I read an interesting report this morning, which resonated with some other work I had…
The US Census Bureau released the latest edition of the – Income and Poverty in the United States 2014 – yesterday (September 16, 2015) along with a treasure trove of Income data and Poverty data. The data comes from the 2015 Current Population Survey Annual Social and Economic Supplement. Enough detail to keep anyone of the streets for a considerable time! The data can tell a lot of stories if prompted in a variety of ways but what I was interested in exploring was the cyclical movement as the US economy started its recovery and is now, seemingly, reaching the end of the current upturn. Who has gained from the recovery in national income and to what extent have the massive losses incurred during the Great Recession been recovered? That is what the blog is about today. A data hunt!
One of the extraordinary things that we are reading at present with respect to the success of Jeremy Corbyn is that he is all hot air with no substance.
Whatever happened to the – UK Guardian – over the years is unknown to me but from its origins as the “radical Manchester Observer” (1821) to now there has been quite an ideological leap towards neo-liberalism.
Wikipedia claims it is Centre-left, which just goes to show how far the distribution has been skewed towards the right.
The UK Guardian article (September 16, 2015) – Corbyn’s Labour is a party without a point, led by a rebel with a cause – is a case in point.
My reading of the material and statements put out by the Corbyn camp is that he has a very distinct agenda. According the Guardian article “his views have not changed in 30 years … and I think that it’s a problem”. Corbyn is dismissed as a “unspun unmoderniser”.
Somehow modernity is about abandoning past held views. Things do change but there are also fundamentals that do not. The future is unknown but in macroeconomic terms there will be some basics that will still be there whatever new social media modality we are all clicking, swiping, pressing or whatever.
There are some values that do not become ‘old fashioned’ or ‘unmodern’. Modernity is not about abandoning value systems previously held and accepting some new values that just happen to favour a particular segment of the population over others.
Jeremy Corbyn and Bernie Sanders in the US are leading the political voices at present that are talking about who gets the income that is produced in the economy and what are we going to do about it if we don’t like the answer.
The patterns that we can draw out of the latest Census Bureau data exemplify what Corbyn and Sanders are on about. There is something deeply wrong with the way in which the economy distributes the income that is produced.
Using the real median household income (expressed in 2014 dollars) and the percentile limits for the 10th percentile, 20th percentile, 40th percentile, 50th (median), 60th percentile, 80th percentile, 90th percentile and the 95th percentile, I traced what happens after the peak of each cycle since 1969 through the downturn and back to the next peak. The peaks are calculated for median household income.
The following three graphs trace the six cyclical periods (2 per graph to make it easier to see the patterns).
In the first graph (with one exception), all income groups participated in each of the growth cycles that followed the downturn associated with each starting peak.
In the 1980s and 1990s, the growth in incomes between the peaks of each cycle was much more evenly (albeit still disparate) spread and all household benefited. Low income earners were clearly able to make gains in household income as the economy grew again.
This pattern changed dramatically in the last two cycles and the new pattern has clearly intensified. In the most recent cycle, associated with the GFC, the peak real Median Household income was achieved in 2007 ($US57,359).
Over the period 2007 to 2014, which incorporated a massive downturn and subsequent recovery in national income, which in real terms has grown by 7.3 per cent since 2007 (up until 2014) after taking a 3 per cent hit between 2007 and 2009.
The period was chosen because the December-quarter 2007 was the peak real GDP prior to the downturn.
Between the peak in 2007 and 2014, median real household income fell by 6.5 per cent (it was $US53,657 in 2014) but the lowest income earners (measured at the 10th percentile limit) have endured an 11.6 per cent decline.
The top-end-of-town have enjoyed real household income increases over the period (90th percentile limit and the 95th percentile limit), albeit somewhat subdued relative to early decades.
The other result that might surprise is that since the 1999 peak (that is the top of the previous cycle), real median household income in the US has declined by 7.2 per cent.
The impact on the lowest 10 percent of the income distribution has been dramatic – a 16.5 per cent drop in real household income.
Over that period (1999-2014), all but the top two cohorts shown have taken real household income losses. As the US Census Bureau note:
Comparing changes in household income at selected percentiles shows that income inequality has increased between 1999 (the year that house- hold income peaked before the 2001 recession) and 2014 … Incomes at the 50th and 10th percen- tiles declined 7.2 percent and 16.5 percent, respectively, while income at the 90th percentile increased 2.8 percent between 1999 and 2014. In 2014, the 90th to 10th percen- tile income ratio was 12.83, not statistically different from the 2013 ratio. Since 1999, the 90th to 10th percentile income ratio increased 23.1 percent.
The upshot is that the poverty rate in the US has increased. The US Census Bureau says that “In 2014, the official poverty rate was 14.8 percent … The 2014 poverty rate was 2.3 percentage points higher than in 2007, the year before the most recent recession”.
The following graph comes from the Census Bureau publication. It shows the evolution of poverty in the US since 1959. The bottom panel is the poverty rate (which controls for scale).
It shows that in the recovery very little change in the poverty rate has occurred after its sharp rise in 2008.
What this data tells me is that the policy structures in the US have allowed a dysfunctional income distribution to evolve and intensify since the start of the current century.
It is unsustainable for a system to have workers producing more and more real income (that is, output) but only the top 10 per cent benefit from the production.
There are many intertwined factors involved that I will consider in later blogs.
1. The rise of the unproductive financial sector – which should be severely trimmed back to those activities that help real producers achieve some degree of certainty.
2. The capacity of workers to achieve real wages growth in line with productivity growth – the gap between the latter and the former has grown since the 1980s and had led to the redistribution of national income towards profits.
3. Persistent de-skilling and the hollowing out of middle-income jobs.
4. Persistent unemployment and underemployment – which have damaged household incomes and allowed bosses to suppress real wages growth.
5. Attacks on the income support system.
All these factors and more have been characteristic of the neo-liberal era. For a sustainable future there has to be major shifts in policy to address these issues.
The GFC was bad but the trends were in place long before the GFC hit and as I have argued before were causal factors in the emergence of the GFC.
The next crisis is awaiting us if we do not address the driving factors which are also producing the income distribution that this data summarises.
These are factors that Jeremy Corbyn and Bernie Sanders are clearly seeking to address. For the Guardian to say there is no agenda is just to signal they don’t want to know about the grass roots movements that are growing in protest to these trends.
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That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.