economically by the Chicago machine.
Nathan must be a Paul Krugman fan. I find it is quite a contrast between how Krugman describes the state of today’s economy vs. how Pres Obama and his surrogates describe it. Repubs should perhaps use Krugman’s view in their campaign ads.
Greenspan said exactly this in his book The Age of Turbulence. Here’s a quote:
Divide the trillions “invested” by the number comprising the one percent (about 1 million taxpayers), and the numbers show that America is rapidly evolving into Europe, with an aristocracy that has rigged the game lording it over hundreds of millions of taxpaying sheep.
Thus ends the American experiment.
The Pols could decide to take 99% of the wealth of the “Rich” in this nation and nothing would get better either.
So who would benefit from this windfall? Not Joe in the street or Nancy at the diner. Yep, the boys and girls on K street and all the Pols nepotistic hangers on would.
And of course any new growth or ideas requiring capital would cease to bloom because the Pols ate it all and had not left for them.Etc, etc, ad infinitum.
But you all know all this because you all have ‘College degrees and S__t. So fix it, if you can. NOT!
Well since you asked. Here’s my suggested solutions.
http://allalaskans.com/emperor/2010/12/03/nobody-asked-me-but-heres-my-solutions/
Also check out the “People’s Budget”
http://cpc.grijalva.house.gov/index.cfm?sectionid=70
High tax rates cause income inequality. High tax rates lower the number of jobs in the economy and with more workers than jobs the employer does not need to pay the workers anywhere close to the economic value of their contributions. With more potential jobs in the economy than workers, employers must pay close to economic value added by each employee, or lose them to another employer. This can be demonstrated graphically. Start with the Laffer curve, tax rates on the horizontal axis and tax revenues on the vertical axis, add a size of economy curve by dividing the tax rate into the tax revenue, this yields a downward sloping curve intercepting the horizontal axis at 100% tax rate. This size of economy curve is a good proxy for the number of jobs in the economy. Add in a horizontal line representing the size of the work force. Where the number of jobs in the economy is less than the size of the workforce pay is low, where there are more potential jobs in the economy than the size of the work force then jobs will pay well, nearly up to the economic value added by the job.
That’s simply a fantasy. Tax rates are the lowest since the 50’s. Corporations are making record profits and sitting on billions of cash. More tax cuts would result in more of the same, no more jobs for Americans.
Tax rates were lowered in the 1980’s and these low tax rate policies were carried over into the 90’s as well. In this period of time 50+ million jobs were created in the USA, in the same time period in high tax rate Europe less than 5 million jobs were created, and most of them were government jobs. We were the beneficiaries of these jobs because the USA was the best place on earth for return on capital, we had the best infrastructure, the best educated work force, the best technology, and a reasonable regulatory environment, and with Reagan’s tax rate cuts, that put our tax rates lower than the rest of the world, was the place to place your business bets. Now not so much so, the rest of the world especially Europe has lowered its tax rates, so that now the USA has the highest tax rates on businesses in the world, our infrastructure does not have the competitive strength it had before, we don’t have the best educated work force and the regulatory environment drives industry to leave the country. And our job non growth reflects this.
It is fantasy to think we can raise tax rates high enough to give everyone a job and all live in prosperity.
There is some truth in what Saez and Acemoglu say, but they have both missed THE single, largest driving force behind today’s rising inequality. In one word, that force is “debt”.
In all of the mature economies of the world, debt is the most valuable commodity. New debt, private debt, public debt, complex debt, hidden debt, creative debt… those are the mother’s milk of our “modern” economy. New debt is the only thing keeping the growth illusion alive, and since growth is an absolute necessity for a “modern” technocratic-run social welfare state, those who provide the debt (and those who make their living close to the source) have benefited handsomely. That means Wall Street and Washington… those are the wellsprings of debt.
Check out this chart and see how closely Financial Sector Pay tracks with Total Debt / GDP:
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/01/20120202_Banker%20Boom.png
Why do you think politicians TALK about fixing Wall Street, but never get around to actually doing it? Because they know the talk connects with the people, and that gets them elected, but the system itself NEEDS the debt Wall Street provides… and no one in DC wants the system to collapse on their watch.
If we want income inequality to decline, then the centrality of debt needs to decline; and for the centrality of debt to decline, the grow-or-die technocratic welfare state need to die. Growth cannot be guaranteed, therefore growth-dependent promises can not be guaranteed.
Until we are willing to accept that counter-intuitive fact, we will not fix what ails us.
We need to put Americans back to work building things again and paying taxes. We need to raise the marginal rates for Millionaires and again for Billionaires. We need slash military spending in half. We need eliminate 90% of the many different intelligence agencies. We can cut spending and raise taxes, that’s the only way to begin chipping away at the debt.
