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No Wonder We’re Poorer: Wages’ Share of GDP Has Fallen for 46 Years
No Wonder We’re Poorer: Wages’ Share of GDP Has Fallen for 46 Years
The problem is that limiting financialization will implode the system.
The majority of American households feel poorer because they are poorer. Real (i.e. adjusted for inflation) median household income has declined for decades, and income gains are concentrated in the top 5%:
Even more devastating, wages’ share of GDP has been declining (with brief interruptions during asset bubbles) for 46 years. That means that as gross domestic product (GDP) has expanded, the gains have flowed to corporate and owners’ profits and to the state, which is delighted to collect higher taxes at every level of government, from property taxes to income taxes.
Here’s a look at GDP per capita (per person) and median household income.Typically, if GDP per capita is rising, some of that flows to household incomes. In the 1990s boom, both GDP per capita and household income rose together.
Since then, GDP per capita has marched higher while household income has declined. Household income saw a slight rise in the housing bubble, but has since collapsed in the “recovery” since 2009.
These are non-trivial trends. What these charts show is the share of the GDP going to wages/salaries is in a long-term decline: gains in GDP are flowing not to wage-earners but to shareholders and owners, and through their higher taxes, to the government.
The top 5% of wage earners has garnered virtually all the gains in income.
The sums are non-trivial as well. America’s GDP in 2015 was about $18 trillion. Wages’ share–about 42.5%–is $7.65 trillion.
If wage’s share was 50%, as it was in the early 1970s, its share would be $9 trillion.That’s $1.35 trillion more that would be flowing to wage earners.
That works out to $13,500 per household for 100 million households.
…click on the above link to read the rest of the article…
The Echo Bubble in Housing Is About to Pop
The Echo Bubble in Housing Is About to Pop
And here’s the knife in the heart of the Echo Housing bubble: declining household income.
The Federal Reserve-induced Echo Housing Bubble is finally starting to roll over, and the bubble’s pop won’t be pretty. Why is the bubble finally popping now?
All the factors that inflated the Echo Housing bubble are running dry. These include:
— unprecedented low mortgage rates
— FHA mortgage approvals for anyone who fogs a mirror
— frantic cash buying by Chinese millionaires desperate to get their money out of China
— the Federal Reserve buying up trillions of dollars in mortgages
— lemming-like buying of housing for rentals by everyone from Mom and Pop to huge hedge funds.
The well’s gone dry, folks. There isn’t going to be another push higher or a third housing bubble after this one pops.
Let’s start with the basics: demographic demand for housing and the price of housing. There are plenty of young people who’d like to buy a house and start a family (a.k.a. new household formation), but few have the job or income to buy a house at today’s nosebleed level–a level just slightly less insane than the prices at the top of Bubble #1.
Charts courtesy of Market Daily Briefing)
It’s considered bad form to describe today’s prices as insane. It tends to hurt the feelings of everyone who’s counting on the Echo Bubble to 1) make them even richer or 2) bail them out of the hole they fell into after Housing Bubble #1 popped.
Exhibit B is the insanely low mortgage rate, which has finally reversed course and is notching higher after 30 years of going lower. Why are today’s rates insane? Risk. Mortgages are intrinsically risky. People who are terrific credit risks lose their jobs, experience horrendous medical crises, get divorced, etc., and the net result is a default that is unexpected.
…click on the above link to read the rest of the article…
As the “Prosperity” Tide Recedes, the Ugly Reality of Wealth Inequality Is Exposed
As the “Prosperity” Tide Recedes, the Ugly Reality of Wealth Inequality Is Exposed
This chart of median household income illustrates why so many of us feel poorer–we are poorer in terms of the purchasing power of our income.
A rising tide raises all boats, from rowboats to yachts–this is the narrative of “prosperity.”
A rising tide is also the political cover for rising inequality: if the guy in the rowboat makes $100 more a month, he feels like he’s participating in the prosperity.
Meanwhile, the guy in the speedboat is making $1,000 more a month and the guy in the yacht is making $1 million more a month.
But this doesn’t bother the guy in the rowboat, for two reasons:
1. He thinks of himself as a guy who is currently in a rowboat on his way to buying a speedboat
2. Studies have found that our sense of wealth and “falling behind” is not defined by our actual increases in income or wealth, but by how we’re doing relative to our peer group. If everyone else in rowboats is making $200 more a month in the rising tide of prosperity, the guy making only $100 more feels like he’s falling behind–even if his absolute income and wealth is rising.
Conversely, if his peers are all suffering declines in income while his income is holding steady, he feels like he’s doing pretty well for himself, even though his income is stagnant.
The fact that the wealthy are gaining far more in “prosperity” in both absolute and relative terms doesn’t bother him as long as he’s doing as well or better as his peers and feels he has a chance to eventually move up from a rowboat to a speedboat.
…click on the above link to read the rest of the article…
Whatever Became of Economists and the American economy
Whatever Became of Economists and the American economy
According to the official economic fairy tale, the US economy has been in recovery since June 2009.
This fairy tale supports America’s image as the safe haven, an image that keeps the dollar up, the stock market up, and interest rates down. It is an image that causes the massive numbers of unemployed Americans to blame themselves and not the mishandled economy.
This fairy tale survives despite the fact that there is no economic information whatsoever that supports it.
Real median household income has not grown for years and is below the levels of the early 1970s.
There has been no growth in real retail sales for six years.
How does an economy dependent on consumer demand grow when real consumer incomes and real retail sales do not grow?
Not from business investment. Why invest when there is no sales growth? Industrial production, properly deflated, remains well below the pre-recession level.
Not from construction. The real value of total construction put in place declined sharply from 2006 through 2011 and has bounced around the 2011 bottom for the past three years.
…click on the above link to read the rest of the article…
