America’s Lost Decade

Economics Without Facts

by MARK WEISBROT

 

The American Economic Association’s annual meetings are a scary sight, with thousands of economists all gathered in the same place – a veritable weapon of mass destruction.

Chicago was the lucky city for 2012 this past weekend, and I had just finished participating in an interesting panel on “The Economics of Regime Change,” when I stumbled over to see what the big budget experts had to say about “The Political Economy of the U.S. Debt and Deficits.”

The session was introduced by UC Berkeley economist Alan Auerbach, who put up a graph of the United States’ rising debt-to-GDP ratio, and warned of dire consequences if Congress didn’t do something about it.  Yawn.

But the panelists got off to a good start, with Alan Blinder of Princeton, former vice-chairman of the U.S. Federal Reserve, describing the public discussion of the U.S. national debt as generally ranging from “ludicrous to horrific.”  True that.  He asked and answered four questions: 

(1) Is there any urgency (to reduce the deficit or debt)?  No.  The government can borrow short term at negative real interest rates, and long-term at about zero.  The world is paying us to hold their money. That is anything but a debt crisis.

The Fed is out of bullets, he said – referring to the fact that the U.S. Federal Reserve had lowered short-term rates to zero and had used quantitative easing to help keep long-term rates low.  So we need more fiscal stimulus, preferably spending that focuses on actually creating jobs. Amen.

(2)  Should we focus on the next decade? No, he said, and noted that the Congressional Budget Office’s (CBO’s) budget deficit projections over the next decade are about 3.6 percent of GDP, which is not much to get agitated about.  Also true.

(3) Is government spending the problem?  No, he said, it’s health care costs, and mainly the rising price of health care (i.e not the aging of the population).   Most important truth yet !  (More on this below).

(4)  Is the public really up in arms about the deficit?  No, actually they care more about the economy and jobs.  As they should.

Blinder concluded that since this is an election year, we can forget about having any fact-based discussion of these issues in 2012.  Happy New Year, he said, and the audience laughed.

Well that was refreshing, I thought — an economist telling the unvarnished truth to hundreds of his people at the annual meetings. But a rapid descent into Hell was imminent.

Former CBO director Douglas Holtz-Eakin was next, talking about the need to “repair” Social Security and Medicare.  The United States has all the characteristics of countries that run into trouble, he said. Then he warned that the U.S. is going to end up like Greece.  This is one of the dumbest things that anyone with an economics degree can say.

Hello, Mr. Holtz-Eakin!  Have you ever heard of the U.S. dollar, the world’s key reserve currency? The United States is not going to end up like Greece any sooner than it will end up like Haiti or Burkina Faso. A country that can pay its foreign public debt in its own currency and runs its own central bank does not end up like Greece.  In fact, even Japan is not going to end up like Greece, and Japan has a gross public debt of about 220 percent of its GDP, more than twice the size of ours and vastly larger – again relative to its economy — than that of Greece.  And the yen is nowhere near the dollar in its importance as an international reserve currency.  But the Japanese government is still borrowing at just 1 percent interest rates for its 10-year bonds.

At this point it was clear that this panel, other than Blinder, was living in a dystopian fantasy world. Next up was Rudy Penner of the Urban Insitute, another former CBO director. His perspective was not much different from that of Auerbach or Holtz-Eakin.

He complained about the polarization of the political process, which prevents the two major parties from reaching an agreement.  It’s not partisanship, he said – House Speaker Tip O’Neill and President Ronald Reagan knew how to be partisan but they were able to reach agreement on the 1983 Social Security package and the 1986 tax reforms.  And yadda yadda.  He might have added that we have had 25 years of lying about Social Security since then, and even Reagan didn’t dare try to privatize Social Security.  And of course Social Security can currently pay all promised benefits for the next 24 years without any changes.

These arguments about polarization really beg the question:  From the viewpoint of the 99 percent, it’s not polarization, but weakness in defending our interests that is the problem.  President Obama compromised much more than he should have last year, offering cuts to Social Security and Medicare in exchange for a long-term budget deal.  The 99 percent are just lucky that the Republicans are too extremist to make this kind of a “grand bargain” with Obama.

The last panelist was Alice Rivlin of the Brookings Institution, another former CBO budget director and Fed vice-chair, as well as a member of the President’s (2010) National Commission on Fiscal Responsibility and Reform.   She agreed with Blinder that we need more stimulus.  But we can only get this if we agree to long-run spending cuts, including Social Security, of course.  Yuck. This is a political strategy that is sure to end in disaster, given the prevailing state of misinformation and disinformation.

During the discussion, Blinder – who identified himself as a Democrat – expressed his frustration in not being able to convince fellow Democrats to cut Social Security.  Double yuck. The average Social Security check is about $1,177 a month,  and a majority of senior citizens are getting most of their meager income from Social Security. Why these people insist on creating more poverty among the elderly, especially when the program is solvent for decades to come, is beyond me.

I got to ask the first question for the panel.  I called attention to Blinder’s presentation of the long-term budget problem as almost completely a problem of the rising price of health care.  I pointed out that you could take any country with a life expectancy greater than ours – including the other high-income countries – and put their per capita health care costs into our budget, and the long-term budget deficit would turn into a surplus.  My question was simple: Are Americans so inherently different from other nationalities that we can’t have similar health care costs?  And if not, then why are we talking about long-term budget problems instead of how to fix our health care system?

None of the panelists offered a serious answer to this question.  Auerbach, the moderator, said that other countries have rising health care costs, too. And some of the others said or implied that health care costs were rising at an unsustainable pace worldwide.

But this is nonsense.  The United States pays about twice as much per person for health care as other high-income countries – and still leaves 50 million people uninsured. This is a result of a dysfunctional health care system that has had health care prices rising much faster than those of other high-income countries for decades.

