WHAT’S UP WITH THE ECONOMIC RECOVERY?

ABSTRACT: According to economists, our economy has been in a recovery for 4 years. However, most people’s income and wealth are down. Inequality of both income and wealth are up. The stock market and corporate profits are up, but unemployment and under-employment are high, and the poverty rate and economic insecurity are up.

Government policy does affect all of these. The policy changes that occurred after the Great Depression reduced income and wealth inequality until the 1970s and addressed many of these economic issues as well. However, the federal government’s actions since the collapse in 2008 have rescued the big financial corporations and the wealthy, but not the economy that all the rest of us live in.

Income insecurity and high levels of inequality are undermining the values of American democracy and belief in the American Dream, equal opportunity, and a merit based society. They are seen as unfair and as fostering a plutocracy instead of a democracy. It seems that the privileges of wealth (including for the children of the wealthy) are closing the door on opportunity in America for many.

FULL POST: According to economists, our economy has been in a recovery for 4 years; the Great Recession officially ended in June 2009. However, most people’s income and wealth are down; they have not recovered to their pre-recession levels. Inequality of both income and wealth are up because the income and wealth of the rich have recovered much more quickly than those of middle and lower income households. The stock market and corporate profits are up – stocks have more than doubled in value and have reached new record highs.

Average household income (adjusted for inflation) is $3,400 below what it was in December 2007, before the Great Recession. It is currently at $52,100, up $1,400 from its low point in August 2011 but recovering very slowly. [1]

Income inequality is up dramatically. The income gap between the richest 1% (incomes above $394,000) and the other 99% is the widest it’s been since 1927. During the 4 years of the recovery, the top 1% have seen their incomes grow by 31% while the 99% have seen their incomes grow by only 0.4%. In other words, the richest 1% of Americans have recovered almost all their income losses from the Great Recession, while all the rest of us have barely started to recover. This is a continuation of the trend of the last 20 years, where the top 1% have gotten two-thirds of all the growth in incomes. [2] A similar picture is seen if one looks at the top 10%, who now have over half of all income, a higher level than at any time since 1917 when record keeping began. (See posts of 9/2/13 and 11/13/11 for more information.)

Government policy does affect income inequality. The policy changes that occurred “after the Great Depression during the New Deal … reduced income concentration until the 1970s [and addressed many other economic issues as well]. … The policy changes [after] the Great Recession … are not negligible but are modest … Therefore, it seems unlikely that US income concentration will fall much in the coming years.” [3] Government policy also affects the recovery more broadly. See posts of 9/13/12, 5/15/12, and 3/31/12 for more information.

The picture is similar when household wealth is studied. In the financial collapse, $16 trillion of household wealth was lost. While $14.7 trillion of that has now been regained – 91% of the loss – the wealthy have regained most if not all of their wealth while the average household has regained only 45% of its wealth. In the 4 years of the recovery, two-thirds of recovered wealth has been in the value of stocks, which are at record highs. However, 80% of stocks are owned by the wealthiest 10% of households. Home values, which are the biggest component of middle and lower-income households’ wealth, are still 30% below their peak values. The average household wealth of $540,000 is roughly $100,000 below its peak. [4][5]

The poverty rate is up – to 15%, meaning 46.5 million people are living at or below the poverty line (yearly income of $23,492 for a family of four). This is 2.5 percentage points or 20% higher than in 2007, before the Great Recession, meaning that 7.8 million people have fallen into poverty in the last 5 years. [6]

Unemployment is high, although it has been declining. Furthermore, many of those who are working are under-employed – working part-time when they would like to be full-time or working at jobs that don’t require the training and experience they have. Many workers who lost a job but have a new one, are earning much less than they were. So far in 2013, 61% of new jobs have been in low-wage industries and 77% have been part-time. [7] (See post of 9/2/13 for more information.)

Many people – over a third of the working age population – have simply dropped out of the job market because jobs, especially good jobs with good wages are hard to find. Only 59% of the working age population is employed. [8] Despite workers’ significant increases in productivity (75% over the last 30 years), workers’ wages have only increased by 5% over those 30 years. The rewards of their increased productivity have instead gone to corporate profits and executives’ pay.

Economic insecurity is up. Four out of five adults in the US will experience economic insecurity in their lifetimes, Economic insecurity is defined as experiencing unemployment, relying on government assistance for at least a year, or having income below one and a half times the poverty line. [9]

The federal government’s actions since the collapse in 2008, which was due to reckless behavior by the big financial corporations, have rescued the big financial corporations and the wealthy, but not the economy that all the rest of us live in. The policies that have contributed to this included bailouts and low interest loans for the financial corporations and tax policies that over 30 years have dramatically reduced the taxes paid by corporations and the wealthy. Meanwhile, the value of the minimum wage has been significantly reduced by inflation. Cuts in government spending have resulted in lost jobs in both the public and private sectors. [10]

Studies have shown that the top personal income tax rate could return to the level it was in 1980 (70% instead of today’s 39.6%) without any negative effects on the overall economy. (See post of 12/29/12 for more information.) History also shows that corporate tax rates, which are at a 60 year low, can also be increased significantly without harmful effects. [11]

In summary, stock prices, corporate profits, poverty, and inequality of income and wealth are up. Income and wealth for the typical American household are still down from what they were before the Great Recession, despite 4 years of “recovery”. Economic insecurity is up, social mobility is down, and unemployment and under-employment are both high.

Income insecurity and high levels of inequality are undermining the values of American democracy and belief in the American Dream, equal opportunity, and a merit based society. [12] This is having a demoralizing effect on Americans and building resentment of what is increasingly seen as unfair domination of economic and political life by the wealthy, in other words as fostering a plutocracy [13] instead of a democracy. It seems that the privileges of wealth (including for the children of the wealthy) are closing the door on opportunity in America for many.