Open thread April 25. 2014 Dan Crawford | April 25, 2014 2:31 pm Tags: open thread Comments (27) | Digg Facebook Twitter |
It’s official: America’s middle class now earns less money for more hours of work!
One crucial factor left out of the NY Times story “The American Middle Class Is No Longer the World’s Richest” — that means that American income inequality is even worse (if you can believe it) — is that more Americans work longer hours for more years than Europeans or Canadians.
Now, if the per capita income of our middle class (defined as median income) is barely equal to or lower than that of other modern middle classes — and — we work more hours to get less …
… Holy Cow; it’s time for some very big changes!
From the book “The State of Working America 2006/2007”, Chart 8.7 on page 334:
Average hours worked in OECD countries in 2004
“The American Middle Class Is No Longer the World’s Richest”
Denis, what happened to South Korea, Greece, and Mexico? Were they in severe recessions or were they omitted for some reason?
According to a report from the Organization for Economic Cooperation and Development:
“Across the O.E.C.D., the average number of hours worked was 1,764 in 2008, the last year data were available.
That’s a slight decrease from 1998, when the average number of hours worked was 1,821.
American workers’ annual hours were in the middle in 2008, with the typical American worker logging 1,792 hours over the course of the year.”
“Most countries in the developed world have seen average hours worked decrease greatly. For example, in the U.S in the late 19th century it was estimated that the average work week was over 60 hours per week. Today the average hours worked in the U.S is around 33, with the average man employed full-time for 8.4 hours per work day, and the average woman employed full-time for 7.7 hours per work day.”
I suspect, over the past few years, working Americans are working harder to support more unemployed, underemployed, retired, and disabled Americans, along with supporting welfare recipients (it’s no wonder bridges aren’t getting repaired).
So, you know how to Goggle up a graph.
You may not have noticed the comparison is to _first-world_ middle classes, not those of Korea, Greece, Chile, Czech Republic, Hungary, Poland, Estonia, Slovakia, and Mexico.
Do you ever tire of looking foolish?
Denis, your list from the book: “Average hours worked in OECD countries in 2004.”
Here’s a list of OECD countries, which include South Korea, Greece, and Mexico, which were members before 2004:
Stay Down Here Where You Belong Irving Berlin
‘Way up above they say that I’m a Devil and I’m bad
Kings up there are bigger devils than your dad
They’re breaking the hearts of mothers
Making butchers out of brothers
You’ll find more hell up there than there is down below’
The CBO issued its latest Baseline for OASDI this week. I have a question for AB readers.
Look at the line in the CBO table for DI. It shows a net surplus for the DI Fund of $8B at the end of fiscal 2016 (9/30/16). It also shows that fiscal 17 will have a full year deficit of $35B ($9B per quarter).
Take this together and you have the DI fund running dry right around Christmas of 2016. Unless there is a fix, DI payments must be reduced by ~25% as of 1/1/2017.
The timing for this is interesting in that 2016 is an election year. People will be casting ballots less than one month before the DI fund is empty.
DI can’t be allowed to cut benefits like this, so there has to be some kind of “fix”. My belief is that D.C. will not be able to come up with a real fix (Raising taxes or cutting benefits, or a combo) given the election year pressure. I don’t see how Democrats can advocate raising taxes, and I don’t see Republicans pushing for DI benefit cuts. For either camp, that position is suicide.
To me, the logical outcome is for Congress to allow DI to continue benefits at the current level past 1/1/17. The shortfall will be paid for by draining the much larger OASI (retirement fund).
How do AB readers feel about this prospect? What is the best choice?
– Raise FICA taxes?
– Cut Benefits?
– A combo of both cuts and new taxes?
– Raid the retirement fund?
The CBO report:
If I understand all this, aren’t you stating the tax income will fall short of benefit outgo? Doesn’t that mean it is time to draw down the Trust Fund?
The Trust Fund bonds are cashed with income tax revenue — so — there can never be any crisis because unlike FICA tax shortfall, income tax shortfall can be covered by printing money.