What the budget hawks are basically telling us is that we must assume that insurance and pharmaceutical companies will have a veto over the provisions of health care reform for decades to come.  And that therefore we must find other ways to make up for these excessive costs, including cutting Social Security and other government spending, and pushing us into higher rates of poverty and inequality than we already have.

And even worse in the short run, all this crap about the deficit and the debt will be used to block the necessary stimulus measures – “stimulus” has already become a dirty word that Democratic politicians are afraid to utter.  This means high unemployment and a lot of unnecessary misery in the world’s richest country for the foreseeable future.

A dismal performance for the dismal science, on some of the most important issues of the day. Of course there are other economists, including Nobel Prize winners such as Paul Krugman, Joe Stiglitz, and Robert Solow (full disclosure: the latter two are members of CEPR’s advisory board), who would offer more sensible views.  But this panel was, sadly, representative of economists with the most influence on public policy.

With a brain trust like this, a lost decade for America looks likely – unless the citizenry can steer a different course.

Poverty Swallows America

Flat-Lining the Middle Class

by ANDY KROLL

 

 

Food pantries picked over. Incomes drying up. Shelters bursting with the homeless. Job seekers spilling out the doors of employment centers. College grads moving back in with their parents. The angry and disillusioned filling the streets.

Pan your camera from one coast to the other, from city to suburb to farm and back again, and you’ll witness scenes like these. They are the legacy of the Great Recession, the Lesser Depression, or whatever you choose to call it.

In recent months, a blizzard of new data, the hardest of hard numbers, has laid bare the dilapidated condition of the American economy, and particularly of the once-mighty American middle class. Each report sparks a flurry of news stories and pundit chatter, but never much reflection on what it all means now that we have just enough distance to look back on the first decade of the twenty-first century and see how Americans fared in that turbulent period.

And yet the verdict couldn’t be more clear-cut. For the American middle class, long the pride of this country and the envy of the world, the past 10 years were a bust. A washout. A decade from hell.

Paychecks shrank. Household wealth melted away like so many sandcastles swept off by the incoming tide. Poverty spiked, swallowing an ever-greater share of the population, young and old. “This is truly a lost decade,” Harvard University economist Lawrence Katz said of these last years. “We think of America as a place where every generation is doing better, but we’re looking at a period when the median family is in worse shape than it was in the late 1990s.”

Poverty Swallows America
Not even a full year has passed and yet the signs of wreckage couldn’t be clearer. It’s as if Hurricane Irene had swept through the American economy. Consider this statistic: between 1999 and 2009, the net jobs gain in the American workforce was zero. In the six previous decades, the number of jobs added rose by at least 20% per decade.

Then there’s income. In 2010, the average middle-class family took home $49,445, a drop of $3,719 or 7%, in yearly earnings from 10 years earlier. In other words, that family now earns the same amount as in 1996. After peaking in 1999, middle-class income dwindled through the early years of the George W. Bush presidency, climbing briefly during the housing boom, then nosediving in its aftermath.

In this lost decade, according to economist Jared Bernstein, poor families watched their income shrivel by 12%, falling from $13,538 to $11,904. Even families in the 90th percentile of earners suffered a 1% percent hit, dropping on average from $141,032 to $138,923. Only among the staggeringly wealthy was this not a lost decade: the top 1% of earners enjoyed 65% of all income growth in America for much of the decade, one hell of a run, only briefly interrupted by the financial meltdown of 2008 and now, by the look of things, back on track.

The swelling ranks of the American poor tell an even more dismal story. In September, the Census Bureau rolled out its latest snapshot of poverty in the United States, counting more than 46 million men, women, and children among this country’s poor. In other words, 15.1% of all Americans are now living in officially defined poverty, the most since 1993. (Last year, the poverty line for a family of four was set at $22,113; for a single working-age person, $11,334.) Unlike in the lost decade, the poverty rate decreased for much of the 1990s, and in 2000 was at about 11%.

Even before the housing market imploded, during the post-dot-com-bust years of “recovery” from 2001 to 2007, poverty figures were the worst for any recovery on record, according to Arloc Sherman, a senior researcher at the Center on Budget and Policy Priorities. The Brookings Institution, meanwhile, predicts that the ranks of the poor will continue to grow steadily during the years of the Great Recession, which officially began in December 2007, and are expected to reach 50 million by 2015, almost 10 million more than in 2007.

Hitting similar record highs are the numbers of “deep” poor, Americans livingway below the poverty line. In 2010, 20.5 million people, or 6.7% of all Americans, scraped by with less than $11,157 for a family of four — that is, less than half of the poverty line.

The ranks of the poor are no longer concentrated in inner cities or ghettos in the country’s major urban areas as in decades past. Poverty has now exploded in the suburbs. Last year, more than 15 million suburbanites — or one-third of all poor Americans — fell below the poverty line, an increase of 11.5% from the previous year.
This is a development of the last decade. Those suburbs, once the symbol of by-the-bootstraps mobility and economic prosperity in America, saw poverty spike by 53% since 2000.  Four of the ten poorest suburbs in America — Fresno, Bakersfield, Stockton, and Modesto – sit side by side on a map of California’s Central Valley like a row of broken knuckles.  The poor are also concentrated in border towns like El Paso and McAllen, Texas, and urban areas cratered by the housing crash like Fort Myers and Lakeland, Florida.

The epidemic of poverty has hit minorities especially hard. According to Census data, between 2009 and 2010 alone the black poverty rate jumped from 25% to 27%. For Hispanics, it climbed from 25% to 26%, and for whites, from 9.4% to 9.9%. At 16.4 million, more children now live in poverty than at any time since 1962.  Put another way, 22% of kids currently live below the poverty line, a 17-year record.

America’s lost decade also did a remarkable job of destroying the wealth of nonwhite families, the Pew Research Center reported in July. Between 2005 and 2009, the household wealth of a typical black family dropped off a cliff, plunging by a whopping 53%; for a typical Hispanic family, it was even worse, at 66%. For white middle-class households, losses on average totaled “only” 16%.

