Relevant and even prescient commentary on news, politics and the economy.

Income Inequality (I’m tooting my own horn)

I’ve been on the beat of income inequality since I started blogging here.  My theory: We changed the way we make money from one of making it from producing (polishing rocks into tools) to one of making money from money.  When you can make money from moving money, you don’t need to compete.  Just buy back your stock, just collect rents, just get your tax cuts.

The World Bank has a new report out on Inequality 2018.   I want to direct you to a chart that appears on page 7.

World Bank Inequality 2018 Report Chart

Now, here is one half of the chart I posted December 7, 2007.

Income vs Consumption 1963 to 2005

Notice the approximate time of the crossing over of the Bottom 99%’s income vs the Less chained Personal Outlay?  Look at that top chart from the World Bank. Notice the date?

I will tell you, that the 2 dates coincide with one other number.  15%.  That is the share of income I calculated at the time of crossing over of my chart for the 1%.  All of this was done using Saez’s data.   One more chart.  The other half of my December 7, 2007 posting.

Income vs Consumption 1929 to 1962

This is the first half of my data for that December posting.  Notice what happens around 1942.  At that crossing over, the top 1% share of income falls below 15%.  Coincidence?

Prior to 1942, we were coming out of the Great Depression.  The relationship of the 3 lines in my chart prior to 1942 look to be the same as after 1996.

One other thing to notice, around 1988.  The share of income for the 99% fell below disposable income.  Prior to this since 1942 it was riding even to sometimes above the disposable income.  You know what happened in 1988?  Two years past the 1986 tax law with the reduction of the top tax rates, reduced to 3 brackets and changes made to be able to pay more with stock shares.  Prior to that, it became legal in 1982 for companies to buy back stock.

We changed how we make money and no one is pointing this out as to why the nation is in such a mess.  It won’t matter if we bring back manufacturing.  It won’t matter if we raise the minimum wage.  Neither of these things will make the full change we want such that we revert back to post 1942/pre 1988.  We have to change the way we make money.

One last thing I wish those running for president would point out: Taxes are not bad.  They are not the problem.  How we are spending the money is the problem.   You know, spend it so we are actually building nations/public capital instead of letting the current capital be sucked dry!

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Interview with Andrew Yang

Now that Andrew Yang has made it into the first debate by meeting the fundraising threshold, and being on Morning Joe this morning,  it is time to post this interview of him via Freakonomics.

I was impressed by his thought approach.  He is the first person who is talking about the economy as a ecosystem of society.  That is, it’s not just about making money.  He does not come out and say it as I would but I think he is thinking about a question I have asked here in the past: What do we have an economy for?  Is it to just produce the biggest most powerful engine in the world and watch it run?

My concern is that the MSN is not prepared to do a proper interview with a person who actually wants to discuss a comprehensive idea regarding social structure and present a plan for it as observed on Morning Joe today.  You could just tell they wanted to throw out the memes of name calling:  “socialist”, “taxing the rich”, “taxing business”, “far left”.  But, I think Mr Yang handled it well considering the short time he had vs his scope of policy.  Plus Mr. Yang had facts noting his “freedom dividend” is what Alaska has.

I don’t expect him to win, but I do hope he and his ideas get more coverage and thus pushes the Overton window back toward society.  The problem is,  his idea is very comprehensive.  It’s talking about society.  Unfortunately, our mindset wants discussion boiled down to the “1 item” reductionist meme.  You know: How are you going to bring the nation together?  My answer: Oh, I don’t know.  How do you handle a 2 year old that always says No? (Mitch McConnell  et al)

 

Here is the link: http://freakonomics.com/podcast/andrew-yang/

 

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Sucking it out faster than you make it, Income distribution and gdp 2008

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I am reposting this at Dan’s suggestion as it relates to the recent post by Steve Roth.  I have edited it slightly along with a retitle to clean up some wording and hopefully have made it easier to read.  For those new here, my posts started with income inequality and a thought that we changed our economy as to how we would make money starting in the 80’s.   My one new thought is that the obvious political party to promote policy that addresses the issue noted in this post and it’s links still don’t fully get it.  Yes, Sanders, Warren etc are talking policy, but even they are not discussing the philosophy and processes of an economy that allows the massed to “get it”.   In simple terms it is the difference of references when talking about team work.  The apparent accepted reference being sports…competition, win.  The truth as I see it however, is that the appropriate reference for team work in a democratic society’s economy is that of a barn raising.  When is the last time you heard anyone use that reference.   Hell, even in my other outlet for relaxation, music, the concept of an orchestra or large band is dying and competition models are being applied.  In Trump’s words “Sad”.

But then again, we’ve lost the idea of the rat race.

Income distribution and GDP, it matters

Daniel Becker | December 28, 2008 9:00 am

 

US/GLOBAL ECONOMICS

I should title this: Yeah, it is just like 1929 you freak’n see, hear and speak no inequality monkeys.

I have this pile of income data sorted out from Saez’s work (the GDP is BEA). My thoughts regarding our economy is that income inequality (or equality) matters. It matters so much, that it is the all defining focus of government in a democracy. Every policy made should be judged against this goal of ever greater equality as we use the tool called “economy” for the betterment of our lives.