I would even go so far as to say that when the Trust Fund bonds finally run out that the Treasury can come up with some mechanism to print more Trust Fund bonds. 🙂 If we are printing the money to cash the bonds, what objection should anyone make to printing the bonds?
PS. There seems to be a Trust Fund shortfall of a different kind here — as in Trust Funds, as in plural. Congress in its infinite wisdom has set up a (single) trust fund to cover one or two generations (until the bonds run out). But where are the Trust Funds for all the following generations? 🙂 I mean, if Social Security retirees need a Trust Fund to depend on — where are all the other Trust Funds for today’s kids and grand kids? ???
Or is this whole Trust Fund thing the usual government non-thinking mess? Other than say the need for a five year Trust Fund to cover revenue shortfalls for a short time — so benefits have a source from which to draw when there is a FICA shortfall, until Congress raises the rates.
As the law defines it, Trust Fund solvency equals one year of full payment — which would cover several years of partial shortfall.
Seems to me the only practical benefit of the giant Trust Fund monster is for politicians who didn’t have to raise FICA rates for 60 years: 35 years a-building (overflow keeping income taxes down a little too — whoopee!); 25 years drawing down.
Dennis Drew – For the Disability Fund (DI) the 2013 numbers:
Total income = 111.228b (of which 105b was tax revenue)
Total outgo = 143,450b
2013 decline in DITF assets = 32b. (difference between in and out)
12/31/2013 DITF balance = 90b
12/31/2013 DITF ratio = 62%
So to your questions – DI is in red ink (has been since 09′). It is drawing down on the DITF to fund the annual shortfall. The DITF ratio is falling quickly. It will reach ‘0’ during the 4th Q of 2016.
Current law is that when the TF ratio hits zero, benefits must be cut so that income = outgo. (implies a 22% across-the-board cut in DI benefits)
This problem can be fixed, the question is how, and what are the consequences.
i guess you just want to hear it again. best course is to raise the FICA tax. we have been saying that for years. it won’t have to go up by much. and it is a reasonable price for people to pay for their insurance.
second best is to “raid” the OASI fund to pay for DI until the whole OASDI tax is raised…. still about by a dollar a week per year.
you know all this by your “taxes are suicide” religion makes it hard for you to understand.
Reply to myself,
Just woke up and realized: the longer hours worked by Americans left out a big part of the story: that more family members worked those longer hours for more years here than ever before — which probably means more than other modern middle classes.
Congress should infuse cash into the DI (and Meidcare when needed) accounts in the same way it infuses $100B a year into the Civil Service Retirement Fund and all the cash in the military retirement fund both of which which have been hugely under capitalized since inception.
I do not see why the precedence of funding trust funds with general revenue money should be limited to the Lockheed welfare F-35 money pit, civil servants’ and soldiers’.
Ilsm- Good point. It would be easy to pass a law that said that any short fall in the DI would be made up with funds from the General Ledger. For this to work it would have to be a permanent change (Non discretionary spending).
While this is a simple solution, it has warts. SS was not supposed to be funded with money from the general ledger.
I think you’re right about the Military Retirement Fund. That TF is growing like crazy. It is much larger than is needed.
Bruce W has been reporting on the problem with DI for years. I expect that Congress will transfer from the OAS TF to the DI TF, even though raising the payroll tax by 0.1 percent is a long term fix for DI.
I prefer punting to infusing it with cash from the general fund because I think that keeping SS as by workers for workers is meaningful.
SS revenue problems can be addressed by spending general revenue by improving the economy overall without direct infusion. More money for education and training. Increased subsidies for healthcare. Increased minimum wage. Real counter-cyclical spending on infrastructure.
I know what I say sounds politically impractical, but four years ago no one with clout had said SS should be increased. Today several have.
If someone had said in 1999 that we would invade Iraq, I think most people would have believed it politically impossible. After over a year of the president talking about it, it became possible.
Denis, it should be noted, EU-27 GDP and U.S. GDP are roughly the same size.
