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Polarization Bared
Worries about America's rich/poor gap from that lefty rag, The Economist:

The political consensus, therefore, has sought to pursue economic growth rather than the redistribution of income, in keeping with John Kennedy's adage that “a rising tide lifts all boats.” The tide has been rising fast recently. Thanks to a jump in productivity growth after 1995, America's economy has outpaced other rich countries' for a decade. Its workers now produce over 30% more each hour they work than ten years ago. In the late 1990s everybody shared in this boom. Though incomes were rising fastest at the top, all workers' wages far outpaced inflation.

But after 2000 something changed. The pace of productivity growth has been rising again, but now it seems to be lifting fewer boats. After you adjust for inflation, the wages of the typical American worker—the one at the very middle of the income distribution—have risen less than 1% since 2000. In the previous five years, they rose over 6%. If you take into account the value of employee benefits, such as health care, the contrast is a little less stark. But, whatever the measure, it seems clear that only the most skilled workers have seen their pay packets swell much in the current economic expansion. The fruits of productivity gains have been skewed towards the highest earners, and towards companies, whose profits have reached record levels as a share of GDP.

Even in a country that tolerates inequality, political consequences follow when the rising tide raises too few boats. The impact of stagnant wages has been dulled by rising house prices, but still most Americans are unhappy about the economy. According to the latest Gallup survey, fewer than four out of ten think it is in “excellent” or “good” shape, compared with almost seven out of ten when George Bush took office.

The White House professes to be untroubled. Average after-tax income per person, Mr Bush often points out, has risen by more than 8% on his watch, once inflation is taken into account. He is right, but his claim is misleading, since the median worker—the one in the middle of the income range—has done less well than the average, whose gains are pulled up by the big increases of those at the top.

Privately, some policymakers admit that the recent trends have them worried, and not just because of the congressional elections in November. The statistics suggest that the economic boom may fade. Americans still head to the shops with gusto, but it is falling savings rates and rising debts (made possible by high house prices), not real income growth, that keep their wallets open. A bust of some kind could lead to widespread political disaffection. Eventually, the country's social fabric could stretch. “If things carry on like this for long enough,” muses one insider, “we are going to end up like Brazil”—a country notorious for the concentration of its income and wealth.

Posted by aalkon at June 26, 2006 8:10 AM

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Comments

"A bust of some kind could lead to widespread political disaffection."

Not if it's couched rhetorically as the cost of protecting the country from terrorism (and gay marriage).

Did anyone else feel a pang of guilt when they read that average US worker productivity has increased by 30% over the past several years? If they pulled data on me out of that calculation, it would probably shoot up to a 100% increase.

Posted by: Lena at June 26, 2006 8:41 AM

After tax income has risen 8% on Dubyas watch. Bullshit. He has been putting much of our countries expenses on the credit card. So if you factor in all the increased deficit, and divy it all up, I imagine that 8% would come closer to breakeven.

Of course, that deficit spending leads to higher interest rates, since Uncle Sam is competing with everyone else for those dollars to borrow. Add that in as well. Since higher interest rates compete for investment dollars, the value of your savings/retirement accounts drop as well. Chalk into all this inflation, which is a direct result of failed energy/foreign policy, and I am sure the average worker is worse off today than in 2000. So many are now keeping their lifestyles by tapping into their home equities.


Posted by: eric at June 26, 2006 8:57 AM

Give me a break. All this talk of increases in productivity ignores the fact that companies have been laying off workers and expecting salaried workers to pick up the slack. We don't get more done per hour, we just work more hours for the same (diminishing) wages. Until salaried workers get overtime, measurements of productivity in the U.S. are a joke.

Posted by: OutofPocket at June 26, 2006 9:00 AM

It's fun to disagree with things from the first sentence. It saves lots of time!

> The political consensus, therefore, has
> sought to pursue economic growth rather
> than the redistribution of income

That's the political consensus. But on the ground, things are different. A few years before he lost all credibility by taking money from Enron, Paul Krugman wrote this:

http://www.slate.com/id/1909/

It contains one of my the best sentences ever written in English: "[T]the U.S. government is now mainly--yes, mainly--in the business of taxing the young and giving money to the old."

Posted by: Crid at June 26, 2006 9:03 AM

Typos typos.. Not my sentence, obviously, it's Krugman's.

And I bet we're more productive than anybody else in the world. We hear that the Japanese salarymen put in incredible hours and never take vacations, but they still don't get anywhere near as much done as an American working 40 / week for 50 weeks.

Anybody know where to find readable numbers?

The US will never be Brazil.

Posted by: Crid at June 26, 2006 9:15 AM

Please explain, Eric:

"Since higher interest rates compete for investment dollars, the value of your savings/retirement accounts drop as well. "

Outofpocket:

Do you know how the productivity estimate in the article was calculated? The Bureau of Labor Statistics issues a couple of different indices. Labor-hour productivity is defined as output (real business GDP) per hour of labor expended. In the Economist article, if output was divided by number of hours worked (not number of workers), then it's probably valid to say that productivity has increased.

Of course, if the data on hours worked are shitty, it's just another case of "garbage in - garbage out."