That’s the plan of this regime. Obama loves the poor so much he’s making so many of them. It’s
a feature of this administration.
Great time for crony capitalists (like Oskar Schindler in Schindler’s List) and they don’t even have to show a a profit– the gov’t will give them all the money they want for pay and bonuses.
The TARP loans and bailouts tremendously stimulated the recovery for Wall Street. They took the tax payers money at near 0% interest and invested it in increasing their profits as oppossed to investing in growth of the economy. Even people with excellent credit are struggling to get a home loan. Why loan $250,000 to someone at 3.5% intrest when you can do much better for your bottom line by investing in the markets or in overseas technology or manufacturing. The Bailouts (Tax money) were doled out with very little oversight and practically no restrictions. I wish the Gov would have loaded me a couple of million at 0% intrest for a couple of years. I would have drastically improved my economic situation too!
My husband’s father was an econ professer for a university. He used to say that if you took all the money in the United States from everyone, and distributed it equally to all, the people who were rich before, would make money and be rich again, and the ones who were poor to begin with would be poor again. For some reason, liberals think that the productive, hard-working, delayed-gratification people “owe” the slackers who want their “stuff now”. And people who have worked hard for what they have are greedy evil people if they don’t allow the government to take more and more to give to others. Of course, most of these liberals are either people who are so wealthy they can afford the best tax attorneys to help them avoid paying taxes or people who are the beneficiaries of the tax-payer and don’t want to lose their “benefits”.
I wonder if you know what it’s like knowing where your next meal is coming from. Have you ever not ate so your children can? Have you ever had to work multiple jobs just to survive and still lose your home? Have you or anyone you know lose everything because of illness or injury? You seem to think that everyone receiving government assistance is just lazy and want’s everything given to them. There are many hard working families who are receiving assistance. Able bodied men and women receive very little assistance, and only for a limited amount of time. You are as out of touch with reality as the four idiots running for the GOP nomination.
Do you know that the country as a whole was much more prosperous when the top marginal tax rate was more than double than it is now? Or when union membership was 36% compared to 7% today. People receiving Social Security retirement or disability and unemployment benefits earned them by paying for them.
When you have a progressive tax system that has one group paying a higher percentage, it’s only natural for the government to channel more income to those who pay more (i.e. the “rich”).
No what is natural is that those that spend billions lobbying and donating to political campaigns reap the rewards of those efforts. That’s why people like Romney pay half the effective tax rate as the average family.
For the monetary literate and rationally thinking only:
The US monetary system is rigged. It is designed to FAIL by the “Economic Team” of puppet BHO having the same (in purpose) ilk of a team that was advance by the GWB administration (remember, tax cheat Geithner was the ONLY person on earth that could “save” America?).
The only economic team that could reverse this deliberate free fall of America is via a Paul Administration or a Rubio/Ryan ticket. Now what are the chances of that? For Romney, Santorum and Gingrich are war mongering RINOs, and puppets of Israel, ready to start yet another war, with Iran. Now that is a good recovery solution for them.
Any “Americans for America only” economists out there? Please step up. The nation needs you.
So, no matter how many charts and advanced degree economists you see or hear, they are either in the tank with the scum or just wishful thinkers.
America’s financial and social fall will make the European troubles look like small change.
And, China is patiently waiting…
The problem isn’t the Administration. The problem is with conservatives (of both parties) who still haven’t learned the lesson that tax cuts and other “incentives” for the rich and for corporations don’t produce more jobs.
We are no where near the same position as the EU, it’s comparing apples and oranges.
Paul didn’t accomplish a damn thing in Congress for 14 years. What makes you think that he will do any better as President? Even though I agree with Paul on a couple of issues Drugs and American Imperialism, without congressional support, as we’ve seen with Obama, very little can be changed.
Legalize hemp and marijuana. The first would create hundreds of thousands of jobs and the second would create billions in new revenue and billions more in savings.
End all corporate subsidies for oil, timber, corn and cotton. Stop exportation of all raw natural resources, we are not a colony or third world country. We have the natural and human resources to turn around our country, but not if we keep enabling the 1% to abuse the 99%.
Of course the 1% are recovering faster, same with corporations. Record profits and cash reserves. Once again we see that tax cuts for the rich and corporations does not ‘trickle down’. It just makes the rich richer. Tax cuts don’t put people to work and that’s what we need now.
So basically, the Clinton period was best for the middle class, Bush 2 was average, and Obama was terrible. Hardly en endorsement for Obama.
How can the article say that wealthy people are becoming 200 times wealthier because they are 200 times more productive?.. Common, give us a break.