More on Income and saving the rustbelt

This is a continuation of looking at the income of the top 10% of this country. Before we go further, let’s look at what kind of a money machine we are when compared to other countries.
This is a chart of GDP by country for 2005 based on data from data360.org.

We seem to be quite the money generator. Japan, being next in line is only 36% of us. However, look at GDP per capita:

To accomplish what Switzerland has achieved we would have needed 16% more in GDP for 2005. That is raising our’s from $12,455 trillion to $14,453 trillion. Switzerland is considered to have a more equal distribution of income with the top 20% taking 40.3% compared to us (or US) at 49.7%. The wealth held by the top 10% is 71.3% for Switzerland and 69.8% for us. If you would like to see more on distribution, this article has a bar chart of income for the middle class as a percent of the top 10% by country.

Households in the top quintile, 77% of which had two income earners, had incomes exceeding $91,705. Households in the mid quintile, with a mean of one income earner per household had incomes between $36,000 and $57,657.

Recall that for the top 10% we are talking breakouts of:
90 to 95% $110,424
95 to 99% $176,925
99 to 100% $812,497
At 90% $96536, at 95% $130,373 at 99% $310,062.
The low limit for the top 20% is $88,030 (Wikipedia). The average individual income for a college graduate is $45,500 (2004, Wikipedia).

I point all this out because I believe our thinking about what middle America is, as defined by the American dream needs to reconsider the income it actually takes. The bottom of the top 20% is not far from the start of the top 10%. I thus question what are we talking when we talk “middle America”? Is it based simply on an income number at the peak of a curve, or does it refer to a defined life style? Part of the American Dream is home ownership (yes we all know that ownership is at record highs, for now anyway). Yet according to this study, they find:

However, most of the gains have been among families without children and upper-income families with children. The study defines upper-income families as those families that earn above 120 percent of local area median. In 2003, the homeownership rate for upper-income families with children was 90.8 percent, while the rate for their low- to moderate-income counterparts was significantly lower at 59.6 percent – yet in 1978 some 62.5 percent of low-to moderate-income working families with children owned their homes.Ultimately, had the 1978 homeownership rates for working families with children prevailed in 2003, an additional 2.3 million children would now be living in owner-occupied homes.

If you would like to see how your area is performing, they have an interactive page that let’s you choose the location and the jobs.
The dream seems now only to be a definite with a 2 person, college educated and working household. That combination is not far from being in the 10% group. Thus, we have raised the dream to something beyond which a large portion of the population will not reach considering only 28% have a 4 year degree even though 64% of high school students are entering college. It looks even worse with people suggesting that you need an IQ of 110 to succeed in college. I mean, can we push the dream any further out or be anymore aristocratic in our arguments? While we have done this, the median income for a bachelors has been going down from a high in 1999 of $70,925 to $68,728 in 2003. In fact, all levels of education have seen a decline and anyone with an associates degree or less has seen the median decline to less than that earned in 1991. But it does suggest that 2 people with an associates could even be in the top 10%!

Was the American Dream based on 2 people working or 1? Was the dream that more people would obtain it or fewer as time passed and the country earn more?

We have now arrived at that entity called income. The thing that is so necessary to get the American Dream (or save a state or few). The following 4 charts look at the 4 sources of income: wages, entrepreneurship, dividends and interest based on sub groups of 90 to 95%, 95 to 99%, 99 to 100% and 99.9 to 100%. The first is dividends. It is obvious, the top is not getting the money from this.

The next is interest. The only curve I found that looked similar to the post 1950’s is the federal fund rate. So, it appears that as THE bank raises what it will charge, people will take some advantage of it. There is a lag in the time the rate starts to decline and when the population moves from this form of income.

Next is entrepreneurship. I think this shows, that something more than freeing up capital has to happen to generate a shift of earning money from just going to work to earning money from creating work. Note how it moves counter to income from interest.

Even those in the low end of the top 10 take advantage of a life altering event. But, it is clear just going to college is not going to push an entrepreneurial spirit considering this lower 90 to 95% group is at the upper end of the college degree for a single person working. They show minimal initiative toward self reliance in producing income for themselves. The next chart confirms this. They do take advantage of interest rates rising, but they are not buying companies or shares of companies to make money. They are following the what I would consider the American Dream, go to work, earn a comfortable living that supplies the comforts and advantages of modern living.

Finally is the share of income from wages.

The lower end of this group is not seeing an increase of income from wages. But look at the change in the top 1% and the top 0.1%. They have the greatest increase of their income coming from wages. The entire top 5% sees this, but it is the very top that is seeing a doubling (32 to 63% for the top 1%) and tripling (18.1 to 58.2 for the top 0.1%) of the percentage from wages. Where do you suppose such an increase in income via wages could be coming from? What is the motive or reasoning?

So, the very top is getting a higher share of the income we (all of US, they don’t do it alone) generate via starting companies and then are paying themselves greater shares of the income said company generates. Is this not greed? Or is there an insulating effect do to globalization? I believe it is both and frankly don’t care which came first. Is this what we would expect if supply side tax cutting was raising all boats as suggested? It sure is not trickling down. I say it is not what would be expected. I would not hypothesize that we would see only the top 5% contributing to growth via entrepreneurship as compared to the pre 1929 crash when the top 10% contributed toward growth via entrepreneurship. Loosing the 90 to 95% group to wages is most telling as to how much the American Dream is one of an implied contract based on labor and not on entrepreneurial freedom. It is also a sign of failure of policy if promoting entrepreneurship as a viable means of obtaining the American Dream was the goal.

These charts show that everyone is earning the majority of their money by working for someone. Again, the American dream is based on labor supplied to another, even for the highest income earners. If we are going to change what is happening in Michigan or Ohio or in this country, we are going to have to figure out a way to get those who decide how much some one will be paid to start paying more to those below the top 1% because the top 1% is where the greatest concentration of income is happening and it’s happening through wages. It is not that we don’t have the growth and thus don’t have the money. We have it.
Update: I have fixed the link for the dividends chart and removed one that was a dead end. Sorry for the mix up.

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