Posted by: Lena at June 26, 2006 9:17 AM

Per the article,
"The White House professes to be untroubled. Average after-tax income per person, Mr Bush often points out, has risen by more than 8% on his watch, once inflation is taken into account. He is right, but his claim is misleading, since the median worker—the one in the middle of the income range—has done less well than the average, whose gains are pulled up by the big increases of those at the top."

So 8% is a correct number; it is, as said above, a misleading statistic. It's spin. Worthless information w.r.t. the debate about the real health of the economy.

The real outrage here is twofold: 1) that the White house is "untroubled" as we barrel toward becoming Brazil, and 2) that once again a politician wilfully and deliberately misleads his constituents with a "fact of statistics". Sure.. technically, an 8% rise per person is true per the statistics used to get to that number; but it's data and not explicit information. There's a huge difference between the two.

As far as a retirement accounts dropping... depends on where you have your money.

Posted by: Jason at June 26, 2006 9:23 AM

"it is, as said above, a misleading statistic. It's spin."

In defense of statistics: It's not the statistic itself that is misleading spin. It's the selective use of certain statistics over others (in this case, the mean rather than the median).

A good reason to use a mean rather than a median is that everyone (I hope) knows what an "average" is. Anytime you use the median in a lay article, you have to go through the tiresome definition of it. And magazine editors don't like tiresome definitions.

Posted by: Lena Cuisina, Stats Whore at June 26, 2006 10:00 AM

Thank you - better said!

Posted by: Jason at June 26, 2006 10:08 AM

Lena- when you buy stock in a company, you are basically buying a portion of that companies earnings stream. Traditionally the stock market over the long run gets you about 10%, with risks involved.

As interest rates rise, the rate of return on money in CD's and treasuries go up as well. In the extreme case, US government backed treasuries in the late 70's/early 80's were paying 16%. Why put your money into a risky investment earning (hopefully) 10% when you can guarantee 16% over 30 years? So there is competition from investors as to where their money goes.

Also, higher interest rates hurt the profits of companies two ways- companies that owe money pay more of their profits to cover their borrowing costs, and sales usually fall as the costs of borrowing rise.

One other way of looking at it- I have been selling stock lately, and loaning the money through a mortgage company to subprime borrowers. These loans are guaranteed with low loan-to-value as my safety net, and I am earning 12.5% until the borrower can qualify for a conventional loan.

And Jason, the S&P500 and Wilshire 5000 are still both below/about the same where they were when Bush took office, so it is a fair characterization that most retirement portfolios are worse off today, due to inflation. Though one could argue that Jan 2001 was still in the bubble popping phase...

Posted by: eric at June 26, 2006 10:20 AM

Well, I disagree that it's a fair characterization without something to support the assertion you wrote. Are most retirement portfolios worse off today? I have no idea, and with all due resprct, your opinion without anything to back it up here doesn't do me any good othath than to tell me how you feel. However, it does fire me up to go do some research of my own about it, so thank you for that.

My portfolio has increased in value consistently from 1998-present. Even through the bubble. Now: is this anecdotal (yes!), or a trend among retirement investors who actively manage their portfolios? I don't know. No data handy. So: all I can say is that 'it depends on where you have your money', or I should say mroe clearly 'it depends on how you manage your portfolio'. Because for that, I have data, albeit of a personal nature.

Posted by: Jason at June 26, 2006 10:44 AM

Well, I disagree that it's a fair characterization without something to support the assertion you wrote. Are most retirement portfolios worse off today? I have no idea, and with all due resprct, your opinion without anything to back it up here doesn't do me any good othath than to tell me how you feel. However, it does fire me up to go do some research of my own about it, so thank you for that.

My portfolio has increased in value consistently from 1998-present. Even through the bubble. Now: is this anecdotal (yes!), or a trend among retirement investors who actively manage their portfolios? I don't know. No data handy. So: all I can say is that 'it depends on where you have your money', or I should say mroe clearly 'it depends on how you manage your portfolio'. Because for that, I have data, albeit of a personal nature.

Posted by: Jason at June 26, 2006 10:46 AM

eek.. sorry for the double post and the typos..

Posted by: J at June 26, 2006 11:00 AM

http://www.csmonitor.com/2006/0410/csmimg/charts.pdf

I apologize- a search of the 10 largest mutual funds in America show them to be in the black again for a 5 year period, though not impresively for most. I got whalloped in the bubble, so my thinking was also somewhat anectdotal, and I used the two main stock indexes as evidence.

Posted by: eric at June 26, 2006 12:15 PM

> I got whalloped

Me too. Never again will be be given such an opportunity to be smarter than other people...

Posted by: Crid at June 26, 2006 12:50 PM

Still, Everybody Knows might make a snappy national anthem. Plus it's easier to sing.

Posted by: Paul Hrissikopoulos at June 26, 2006 1:39 PM

Concrete Blonde did the song better, but you gotta love Leonard Cohen's visual version from "Exotica". MMMmmmmm , strippers in Catholic schoolgirl outfits....

Posted by: eric at June 26, 2006 2:32 PM

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