Here’s a more eye-opening way to look at it: in 2009, the median wealth for a white family was $113,149, for a black family $5,677, and for a Hispanic family $6,325. The second half of the lost decade, in other words, laid ruin to whatever wealth was possessed by blacks and Hispanics — largely home ownership devastated by the popping of the housing bubble.

The New Lost Decade
As for this decade, less than two years in, we already know that the news isn’t likely to be much better. The problems that plagued Americans in the previous decade show little sign of improvement.

Take the jobs market. Tally the number of jobs eliminated since the recession began and also the labor market’s failure to create enough jobs to keep up with normal population growth, and you’re left with an 11.2 million jobs deficit, a chasm between where the economy should be and where it is now. Filling that gap is the key to any recovery, but to do so by mid-2016 would mean adding 280,000 jobs a month — a pipe dream in an economy limping along creating an average of just 35,000 jobs a month for the past three months. Unless the country’s jobs engine were somehow jump-started, 11.2 million jobs in this decade would be a real stretch.

But few in Congress, and none of the controlling Republican politicians, will even think about using the jumper cables. President Obama’s relatively modest American Jobs Act, for instance, was declared a corpse on arrival at the House of Representatives. On Monday, a reporter asked House Majority Leader Eric Cantor (R-Va.), “The $447 billion jobs package as a package: dead?” Yes, Cantor assured him, indeed it was.

The president and his administration watch despondently from the other end of Pennsylvania Avenue. And for the majority of Americans, a jobless “recovery” exacts an ever-greater toll on their earnings, their families, their health, their basic ability to make ends meet.

The question on many economists’ minds is: Will the U.S. slump into a double-dip recession? But for so many Americans living outside the political and media hothouses of Washington and New York, this question is silly.  After all, how can the economy tumble back into recession if it never left in the first place?

No one can say for certain how many years will pass before America regains anything like its pre-recession swagger — and even then, there’s little to suggest that the devastating effects of the middle class’s lost decade won’t have changed this country in ways that will prove permanent, or that the gap between the wealthy and everyone else will do anything but increase in good times or bad in the decade to come. The deep polarization between the very rich and everyone else has been decades in the making and is a global phenomenon. Reversing it could be the task of a lifetime.

In the meantime, the middle class has flat-lined. Life support is nowhere close to arriving. One lost decade may have ended, but the next one has likely only begun.

IMF says US economy may be weak 'for years to come'

AFP - Tuesday, September 20, 2011

WASHINGTON (AFP) - The International Monetary Fund on Tuesday warned the US economy could remain weak for years to come, describing a recovery stalled amid unrelenting headwinds and in dire need of a push from government.

The Washington-based fund slashed its US growth forecasts for this year and next, while warning of the need for more government stimulus in the short-term as well as a credible longer-term plan to cut spending.

"The US economy is struggling to gain a strong foothold, with sluggish growth and a protracted job recovery," the IMF said, as it cut US growth forecasts for this year by a full percentage point to a paltry 1.5 percent.

That is a slower rate than projected for the crisis-wracked eurozone.

Citing crushed US consumer confidence and battered business sentiment -- as well as ongoing crises in the housing and financial markets -- the IMF said "growth will be modest relative to historical averages for years to come."

That bleak assessment is certain to fuel fears that the United States is destined for a Japan-like "lost decade" of growth, particularly as the White House and Congress continue to bicker over how to cut debt levels and how to stimulate growth.

"The first priority for the US authorities is to commit to a credible fiscal policy agenda that places public debt on a sustainable track over the medium term, while supporting the near-term recovery."

As President Barack Obama and his Republican foes fight over how to put the budget back on an even keel, the IMF said a solid deal was essential both for the US, and for the global economy.

"Delays in accomplishing an adequate medium term debt-reduction plan could suddenly induce an increase in the US risk premium, with major global ramifications."

By contrast a deal could pave the way for sounder short-term fiscal policies.

"This would allow the near-term fiscal policy stance to be more attuned to the cycle, for example, through temporary stimulus to support labor and housing markets, state and local governments, and infrastructure spending."

The IMF's gloomy assessment of the US economy comes as Washington girds to enter a presidential election year, making political compromise all the more tricky.

But the pessimistic outlook is shared by private economists.

"In an economy like that of the United States where around 60 percent of the economy is consumption, confidence is perhaps the most important ingredient requisite for economic growth and an improving job market," said Jason Schenker of Prestige Economics.

"Without confidence and without spending, deflation and recession are major risks."

A Lost Decade for Working Families in the US

Poverty and income trends continue to paint a bleak picture for working families

By Elise Gould and Heidi Shierholz | September 14, 2011

The 2010 poverty and income data released yesterday morning by the U.S. Census Bureau are yet another reminder of the continued weight of the Great Recession on families in the United States. The Great Recession officially ended in the summer of 2009, but the labor market continued deteriorating through the end of 2009, and the modest economic growth in 2010 was not enough to compensate for those losses.  From 2009 to 2010, the number of jobs fell by 658,000, the unemployment rate increased from 9.3 percent to 9.6 percent, and the share of unemployed workers who had been unemployed for more than six months climbed from 31.2 percent to 43.3 percent. Thanks to this deterioration in the labor market, incomes dropped and poverty rose.