For most (even the tippy-top earners), the biggest share of income is not earned from money, but from labor, whether physical or cognitive. Because of this, there must be effort as reflected in our policy toward regulation and initiatives that continually work to equalize the share of income. I am confident, that just as Mike Kimel showed there is a low and high to top marginal rates correlating with GDP growth rates, the same is true for share of income. That’s my thoughts.

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What to do with $45 billion? Giving it to charity is too cliche. So old hat.

Facebook founder and his wife have decided to give away 99% of their fortune.   That is $ 45 billion.

Now, I know many will heap praise upon them for their generosity.  Same deal when the Gates and Buffet did their give away announcement.  But, I’m not so keen on this.  I know, how heartless of me.  How ungrateful.

Being grateful or not is my issue.  Why, in an economy designed to make money from money, where labor has lost it’s power to assure proper distribution of the income earned from its productivity should I be heaping praise on those who are giving away massive amounts of money that was accumulated off the skewed economy put in place by those with the money to politically create this system?

Just how does them giving away money such that the masses have to in essence beg to get some of the benefit of such money provide equality in this economy?

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Inequality for All, the film

If you do not know, Prof Reich’s film is currently up on youtube.  I just watched it.  For most readers it is nothing new.  But for the masses this is a great film.  Plus, I did not know that he literally went over on the same boat as Bill Clinton when they were going to their Rhodes Scholarship.

Do share it as it may not be up for long.

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The Sixty Hour Weeks of the Leisure Class

A typical excuse for widening income inequality is that the ‘job creators’ actually work oh so much harder than the ‘job takers’. That while the latter simply leave work at 4 or 5 PM, the former are just getting started and in fact routinely put in 50-70 hour workweeks. Now I hasten to add that there are certainly people who work month in and month out 60-100 hours a week. I have a very talented and successful young relative that has earned six figure salaries since his 20s doing exactly that. But he works in the heavy transportation sector (trains and trucking) and everyone from top executives to over the road truckers do tend to put in long hours.

My question is more for New York, London and Frankfurt based financial professionals, the traders that boast that they could just take our measly jobs and do them better, faster, with two hands tied behind their backs, who don’t even have time for bathroom breaks because they are focused like lasers on their terminals. You know the guys who kill what they eat and eat what they kill. To them I have to ask: who exactly is keeping those restaurants, craft cocktail bars, and racket ball courts busy? Exactly how do you fit in time to keep your golf game up? To spend that week at Vail? Or to accept your bosses invitation to spend a weekend at his place in the Hamptons? How does your BOSS find the time to actually enjoy that yacht? His ski trips to St. Moritz? Who exactly is is that is keeping business humming at Ruth’s Christ Steak House? Who is the customer base at all those golf resorts The Donald is building and marketing? Okay that is not just one question.

When Thorstein Veblen wrote The Theory of the Leisure Class (1899) there was certainly a lot of controversy about his thesis, but little I think about the existence of a Leisure Class in the Gilded Age. American Millionaires and British Aristocrats alike entertained on a lavish scale, frequented higher end resorts like Monte Carlo, perhaps maintained stables of polo ponies, played golf, sailed on yachts and all without even a hint of a pretense that they were working the same 70 hour weeks typical of miners and farmers who were producing their wealth. Indeed the whole point of being wealthy for most of this class was precisely to be able to pursue Leisure Class activities and lifestyles.

And I would argue that this is still true in the New Gilded Age. The wealthy and particularly the ultra-wealthy of our day are still enjoying that same range of leisure activities and that same level of excess consumption but in some respect seem oddly ashamed of it all. Which is why they ‘explain’ that “I worked hard for my money, I worked hours that you moochers never dreamed of, etc, etc”. Which doesn’t explain how they found time to maintain a Plus 2 handicap.

I bring this up of course in the context of JEB explaining that the key to 4% GDP growth is just people working more hours. With the unstated addition “like me and the rest of the job creators”. Well I want to call bullshit. The idea that the 1% on average just work harder than everyone else is belied by the fact that they even have yachts and weekend homes in the Hamptons and bottle clubs and third homes at Aspen and Vail.

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Nick and Joe are doing their best to beat back Milton Friedman et al

Nick Hanauer, Joseph Sitglitz videos.

This is the latest presentation Nick Hanauer has made regarding the upside downness of our economy and the backward, selfish thinking that has gotten us here. In this one he is talking to his “plutocrat” friends:

We plutocrats need to see that the United States of America made us not the other way around. That a thriving middle class is the source of prosperity in capitalist economies, not a consequence of it. And we should never forget, that even the best of us, in worst of circumstances are barefoot by the side of a dirt road selling fruit.

He takes on economics and how it is used today by plutocrats to reinforce their positions:

…for thousands of years, these stories were called divine right. Today, we have trickle down economics. How obviously, transparently self-serving all of this is.

 

Then comes Joseph Stiglitz talking about the cause and fix for income inequality.  This is based on his latest book.     He lays the cause to the “supply side” economics and thus the results of politics and policy.  It was a “disaster”.

