Tuesday, October 11, 2011

Here's What The Occupy Wall Street Protesters Are So Angry About...

Unemployment. Three years after the financial crisis, the unemployment rate is still at the highest level since the Great Depression (except for a brief blip in the early 1980s)(of course, when you factor in the real unemployment rate, the U6, it's higher than all but 3 or 4 years in the Great Depression.--jef)

Jobs are scarce, so many adults have given up looking for them. Thus, a sharp decline in the "participation ratio."

And it's not like unemployment is some quick, painful jolt: A record percentage of unemployed people have been unemployed for longer than 6 months.

And it's not just construction workers. The average duration of all unemployment is also near an all-time high.

That 9% rate, by the way, equates to 14 million Americans—people who want to work but can't find a job.

And that's just people who meet the criteria for "unemployed." Include people working part-time who want to work full-time, plus some people who haven't looked for a job in a while, and unemployment's at 17% (that's more accurate--and that 17% is higher than unemployment was in all but 3 or 4 years of the Great Depression--jef).

Put differently, this is the lowest percentage of Americans with jobs since the early 1980s (and, again, the boom prior to that was from women entering the workforce).

So that's the jobs picture. Not pretty.


And now we turn to the other side of this issue... the Americans for whom life has never been better. The OWNERS.

Corporate profits just hit another all-time high.

Corporate profits as a percent of the economy are near a record all-time high. With the exception of a brief happy period in 2007 (just before the crash), profits are higher than they've been since the 1950s. And they are VASTLY higher than they've been for most of the intervening half-century.

CEO pay is now 350X the average worker's, up from 50X from 1960-1985.

CEO pay has skyrocketed 300% since 1990. Corporate profits have doubled. Average "production worker" pay has increased 4%. The minimum wage has dropped. (All numbers adjusted for inflation).

Looked at differently, after adjusting for inflation, average hourly earnings haven't increased in 50 years.

And here it is... the chart that says it all: While CEOs and shareholders have been cashing in, wages as a percent of the economy have dropped to an all-time low.

In other words, in the struggle between "labor" and "capital," capital has basically won. 

Of course, life is fantastic if you're in the top 1% of American wage earners. You're hauling in a bigger percentage of the country's total pre-tax income than you have at any time since the late 1920s (Just before the Great Depression). Your share of the national income, in fact, is almost 2X the long-term average!

And the top 1% in America are doing way better than the top 1% in other first-world countries.

In fact, income inequality has gotten so extreme here that the US now ranks 91st in the world in "income equality." China's ahead of us. So is India. So is Iran.

And, by the way—few people would have a problem with inequality if the American Dream were still fully intact—if the "top 1%" changed continuously, as everyone in the bottom sectors kept working their way up. But, unfortunately, social mobility in this country is also near an all-time low.

So what does all this mean in terms of net worth? Well, for starters, it means that the top 1% of Americans own 42% of the financial wealth in this country. The top 5%, meanwhile, own nearly 70%.

That's about 60% of the net worth of the country held by the top 5% (left chart).

And remember that huge debt problem we have—with hundreds of millions of Americans indebted up to their eyeballs? Well, the top 1% doesn't have that problem. They only own 5% of the country's debt.

And then there are taxes... It's a great time to make a boatload of money, because taxes on the nation's highest-earners are close to the lowest they've ever been.

The aggregate tax rate for the top 1% is lower than for the next 9%—and not much higher than it is for pretty much everyone else.

As the nation's richest people often point out, they do pay the lion's share of taxes in the country: The richest 20% pay 64% of the total taxes. (Lower bar). Of course, that's because they also make most of the money. (Top bar).

And now we come to the type of American corporation that gets—and deserves—a big share of the blame: The banks. Willie Sutton once explained that the reason he robbed banks was because "that's where the money is." The man knew what he was talking about.

Remember back in the financial crisis, when we bailed out the banks? Yes, and remember the REASON we bailed out the banks? The REASON we had to bail out the banks was so that they could keep lending to American businesses. Without that lending, we were told, society would collapse. So, did the banks keep lending?
Um, no. Bank lending dropped sharply, and it has yet to recover.

So, what have banks been doing since 2007 if not lending money to American companies? Lending money to America's government! By buying risk-free Treasury bonds and other government-guaranteed securities.

And, remarkably, they've also been collecting interest on money they are NOT lending—the "excess reserves" they have at the Fed. Back in the financial crisis, the Fed decided to help bail out the banks by paying them interest on this money that they're not lending. And they're happily still collecting it. (It's AWESOME to be a bank.)

Meanwhile, of course, the banks are able to borrow money FOR FREE. Because the Fed has slashed rates to basically zero. And the banks have slashed the rates they pay on deposits to basically zero. So they can have all the money they want—for nearly free!

When you can borrow money for nothing, and lend it back to the government risk-free for a few percentage points, you can COIN MONEY. And the banks are doing that. According to IRA, the "net interest margin" made by US banks in the first six months of this year is $211 Billion. Nice!

And that has helped produce $58 billion of profit in the first six months of the year.

And it has helped generate near-record financial sector profits—while the rest of the country struggles with its (U3 9%; U6 17%) unemployment rate.

And these profits are getting back toward a record as a percentage of all corporate profits.

And those profits, of course, are AFTER the banks have paid their bankers. And it's still great to be a banker. The average banker in New York City made $361,330 in 2010. Not bad!

This average Wall Street salary was 6X the average private-sector salary (which, in turn, is actually lower than the average government salary, but that's a different issue).

So it REALLY doesn't suck to be a banker.

And so, in conclusion, we'll end with another look at the "money shot"—the one overarching reason the Wall Street protesters are so upset: Wages as a percent of the economy. Again, it's basically the lowest it has ever been. 

So now you know!