AUDIO: Listen to EPI’s press call about the 2010 report

Key findings from the Census Bureau’s report


Poverty

• The poverty rate increased from 14.3 percent in 2009 to 15.1 percent in 2010, representing an additional 2.6 million people living in poverty and bringing the total number of people in poverty in the United States to 46.2 million.
• The poverty rate for children was 22.0 percent in 2010, representing 16.4 million kids living in poverty. In 2010, more than one-third (35.5 percent) of all people living in poverty were children.
• The poverty rate for working-age people (18- to 64- year-olds) hit 13.7 percent in 2010, the highest rate since the series began in 1966. Poverty among the elderly (age 65 and older) poverty was statistically unchanged over the year.
• The poor are getting even poorer. In 2010, the share of the population below half of the poverty line hit a record high of 6.7 percent.
• Nearly one in 10 children (9.9 percent) fell below half of the poverty line in 2010, up from 9.3 percent in 2009.
• Non-Hispanic whites maintained far lower poverty rates than any other racial/ethnic group. Blacks were particularly hard-hit by increases in poverty from 2009 to 2010, increasing 1.6 percentage points to reach a rate of 27.4 percent.
• In 2010, over one-third of black children (39.1 percent) and Hispanic children (35.0 percent) were living in poverty. The poverty rate for families with children headed by single mothers hit 40.7 percent in 2010. Of the 7.0 million families living in poverty in 2010, 4.1 million of them were headed by a single mom.

Income

• Between 2000 and 2010, median income for working-age households fell from $61,574 to $55,276, a decline of roughly $6,300, which is more than 10 percent.
• Disparities in incomes among racial and ethnic subgroups grew in 2010, as racial and ethnic minorities experienced particularly large declines in income. The  black household earning the median income is now bringing in $5,494 less than the median black household did 10 years ago (a drop of 14.6 percent) and the median Hispanic household is now bringing in $4,235 less than the median Hispanic household did 10 years ago (a drop of 10.1 percent).
• There were losses across the income distribution in 2010, particularly at the very bottom and the very top. In 2010, incomes of families in the middle fifth of the income distribution fell 0.9 percent, for a total decline of 6.6 percent since 2007. Families at the low end of the scale were hit harder, with the bottom fifth losing 3.5 percent in 2010 and 11.3 percent from 2007 to 2010. The top fifth lost 2.7 percent in 2010, but since their losses in the prior two years were modest, the total decline from 2007 to 2010 was a relatively modest 4.5 percent.  
• The median, or typical,  inflation-adjusted earnings of men working full-time year-round fell slightly from $47,905 in 2009 to $47,715 in 2010, while the median earnings of full-time year-round female workers stayed essentially flat, at $36,877 in 2009 and $36,931 in 2010.
  

A quick comment on the effect of ARRA
How did the American Recovery and Reinvestment Act of 2009 (ARRA) affect the 2010 poverty and income numbers? Because ARRA was passed in February and was in the process of ramping up through the end of 2009, its full impact was felt in 2010.  ARRA primarily affected these numbers by creating and saving jobs, the earnings from which otherwise would not have been there supporting family incomes. The Congressional Budget Office estimates that the Recovery Act created or saved around one million full-time equivalent jobs in 2009, and 3.4 million jobs in 2010. Without these jobs, the decline in income and increase in poverty would have been much more dramatic. In other words, the new Census Bureau report is ugly, but without ARRA, it would have been much uglier. This underscores the growing impact of the end of ARRA—in the current quarter, ARRA is supporting only 2.3 million full-time equivalent jobs, and the number of jobs supported drops to half a million by the fourth quarter of 2012. This means that the loss of the boost from government action is—and without additional intervention will continue to be—a substantial drag on jobs and family income.

What about the direct income supports in ARRA? Of three major income supports in the stimulus—unemployment insurance, nutritional assistance (food stamps), and tax cuts—only unemployment insurance is counted in the income numbers just released; the income numbers include cash income received from programs such as unemployment insurance, but exclude noncash benefits like food stamps, and are measured before payments of taxes, so they do not reflect reductions in taxes. While unemployment insurance benefits replace a maximum of half of a worker’s prior earnings, these benefits went to workers who were laid off and who had low odds of quickly finding another job (in 2010, there were 5.3 unemployed workers per job opening on average). In other words, these unemployment benefits went to families that otherwise would likely have suffered even steeper income declines, and in some cases dropped below the poverty line. Census data show that 3.2 million people were kept out of poverty in 2010 by unemployment insurance benefits alone.


Poverty:  Record highs
Between 2009 and 2010, an additional ­­­­­­2.6 million people slipped below the poverty line, as the poverty rate increased from 14.3 percent to 15.1 percent. The rate represents 46.2 million people living in poverty in the United States. The last time the poverty rate was higher was in 1983, when it was 15.2 percent (as shown in Figure A).

The poverty rate for children in 2010 was 22.0 percent, higher than the overall rate and up more (1.3 percentage-points) than the overall poverty rate, which increased 0.8 percentage points from 2009 to 2010. The 2010 “children’s poverty rate” represents 16.4 million kids living in poverty. In 2010, more than a third—35.5 percent— of all people living in poverty were children.

Nearly all of the decline in poverty achieved during the business cycle of the 1990s has now been reversed. From 1989 to 2000, overall poverty declined by 1.5 percentage points, and child poverty dropped by 3.4 percentage points. From 2000 to 2010, however, poverty increased overall by 3.8 percentage points, and by 5.8 percentage points among children. The large increase in poverty suggests that as anti-poverty policies have come to depend more on paid work as the main pathway out of poverty, the safety net has become less effective in reducing economic hardship when the economy and job market are underperforming.

The poverty rate for working-age people, those 18-64 years old, increased by 0.7 percentage points, from 12.9 percent in 2009 to 13.7 percent 2010,  the highest rate since the series began in 1966 (Figure B). Over the same five decades, the poverty rate for persons older than 65 dropped precipitously, due in part to Social Security payments, which have effectively lifted millions of elderly Americans out of poverty. In 2010, the elderly poverty rate, 9.0 percent, was statistically unchanged from 2009.