The financial sector in recent years has been more active in taking money out of corporations than putting money into the corporations.  The flow is going the other way.

It is nice to hear someone talking about the solution in a comprehensive way.  A way that reflects understanding society and its economy in the same manor we have come to understand the environment.

Wouldn’t you just love to see them together on one of the Sunday morning shows around at table with say Senator Warren and Sanders and on the other side the Koch brothers and say Paul Ryan, McConnell and Boehner?  Maybe a Chicago School boy or girl?  Let’s throw in Jack Lew or who ever is the latest to hold that position.  How about someone from labor and the US Chamber to balance it out?  Better yet, how about simply a table of Nick, Joe, Warren, Sanders, Labor and Robert Reich maybe also Paul Krugman.  Forget the fair and balance act.

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Another image of labor’s broken back: $48,887 in profit per employee!

This article via Yahoo news caught my attention: Five years into recovery, Dow Companies squeeze workers as investors thrive

I think this picture spells it out rather well.

 

Profit per employee

“As the chart shows, the 30 huge companies that comprise the Dow Jones Industrial Average have barely nudged their employee ranks higher…”

But this is even more astounding:

Over the past five years, total profits of the current Dow 30 members surged by more than 42% through the end of 2014, to nearly $320 billion. This has driven the average annual profit per employee up by more than 34% since 2009, to $48,887.

According to this CNN article from August, the median household income is $53,891.    That means these 30 companies are pocketing 90% of what an household earns.  That’s out the door, cash in the pocket 90% of what a household works all year to earn.  Now, I’m not sure, but I think that household income is pretax and I doubt they get to hid that $53,891 in some account out of reach of the tax man.  In fact, I’ll bet that household needs every bit of that money just to get through the year.

Well, the 30 are not hiding all of it:

Dividends paid by the Dow 30 are up better than 30% the past five years, according to FactSet.

Read the article.  The author does his best to explain this situation, but it’s seem more like excuses.  A grasping at straws to dismiss what we know has been an intentional drive to get to this point.  My interpretation of it is that these companies are now able to “grow” the pot of money without actually having to increase their sales.  True money from money… but, they are scared that this magic will leave them and then what?

$48,887 PROFIT PER EMPLOYEE!

 

 

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Bill Clinton thinks corps will put people first, profits second…all on their own.

So, Bill baby thinks the corps are going to see the light and return to the good old days of having a social conscience.  Heck, they will even see the light regarding their role as a member of society in the US.   And, here is the best part.  This is all going to happen without the government!

“I think the government can have incentives that will encourage it, but I think by and large it will happen, if it does, because of proof that markets work better that way,” Clinton said…

Right out of the Milton et al, Republican, conservative free market text book.  (Hope you are all reading Beverly’s post.)

He quantified it with:  “This corporate change, Clinton said, will be one of the most important keys to building a better future.”   Well he sure has that correct.  It is important as a key to building a better future.

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The mayors report in on Income Inequality (and miss the conclusion).

(lightly edited for ease of reading)

Yesterday the Conference of Mayors and the Council on Metro Economies and the New American City released a report prepared by IHS Global Insight that is a repeat and thus update of a similar study performed after the 2001 – 2002 recession.  Income and Wage Gaps Across the US.

I caught wind of it today reading our state news paper, it was on page 1 no less. I suggest reading it and then using it to judge your favorite candidate in the coming elections. See if they mention this report. There are 357 metro areas reported on in the index pages. Even Providence RI is noted. So look yours up.

The report looks at the jobs being created and the wages they are generating.  The trend since the 2001/02 recession is that jobs lost in the recession are replaced by jobs producing lessor wages. No surprise as we have been hearing such for a while. However, this study documents that the difference in the wages is even greater this time. After the 01/02 recession it was a 12% difference or $23 billion in annual wage loss. After this current recession it is a 23% difference! $93 billion! Yes, it is because manufacturing and construction jobs are being replaced by hospitality, health care and administration jobs.

“Extensive job losses in high-wage manufacturing ($63K) and construction ($58K) sectors were replaced by jobs in the lower wage sectors of hospitality ($21K), health care ($47K), and administrative support ($37K).”

Some more general findings:

The 2012 household median income of $51,017 was, in real terms, the lowest since 1995. It had peaked at over $56,000 in 1999, and measured $55,627 in 2007 before the recession. It has fallen in each subsequent year.…the 20% of households with the highest incomes, which rose from 43.6% in 1975 to 51.0% in 2012. Moreover, most of this gain was among those in the highest 5% of income, which rose from 16.5% in 1975 to 22.3% in 2012, a gain of $490 billion in 2012. Each of the lower quintiles experienced a declining share of income.

Nothing too new there as with some other facts noted early in the report. However they do something I have not seen and I believe does a better job of presenting income distribution change in this nation. The cry we are hearing regards the decline of the middle class. But then the numbers are presented as blocks of 20%. In this report they divide the income distribution into thirds. Thus, you have a middle third…the middle class?

…we can also consider a broader group of middle income households, the middle third of the income distribution. In 2012, among US households, 34.8% earned less than $35,000, 31.8% earned between $35,000 and $75,000, while 33.5% earned more than $75,000.

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