However, the EU-27 has about 200 million more people than the U.S..
When people work more hours, they can produce more. So, they can consume more.
I value my leisure time. In fact, I take advantage of a program which allows me to buy extra vacation hours. Those hours have a defined value, but do nothing to add to GDP. Yet, I spent something (I made a tradeoff) to get them.
I agree it is important to be aware of the facts you quotes, but it is important to consider the implications.
Arne, perhaps, in the late 19th century, when Americans worked over 60 hours a week, they didn’t really work that much, because of severe economic boom/bust cycles.
Maybe, many often worked over 60 hours a week for a year and then were unemployed for a year.
So, perhaps, they had periods of feasts and famines, or floods and droughts (to use some analogies).
Or, maybe, women took an increasingly larger share of men’s work, in the 20th century. So, married men, for example, didn’t have to work that hard, particularly with the inventions, and improvements, of household appliances, or women became more independent.
Arne, it sounds like you worked (without compensation in arbitrage) and bought something. Did someone else produce the “vacation time,” and the computer program?
Krasting one answer to your question is that DI in isolation failed the test for Short Term Acturial adequacy back in 2006. And could have been fixed over the 75 year window by an increase in FICA of about 0.3% or 0.15% each per worker and employer! less if we treated in like Medicare was then and extended that portion of FICA devoted to DI to all covered income.
Problem solved. Except that that minor tweak would have also modestly improved the outlook for combined OASDI and so undercut the whole ‘Social Security Crisis’. So rather than actually fulfill their legal fiduciary duties the Bush Trustees simply turned a blind eye and punted on what would have been a painless fix. One that could have been even less painful had some version of NW been adopted for DI.
But it was all so much easier to pursue a campaign alleging an Intergenerational War of the Selfish Boomer Geezers vs poor Millennials than for the enemies of SocSec to propose fixes to DI that would have meant cutting bennies for paraplegics. So it was all left to drift.
I have been blogging about the differential crisis facing DI and OAS for years, one of my earliest posts here was called something like “DI: the Sick Mam of Social Security”. So nome of this was new (or for that matter a product of the 2008 recession) all the numbers showing an early depletion of DI vs OAS were clear as clear by the 2001 Report (when the differential was even larger and OAS wasn’t at much threat at all).
So yes your numbers are right. And your sense of urgency not that misplaced. It is your refuel to knowledge that we could fix DI simply by treating it like Medicare HI (which it resembles closely and overlaps) and tax all income to support what is not obviously the simple responsibility of wage workers. That is the Coberly case for preserving OAS in its current insurance form is not as strong when it comes to DI.
Unfortunately there is no current vocal constituency for addressing DI in isolation from OAS. Perhaps you could be a leader in that effort. If you see this as the more pending issue.
between you and me, i agree with you that DI is “different” with respect to the need for it to be “worker paid.”
i would say more, but our old friend NO knows more about DI than both of us, and I think she likes it the way it is.
the main problem with DI is that the powers have been messing with it to try to make it dysfunctional and have largely succeeded.
i’d be in favor of a “worker paid insurance” agency created by constitutional amendment to be outside of the influence of congress and the president… and let it cover ALL of medicare and DI and OASI and, whathehell unemployment…. though i think unemployment and DI might reasonably be paid for by direct taxes on employers.
that said, i need to say again, loudly, OASI, what most people think of as “Social Security” needs to be worker paid, and it needs to have the tax increased… or decreased… according to the actual cost of funding a minimally decent retirement, or even better than minimally decent, if the workers want to pay a little more for a sure thing, and have a little less to gamble with on the Big Casino in Wall Street.
the actual cost of paying for the future retirement of those… you know… poor youth staggering under the burden… would be an extra eighty cents per week per year for about the next twenty years… and then they would eventually have a retirement about 30% longer than their grandparents, at about a 100% higher level of real benefits… paid for out of a paycheck that will be about 100% higher than today’s average.
the only “crisis” in Social Security is that Very Important People are trying to kill it, and they are being helped by the Very Stupid People in the media.