Figure C displays the share of the population falling below half of the poverty line from 1975–2010. In 2010, 50 percent of the poverty line for a two-adult two-child family was $11,057. This measure tracks the depth of poverty, those living on half the subsistence rate. In 2010, 6.7 percent of people were living below half of the poverty line, up 0.4 percentage points since 2009—a record high share of the population in deep poverty since the Census Bureau began tracking this statistic in 1975. Not shown in the figure but alarming: Nearly one in 10 children (9.9 percent) were below half the poverty line in 2010, up from 9.3 percent in 2009.

As shown in Figure D, poverty rates and changes in those rates have varied across racial and ethnic groups. Non-Hispanic whites experienced the lowest rate of poverty at 9.9 percent, while the rates for blacks and Hispanics were more than two-and-a-half times higher at 27.4 percent and 26.6 percent, respectively. Poverty rates also increased more between 2009 and 2010 for blacks and Hispanics than for other groups.

The 2000s have all but erased any gains to reducing poverty in the 1990s. This recession has only exacerbated the damaging trends over the last decade, leaving some of the most vulnerable populations with large shares living below the poverty line. Figure E shows changes over time in poverty rates for particularly vulnerable populations—children, racial and ethnic minority children, and single-mother families. From 2000 to 2010, black children experienced a 7.9 percentage-point increase in poverty, reaching 39.1 percent. Hispanic children experienced an increase of 6.6 percentage points over the same period, reaching 35.0 percent.

For families headed by single mothers, there was a 7.7 percentage point jump from 2000 to 2010 to 40.7 percent. In 2010, 4.1 million of the 7.0 million families living in poverty were headed by single moms.




Income:  Another lost year in a lost decade
From 2009 to 2010, median household income, adjusted for inflation, fell from $50,599 to $49,445, a decline of $1,154, or 2.3 percent. Working-age households—those with a head of household younger than 65 years old—experienced even larger declines because they are most exposed to the labor market and therefore most likely to be affected when the labor market deteriorates. The median income of working-age households fell from $56,742 in 2009 to $55,276 in 2010, a decline of $1,466, or 2.6 percent.

Figure F shows real median income over the last three decades for all households and, starting in 1994 when the data became available, for working-age households. A key point here is the comparison between business cycles. From 1979 to 1989, real median income grew $3,002 (from $46,074 to $49,076); from 1989-2000, it grew $4,088, (from $49,076 to $53,164). But for the first time on record, over the business cycle from 2000-07, incomes did not rise, but fell slightly, from $53,164 to $52,823. And with the weak labor market over this period, the real median income of working-age households fell significantly, from $61,574 to $59,460. This means that working families are weathering the current economic downturn on the heels of one of the worst economic expansions on record.

These figures show that 2010 was but another year of income declines in a decade of declines: From 2000 to 2010, median income for working-age households fell from $61,574 to $55,276, a decline of roughly $6,300, which is more than 10 percent.

Disparities in incomes among racial and ethnic subgroups grew in 2010, as racial and ethnic minorities experienced particularly large income declines, with African Americans getting hit the hardest. Figure G shows real median household income for racial and ethnic subgroups over the last two decades. The median income of non-Hispanic whites declined by 1.3 percent in 2010 and has declined by 5.4 percent since the start of the recession in 2007 . (In dollar terms, it fell from $57,752 to $54,620 over this period). The median African American household experienced a decline of 3.2 percent in 2010 and a total decline of 10.1 percent since 2007 (falling from $35,665 to $32,068). The median Hispanic household experienced a decline of 2.3 percent in 2010 and a total decline of 7.2 percent since 2007 (falling from $40,673 to $37,759).

The Great Recession and its aftermath have wiped out all improvements in median black income since 1996, all improvements in median Hispanic income since 1998, and all improvements in median white income since 1997. The median black household is now bringing in $5,494 less than it did 10 years ago (a drop of  14.6 percent) and the median Hispanic household is now bringing in $4,235 less than it did 10 years ago (a drop of 10.1 percent).

There were losses across the income distribution in 2010, particularly at the very bottom and the very top (see Figure H). In 2010, incomes of families in the middle fifth of the income distribution fell 0.9 percent, for a total decline of 6.6 percent since 2007.  Families at the low end of the scale were hit harder, with the bottom fifth losing 3.5 percent in 2010 and 11.3 percent from 2007 to 2010.  The top fifth lost 2.7 percent in 2010, but since their losses in the prior two years were modest, the net change from 2007 to 2010 was a relatively modest 4.5 percent. The rise in inequality over the last three years compounds thirty years of increasing inequality. Furthermore, with unemployment expected to remain high for years to come, inequality is likely to increase because weak labor markets have a larger negative impact on income at the middle and low end of the income distribution.

Particularly astonishing over the last three years has been the drop in the number of earners working full-time (35 hours or more per week) and full-year (at least 50 weeks, including paid time off).  Between 2007 and 2010, there was a 9.4 million decline in the number of people with full-time, full-year employment and a 3.9 million increase in the number of people with part-time and/or part-year jobs.

 As Table 1 shows, a disproportionate share of the erosion in full-time, full-year work over this period was among men—the number of men working full-time, full-year dropped by about 6.6 million between 2007 and 2010, while there was a 2.8 million drop in the number of women working full-time, full-year.  However, focusing just on the change from 2009 to 2010, the gender dynamics were reversed, with a 754,000 decline in total employment among men and an 854,000 decline among women. Furthermore, losses were larger among part-time and/or part-year workers in 2010 than among full-time full-year workers, both male and female. Although it is not depicted in the table, the number of “involuntarily part-time workers”—workers who work part-time but want a full-time job (from the Census Bureau’s Current Population Survey)—was virtually unchanged from 2009 to 2010, after increasing  by 4.5 million between 2007 and 2009.

