Alan Greenspan: “I’m afraid (the US is) going to run into some form of political crisis.”
…Over the past three to four decades, the riches at the apex of society expanded beyond anything most 1970s executives could have imagined. Between 2010 and 2012 the top 1 percent of American households took in nearly all of the income growth–95 percent. And they had 43 percent of the nation’s wealth. The bottom half of the population was left with a pittance–just 1.1 percent of the wealth–to divide up. It became nearly impossible in that environment for ordinary individuals and families to make any significant headway.
How growing income inequality is hurting Social Security
By Michael A. FletcherFebruary 10
(AP Photo/Bradley C Bower, file)
Here’s another reason to be concerned about income inequality: it poses a direct threat to the already shaky fiscal health of Social Security, according to a report released Tuesday by the left-leaning Center for American Progress.
The nation’s old-age pension and disability insurance program is funded by a payroll tax that this year applies to wages of $118,500 and below. But the amount of revenue coming in is not as large as it could be, now that an increasing share of wage growth is going to people who make more than that, and the wages of many Americans are stagnant, or even in decline. That is adding fiscal stress to a program already struggling with the demands of an aging population.
With more Americans reaching retirement age, Social Security is projected to eat through its funding reserves by 2033, assuming Congress took no action to bolster its finances. If that happened, Social Security trustees have said the program would be taking in only enough money to pay 75 percent of promised benefits—an unthinkable fate for a program that nearly two-thirds of seniors rely on for most of their retirement income.
“Upward redistribution of income in the United States has meant that income has shifted away from the workers whose full earnings are taxed and toward high-income workers whose additional dollars are exempt,” read the report.
The top 1 percent of wage earners took home about 12.9 percent of the nation’s total wage income in 2013–just short of the 13.7 percent that was earned by the entire bottom half of wage earners, the report said. And many of the richest Americans count on capital gains for most of their income, but capital gains are exempt from the payroll tax.
The tax cap is adjusted each year in step with average wage growth year to year. Overall, some 17 percent of the nation’s wages escaped the tax, up from 10 percent in 1983. The increase in the share of wages exempt from the payroll tax has been jagged, but the upward drift has been unmistakable, as the chart below illustrates.
The report says that the dire picture would be a bit different if wage increases had kept pace with the productivity gains of workers over the past three decades. Also, if the payroll tax covered the same 90 percent of earnings that it did in 1983, the program’s coffers would be $1.1 trillion larger and a significant chunk of its shortfall would disappear.
“While policymakers cannot undo the past, they can take action to improve Social Security’s fiscal outlook by implementing policies that boost wages, combat rising inequality, and modernize the program’s revenue structure to reflect today’s economy,” the report said.
…wages have been a stubborn reminder of the recovery’s shortcomings. In November, average hourly private-sector nominal wages inched up 6 cents, but in December, they fell 5 cents. After adjusting for inflation, wages for the entire year crawled up 0.7 percent, a modest amount in an economic recovery.
Premature obituaries for the shopping mall have been appearing since the late 1990s, but the reality today is more nuanced, reflecting broader trends remaking the American economy. With income inequality continuing to widen, high-end malls are thriving, even as stolid retail chains like Sears, Kmart and J. C. Penney falter, taking the middle- and working-class malls they anchored with them.
Just as significant was the feeling that the economic recovery has not touched most people. Rick Lamutt, a cable company technician who said he leans Republican and voted for Romney, said he sees the problem every day.
“I’m in 10, 12, 15 homes a day, every day,” he said. “People are hurting. . . It’s just crazy to see what people are doing just to pay their bills.” He scoffed at talk of a rising economy with plentiful jobs available. “If you want to make $9 an hour, you can get a job,” he said. “But if you want to make a wage that can support your family, good luck.”
The Big Lie: 5.6% Unemployment
by Jim Clifton
Here’s something that many Americans — including some of the smartest and most educated among us — don’t know: The official unemployment rate, as reported by the U.S. Department of Labor, is extremely misleading.
Right now, we’re hearing much celebrating from the media, the White House and Wall Street about how unemployment is “down” to 5.6%. The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market.
None of them will tell you this: If you, a family member or anyone is unemployed and has subsequently given up on finding a job — if you are so hopelessly out of work that you’ve stopped looking over the past four weeks — the Department of Labor doesn’t count you as unemployed. That’s right. While you are as unemployed as one can possibly be, and tragically may never find work again, you arenot counted in the figure we see relentlessly in the news — currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren’t throwing parties to toast “falling” unemployment.
There’s another reason why the official rate is misleading. Say you’re an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 — maybe someone pays you to mow their lawn — you’re not officially counted as unemployed in the much-reported 5.6%. Few Americans know this.