Dale I agree as to OAS.
Krasting, thanks for the link. I found it very interesting that CBO contrasted ‘Net Cash Flow’ to ‘Primary Surplus/Deficit’. Which compares to past practices that had the contrast be between ‘Surplus/Deficit’ and ‘Primary Surplus/Deficit’ which confused everybody.
What is REALLY interesting is that CBO’s definition of ‘Net Cash Flow’ in this table includes Interest. Whereas most people (including me) had been identifying that with ‘Primary Surplus/Deficit’ when discussing when SS components DI and OAS did or will go “Cash Flow Negative”.
Maybe just a terminological distinction but it does show that CBO is considering that interest to be ‘Real’ ‘cash’ and not just a bookkeeping entry attributeable to ‘Phony IOU’s’.
(And yes I am an obsessive nerd on small details of SS terminology. No surprise to any of my SS friends, that I can assure you.)
CBO has been following the lead of Heritage in implementing Fair Market Valuation (Richwine and Delisle) to assess the risk of current programs. I would be curious as to whether they have done so in assessing SS, etc.
If I were King and wanted to fix OASI I would strip DI out of SS and make DI benefits an obligation of the General Ledger (like Medicaid, sort of what Webb is proposing).
I would keep PR taxes where they are – this would mean about $110b of additional income for OASI. If this was done it would make OASI solvent for 75 years, It would get OASI through the 2031 hump.
But it would add trillions to the federal deficit. I don’t think there is a chance in hell that a simple fix like this could get done in an election year.
So there will be no ‘fix’. There will be a raid on the OASI to keep DI going.
This will bring 2033 to 2029. Does that matter? Not really, but it shows that Washington does not fix things, they sweep problems under a rug for 20 years – then retire…
Coberly – The CBO numbers tell an interesting story. CBO assumes that the combined OASDI fund will ‘top out’ in 2017 at a peak value of 2.75T. Extend the CBO numbers and you see that the combined funds expire in 2029.
That’s much closer to today for both of those metrics than SS is now forecasting. So it’s time to re-look at the NW plan.
In light of the new info, what is your schedule for tax increases? is it still .1%?? Is there a delay in when the increases take place? (I think you had a 5 year delay in the last version of NW we discussed)
SInce US spends far too much on weapons and high tech wars on goatherds I oppose all US trust fund balances which are really war bonds bought without the rallies, since perpetual war is bankrupting the US.
I read GAO’s audit of the federal debt each year about 3 months after 30 Sep. It contains the “audited” report of trust fund activities and balances.
I have concern for OPM and military trust funds, I draw from each every month.
The way to slow growth of Mil retirees is to go like Germany put 2/3 of the “total force” in reserve (double reserve by shift from active) and close down the empire. Cut outlays for pentagon by 60%, which mil pers costs not including retirement (separated by Reagan) is just shy of 1/3 of security spending.
In Feb 2014 47 republican senators voted to limit aid to US veterans!
yes, it’s time to take a look at the NW plan. why don’t you do that?
it would be better to begin increasing the tax one tenth of one percent per year (each) right away. delaying it might mean the tax would need to be increased faster… maybe a dollar and a half a week instead of eighty cents a week. not even enough to notice.
putting DI on the general budget would probably be a mistake, but not an increase of Trillions of Dollars in the budget… unless your friends won’t pay taxes for the stuff they use that they ask the government for.
requiring employers to provide DI for their workers… call it a tax… would add a few dollars to the payroll… something the companies can afford… even if they have to pass the cost on to the consumers.
there is something infantile about people expecting things for nothing. that includes both the right and the left. the questioin ought to be… “do we need this?” is this the best way to get it? is the cost reasonable considering what we get, what we give up?
SS is something we need, it is the best way to provide at least a basic retirement, and the cost is reasonable.
saying we can never pay more in taxes is insane. especially while we pay more in taxes for stuff we don’t need. and especially while we let the banks steal from people.