In 2010, the median male working full-time, full-year experienced a slight drop in real earnings  of 0.4 percent, from $47,905 to $47,715, while the median female working full-time, full-year experienced very little change, with an increase of 0.1 percent, from $36,877 to $36,931 (see Figure I). The persistent high unemployment dampens earnings growth even for those who have full-time, year-round employment. Looking from 2007 to 2010, the shift from full-time, full-year employment to part-time and/or part-year employment contributed to the overall drop in median earnings: The annual inflation-adjusted earnings for the median male worker dropped from $38,524 to $36,676 between 2007 and 2010, and for the female median worker from $27,212 to $26,552.

Conclusion
The new data on income and poverty underscore the real, human consequences of the economic downturn. The labor market is the core building block of family incomes—when the labor market falters and people lose work, hours, and wages, family incomes drop and poverty rises. The Census Bureau’s report shows that much of the income and anti-poverty gains made in the 1990s have been more than erased due to both the weak business cycle from 2000-07 and the lasting effects of the Great Recession. While the Recovery Act stemmed the losses from the Great Recession, it was never big enough to right the economic ship given the scale of the crisis. With unemployment expected to stay above 8 percent well into 2014, it is time for Congress to once again act boldly to create jobs so that America’s residents have the work they need to provide for their families. The jobs plan that President Obama announced last week takes an important step in the direction of a solution that matches the scale of the ongoing crisis. For more on what we can and should be pursuing to generate jobs, see EPI’s Putting America Back to Work.

+++++

JOLTS
If one takes the official broader definition of unemployment, or U6, in July at 16.1%, the ratio becomes even worse, 7.78^* unemployed people per each job opening for July. Below is the graph of number of unemployed, using the broader U6 unemployment definition, per job opening.

If you do not like the use of U6 to look at the real number of people looking for a job to actual opportunities, consider this number. In July 2011, of those not in the labor force, 6,575,000 were actually wanting a job. U-6 only includes 2,785,000 of this number.
The rates below mean the number of openings, hires, fires percentage of the total employment. Openings are added to the total employment for it's ratio.

• openings rate - 2.4%
• hires rate - 3.0%
• separations rate - 3.0%

Below are raw job openings, way below pre-recession levels.

Believe this or not, one month past the so called end of the Great Recession, July 2009, job openings have only increased by 1,116,000. July 2009 was the low point of job openings, 2,112,000. That's pathetic. In March 2007, a few months before the start of the recession (December, 2007), the number of job openings was 4,755,000.

We can see some of labor market malaise in the actual hires from July, 3,984,000, which declined by -74,000, or -1.82% from June.

Below are total job separations, 3,920,000, which is a monthly decrease of -73,000 or -1.83%. The term separation means you're out of a job through a firing, layoff, quitting or retirement, so a decrease is good. Yet, notice how separations is almost equal to the number of hires, 3,984,000. Take this as a symptom of the disposable worker syndrome.

The number of quits or voluntary job separations are still dangerously close to the number of fires, although improved from November 2010, as well as June 2011. Want a choice of employers? Doesn't seem to be much of an option today. Quits were 50% of the total separations whereas layoffs and fires were 43% in July. In June, quits were 48%, whereas layoffs and fires were 44%, so a slight, but certainly not enough, improvement.

Below are quits minus discharges and layoffs. When quits comes close to firings that means people have little choice in employment. You want to see choice, or quits, rise and be much higher than firings. The below graph shows people still do not have many options when it comes to a job.

The JOLTS takes a random sampling of 16,000 businesses and derives their numbers from that. The survey also uses the CES, or current employment statistics, not the household survey as their base benchmark, although ratios are coming from the household survey, which gives the tally of unemployed.

The BLS was kind enough to make a credible Beveridge Curve graph, reprinted below. The Beveridge curve shows the official unemployment rate vs. the job openings rate, over time. If you see a bunch of data points to the far right, that's bad, it means there is long term unemployment and not enough jobs. Look at how we're stuck to the right. July 2011 moved slightly left of June 2011. The green, representing the 2009 time period, shows how fast we went to the right and the purple, which is 2010, 2011, means we are stuck there.

This graph shows working America is in big trouble and considering how the August unemployment report is much worse, don't expect things to get better. Remember, this report is for July, not August.

For the JOLTS report, the BLS creates some fairly useful graphs, some of which were reprinted here, and they have oodles of additional information in their databases, broken down by occupational area. The Saint Louis Federal Reserve also had loads of graphing tools for JOLTS. Below is a reprint of the BLS bubble graph, and the first thing to note is how health and educational employment dwarfs manufacturing. For economies of scale, we really need to see that manufacturing bubble grow and grow, it's about 11% of the total economy which is not good for a host of reasons. You can also see how the housing bubble deflation has laid to waste construction jobs.

Also, bear in mind professional and technical services is notorious to import workers on foreign guest worker Visas, displacing Americans. Employers also quite often put out fictional job openings, demanding perfect skill matches to the point no one on the globe has that experience.

^* is defined as the official unemployed plus people who are in part-time jobs for economic reasons plus the marginally attached. The marginally attached,, are officially not part of the civilian labor force, , and also not seasonally adjusted. The above graph was created by the seasonally adjusted levels of the unemployed, part-time for economic reasons and the marginally attached. The raw U-6 totals can also be calculated by this formula:

where

"Prepare for a lost decade or more" Jim Rogers

The new threat to the U.S. economy

Lost decade
By Chris Isidore, July 15, 2010

NEW YORK (CNNMoney.com) -- The risk of a double-dip recession is getting a lot of attention, but even that grim prediction could prove a little too optimistic.

Disappointing job reports, weakness in housing and consumer spending and problems in world financial markets have raised concerns about the U.S. economy stalling out later this year. Now some economists are starting to talk about an even worse fate: a prolonged period of very weak growth, a so-called "lost decade."

"The probability of a lost decade is significantly greater than a double dip," said Sung Won Sohn, economics professor at Cal State University Channel Islands.

"We don't have too many engines of growth functioning right now -- housing, consumer spending, exports are all sputtering. I have a hard time seeing where we can get 3% economic growth back."