Yet another figure of importance that doesn’t get much press: those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find — in other words, you are severely underemployed — the government doesn’t count you in the 5.6%. Few Americans know this.
There’s no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.
And it’s a lie that has consequences, because the great American dream is to have a good job, and in recent years, America has failed to deliver that dream more than it has at any time in recent memory. A good job is an individual’s primary identity, their very self-worth, their dignity — it establishes the relationship they have with their friends, community and country. When we fail to deliver a good job that fits a citizen’s talents, training and experience, we are failing the great American dream.
Gallup defines a good job as 30+ hours per week for an organization that provides a regular paycheck. Right now, the U.S. is delivering at a staggeringly low rate of 44%, which is the number of full-time jobs as a percent of the adult population, 18 years and older. We need that to be 50% and a bare minimum of 10 million new, good jobs to replenish America’s middle class.
I hear all the time that “unemployment is greatly reduced, but the people aren’t feeling it.” When the media, talking heads, the White House and Wall Street start reporting the truth — the percent of Americans in good jobs; jobs that are full time and real — then we will quit wondering why Americans aren’t “feeling” something that doesn’t remotely reflect the reality in their lives. And we will also quit wondering what hollowed out the middle class.
Starting Out Behind
Today’s young people, ages 18 to 24, should have been the lucky ones. They were preteens or teenagers when the recession hit in late 2007, with high school and college still ahead. Unlike those who had to enter the work force in the depths of the downturn, they had time, or so it seemed, to wait out the weak economy.
But that’s not how things have worked out. While the worst is over, economic conditions are still subpar, damaging the immediate job prospects and long-term living standards of young adults starting out now.
In recent years, the economy has grown annually at 2 percent or so. That’s too slow to make up the current shortfall of nearly seven million jobs, let alone to absorb new graduates or push up wages in jobs that do exist.
To make matters worse, the economy contracted at an annual rate of 1 percent in the first quarter of 2014. A rebound is expected, but there is little in the economic data or current policy to suggest that an upsurge will be sustained; over all, economic growth is likely to settle at 2 percent to 2.5 percent.
For young people, these conditions will only deepen a long trend of increasing economic hardship. Census data that compares today’s 18-to-24-year-olds with the same age group in 1970 and in 1990 show more poverty among young adults over time, as well as lower income and less independence. But young people today are appreciably worse off than those in previous generations.
In 1970, for example, 13.9 percent of people ages 18 to 24 were in poverty. In 1990, 15.9 percent were poor; in 2012, the last year of available data, 20.4 percent were poor, or 6.1 million people. That data excludes students living in dorms, as well as most students who live with their parents or receive cash support from them. For young people who are on their own, either living alone or with housemates or spouses, median household income, recently $30,604, is nearly $4,600 less than in 1970 and virtually unchanged since 1990, adjusted for inflation.
Lack of opportunity and lack of resources mean a smaller share of young high school and college graduates are relocating, traditionally a way up a career ladder. In 1970, nearly 40 percent of young people had moved in the prior year; in 1990, it was nearly 32 percent; in 2013, it was only 21.6 percent. Not surprisingly, the share of young adults living with their parents is 55.3 percent, compared with 47.3 percent in 1970 and 52.8 percent in 1990.
Young people are clearly banking on a college education to improve their prospects — 41 percent of 18-to-24-year-olds were recently enrolled in college, a higher share than in previous generations. But the unemployment rate of college graduates ages 21 to 24 remains high at an average of 8.5 percent over the past year. Underemployment — which includes those who are officially unemployed, those who want to work but haven’t looked recently for a job and those stuck in part-time jobs — is 16.8 percent.
Equally worrisome, 44 percent of young college graduates in 2012 were working in jobs that didn’t require a college degree (versus 38 percent before the recession in 2007), according to data from researchers at the Federal Reserve. In 2000, half of college-educated workers in jobs that didn’t require a degree were in generally well-paid professions, working as electricians, for example, or dental hygienists. Now they are more likely to be waiters, bartenders or cashiers.
College-educated workers still earn much more than less-educated ones, but landing a good job at rising pay is made even more difficult as each new group of graduates joins a backlog of unemployed and underemployed college and high school graduates, dating back to the class of 2008.
Over the last six years, one of the economy’s biggest problems has been faulty fiscal policy, with the federal government underestimating the need for economic aid or withholding and reducing help prematurely. Another drag has been lack of business investment, even as financial markets have prospered with the help of loose monetary policy.
The result has been an economy where young people starting out are at risk of prolonged underachievement. It is possible to defuse that risk, but not without responsive policy and robust investment.