A lost decade, or something like it, could feel like a never-ending recession to many Americans, as the economy does not grow fast enough to recoup lost jobs, and investments like homes and stocks continue to lose value.

The most famous lost decade occurred in Japan in the 1990s. From 1992 through 1999, the Japanese economy grew by less than 1% a year. It has yet to fully recover from the economic weakness and falling prices it suffered during that period.

There are a number of similarities between conditions in Japan in the 1990's and the United States today. Japan had a real estate bubble inflate and then burst, resulting in banks choked with bad loans on their balance sheets and a cutback in lending.

The Bank of Japan did what it could to spur the economy, including cutting its key interest rate to near 0% and pumping money into the economy through asset purchases, just as the Federal Reserve has done over the last two years. But those steps had limited effectiveness.

And Japan suffered through bouts of deflation, in which falling prices caused businesses to cut production and employment, a scenario all too familiar to U.S. workers.

Deflation has been relatively rare in U.S. history, with no significant examples since the Great Depression. But with inflation nearly non-existent, some Federal Reserve policymakers said at their June meeting that they were worried about the threat of deflation.

Sohn puts the chance of a prolonged period of weak growth as high as 40%, with the chance of a double dip only 20%-25%.

"If I had a choice I would much rather have a double dip and be done with it. A lost decade is much more dangerous, economically, socially and politically," said Sohn.

The growth produced during U.S. recoveries has been trending lower over the last 40 years or more, according to Lakshman Achuthan, managing director of Economic Cycle Research Institute. He believes underlying changes in the economy will cause that trend to continue.

Achuthan said he's worried that with increased volatility, recessions are likely to become more frequent, causing the economy to lose more ground in upcoming recessions than it is able to recover from during growth periods.

"That's how you lose a decade," he said. "You get stuck in an era when you spend more time in recession than expansion."

James Hamilton, professor of economics, University of California San Diego, said much of past economic growth was built upon unsustainable deficit spending, by both governments and households. Huge, persistent trade deficits also provided a drag on the U.S. economy. It will require some painful structural changes to free the economy from those constraints.

"The pattern for growth we had been relying upon was unsustainable," he said. "These are long-term challenges." While he believes a double-dip recession will be avoided, weak growth is the best we can hope for, at least in the next few years.

Plenty of economists believe there are significant differences between Japan in the 1990s and the United States today, and that another lost decade is unlikely. They point to Japan's shrinking population compared to the growing U.S. population, as well as Japan's dependence on exports, rather than internal consumption, to drive the economy.

"You can draw some parallels, but while history can rhyme, it rarely repeats," said Carl Riccadonna, senior U.S. economist for Deutsche Bank. But while he doesn't expect a U.S. lost decade, even Riccadonna is not expecting strong growth.

"We're definitely looking at a subpar recovery," he said.

Lost Decade, Here We Come

by Paul Krugman

The deficit hawks have taken over the G20:

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation,” it added. “We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions”.

These words were in marked contrast to the G20’s previous communiqué from late April, which called for fiscal support to “be maintained until the recovery is firmly driven by the private sector and becomes more entrenched”.

It’s basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.

But don’t we need to worry about government debt? Yes — but slashing spending while the economy is still deeply depressed is both an extremely costly and quite ineffective way to reduce future debt. Costly, because it depresses the economy further; ineffective, because by depressing the economy, fiscal contraction now reduces tax receipts. A rough estimate right now is that cutting spending by 1 percent of GDP raises the unemployment rate by .75 percent compared with what it would otherwise be, yet reduces future debt by less than 0.5 percent of GDP.

The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered — specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs and monetary policy is still hard up against the zero bound.

But what about Greece and all that? Look, right now sovereign debt problems are taking place in countries with a very specific problem: they’re part of the euro zone, AND they’re badly overvalued thanks to huge capital inflows in the good years; as a result they’re facing years of grinding deflation. Counties not in that situation are not facing any pressure from the markets for immediate cuts; as of this morning, 10-year bonds were yielding 3.51 in Britain, 3.21 in the US, 1.27 in Japan.

Yet the conventional wisdom now is that these countries must nonetheless cut — not because the markets are currently demanding it, not because it will make any noticeable difference to their long-run fiscal prospects, but because we think that the markets might demand it (even though they shouldn’t) sometime in the future.

Utter folly posing as wisdom. Incredible.

A Lost Decade Ahead for Housing

"Extend and Pretend" 
By MIKE WHITNEY
In its effort to rescue the housing market, the Obama administration has created a Frankensystem which neither allows the market to clear nor solves the intractable social problems of lost equity and foreclosure. Obama needs to step back and take a look at the mess he's made by following the advice of financial industry reps and bank lobbyists. Housing is in a shambles. The market is presently stitched together with buyer-assistance programs, loan modifications programs, new homebuyer subsidies, foreclosure abatement programs, principal reduction programs, historic low interest rates, "easy-term" financing, and government-backed loans. It's a dog's breakfast of inducements, giveaways and bandaids all designed with one purpose in mind; to keep the banks from taking a bigger hit on their garbage mortgages. To get an idea of how desperate the situation really is; take a look at this article in the Wall Street Journal:

"The U.S. government's massive share of the nation's mortgage market grew even larger during the first quarter. Government-related entities backed 96.5 per cent of all home loans during the first quarter, up from 90 per cent in 2009, according to Inside Mortgage Finance. The increase was driven by a jump in the share of loans backed by Fannie Mae and Freddie Mac, the government-owned housing-finance giants....

“The collapse of the mortgage market in 2007 steered more business to the Federal Housing Administration, which insures loans, and Fannie and Freddie, which were taken over by the government in 2008 as rising losses wiped out thin capital reserves. Congress also increased the limits on the size of loans that Fannie, Freddie and the FHA can guarantee, raising the ceiling to as high as $729,750 in high-cost housing markets such as New York and California. ("U.S. Role in Mortgage Market Grows Even Larger" Nick Timiraos, Wall Street Journal)

There is no housing market in the U.S. apart from the government.  The Potemkin banking system is still on the rocks, so Fannie and Freddie have been forced to pick up the slack.  But if the government is going to put up all the financing, then it should have a bigger say-so on the way things are run. The emphasis should be on helping people, not on more handouts for the banks.

The first order of business should be the launching of a National Bank that would help support the privately-owned banking system. This would ensure the availability of credit for prospective homeowners and small businesses without putting more pressure on Fannie and Freddie. The National Bank would operate as a public utility run by government employees. That would help to control salaries, eliminate the problem of bloated executive compensation and incentives, and reduce the incidents of fraud.  

Naturally, the banks will oppose the move tooth and nail, so it’s up to Obama to guide the legislation through the congress. This is matter of national security. The banks now pose a threat to the material well-being of everyone in the country. They're a menace. While a National Bank won't undo the massive damage that's already been done; it will put the economy on the road to recovery by creating a reliable source of credit for any future expansion without inflating another asset bubble.   

As the WSJ's report reveals, the banks don't have the capital to function as banks. So, what good are they? They're merely wards of the state. Obama should bypass this sclerotic system of corruption-plagued institutions altogether and do what needs to be done while the economy is still weak. That way, the new National Bank will be up-and-running by the time economic activity begins to pick up again.

Shadow Inventory -- There's a 9-year backlog of distressed homes

Here's another stunner from the Wall Street Journal. The  article is titled  "Number of the Week: 103 Months to Clear Housing Inventory" by Mark Whitehouse. Here's an excerpt:

"How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern. As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20 per cent from a year earlier....

“Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30 per cent from a year earlier. Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years. Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices — and thus boost their losses."  ("Number of the Week: 103 Months to Clear Housing Inventory" Mark Whitehouse, Wall Street Journal)

Got that? There's a 9-year backlog of distressed homes.  The banks are deliberately fudging the numbers to hide how bad things really are. The number of homes in late-stage foreclosure is not 1.1 million, but nearly 6 million--- 5X more than the banks are admitting.  Housing will be in the doldrums for a decade or more. It's shameful that people can't get basic information like this to help them make their investment decisions. The banks couldn't pull off this type of information warfare without the help of government officials pulling strings from inside. Bernanke and Geithner must be involved.

So, what's the objective?

The banks are trying to keep prices artificially high to avoid writing-down millions of mortgages that would force them into bankruptcy. It's called "extend and pretend" and it’s poisonous for the broader economy because it distorts prices and keeps a broken banking system in place that can't perform its social purpose.

WSJ housing editor James R. Hagerty verifies Whitehouse's claims and fills in some of the blanks.  Here's a clip from his article:

"To get a sense of how many more households will lose their homes to foreclosures or related actions, Barclays tallies what it calls a shadow inventory, consisting of homeowners 90 days or more overdue on mortgage payments or already in the foreclosure process. At the end of February, 4.6 million households were in that category. 

Barclays expects 1.6 million "distressed sales" of homes—mainly foreclosures or sales of homes for less than the mortgage balance due—both this year and in 2011, then a slight decline to 1.5 million in 2012. Last year, Barclays estimates, such sales totaled 1.5 million. About 30 per cent of all home sales this year and next will be foreclosure-related, forecasts Robert Tayon, a mortgage analyst at Barclays, who says that would be only about 6 per cent in a normal housing market." ("Foreclosure Estimate Falls", James R. Hagerty, Wall Street Journal.)

Why would Barclays think that only 1.6 million "distressed" homes would be sold in 2010, when they openly admit that there's 4.6 million homes already in the foreclosure pipeline? What does Barclays know that the public is not supposed to know? 

Clearly, the banks have worked out a deal with Geithner and Bernanke to sell distressed inventory in dribs and drabs rather than all at once. That keeps prices high and makes their losses more manageable. But isn't that collusion or, at the very least, price fixing? The government definitely HAS a role to play in helping people keep their homes or providing assistance when they lose them, but they have no right to scam the public by stealthily manipulating the market to save underwater financial institutions.

The problem is not housing. The problem is the banks. The banks do not have sufficient capital to fund the mortgage market, nor do they provide the bulk of the financing for auto loans, student loans, small business loans or credit card debt which is gathered into pools and chopped up into tranches for securities that are sold to investors. (Securitization generates wholesale funding for the credit markets.) Not only are the banks unable to fulfill their primary social purpose--which is extending credit--they're also increasingly dependent on revenue from high-risk speculation. A recent article in the Financial Times exposed the fraud behind the 12-month surge in equities pointing out that retail investors have largely stayed on the sidelines. Here's an excerpt:  

"...surveys show that the usual investors in major rallies – pension funds, hedge funds and retail investors – have not been net buyers of equities…the most likely explanation for this anomaly in the biggest stock market rally since the 1930s is that major investment banks are the anxious buyers. 

“Their buying would appear to be for one of two reasons. Firstly because they think the authorities will prevail in their (so far unsuccessful) efforts to inflate their way out of debt liquidation; or secondly because they are too big to fail and so can afford to take a huge gamble that enough buying will convince others to rush in and buy their inventory of risk assets at even higher prices." ("Equity Rally Not Driven by the Usual Investors",Financial Times.)

Many people already suspected that the soaring stock market had more to do with "easy money" and bubblenomics, than they did with "green shoots". Still, the FT article does help to underline the fact that the bank's business model is broken and badly in need of repair. But, what is to be done? The banks already own just about everyone on Capital Hill, and their lobbyists are now writing large sections of the reform legislation. So how can they be stopped?  

The root of the problem is political, and that's the best place to start. The banks' lethal grip on government has to be broken.