It's the Inequality Stupid (Mother Jones) 11 charts tell it all

Eleven charts that explain everything

that's wrong with America.

By Dave Gilson and Carolyn Perot

Mother Jones 
March/April 2011 Issue

A huge share of the nation's economic growth over the past 30 years has gone to the top one-hundredth of one percent, who now make an average of $27 million per household. The average income for the bottom 90 percent of us? $31,244.

  Why Washington is closer to Wall Street than Main Street.

Link to all charts/graphs

Fed's Quantitative Easing Part 2 has destroyed $4.6 trillion in household wealth, all to boost the stock portfolios of the top 10%. (Charles Hugh Smith)

By Charles Hugh Smith
Of Two Minds
11/10/10

The Fed's Quantitative Easing Part 2 has destroyed $4.6 trillion in household wealth, all to boost the stock portfolios of the top 10%.

The Federal Reserve's stated goals in launching QE2 were to trigger a "wealth effect" and boost inflation. The net result of their program is a massive destruction of household wealth. The basic idea is that goosing "risk assets," i.e. stocks, then consumers will feel wealthier and thus motivated to open their wallets and spend, spend, spend. This spending won't be based on any increase in income (household income fell in 2009 despite the massive run-up in stocks) but on the illusion of greater wealth created by a temporarily rising stock market.

(Median household income fell 0.7% to $49,777 in 2009, down 4.2% since 2007, when the recession started.)

The Fed must be aware that the top fifth of households collects 50.3% of all pre-tax income and the bottom two-fifths receive 12%, so the "wealth effect" is in essence another "trickle down" scheme in which the top earners buy more handbags manufactured in China and the bottom 80% of Americans are supposed to benefit by being hired to stock the shelves with Elite goods.

As I often report, only the top 10% of households own enough equities to feel wealthier; so the Fed's central faith is doubly a "trickle down" theory: only the top 10% can possibly experience a wealth effect.

But the destruction of purchasing power as the Fed destroys the dollar is felt by all households--especially the bottom 80%. The Boiling Frog: Effects of QE2 On The Bottom 80% of the U.S. Population.

As I noted in Are the Fed's Honchos Simpletons, Or Are They Just Taking Orders? (November 1, 2010), Quantitative Easing 2 makes no sense. Today I will quantify just how perverse and destructive the Fed's policies have been to U.S. households.

The latest snapshot of the household's balance sheet comes from the Fed Flow of Funds for the second quarter (June 30, 2010). If we measure what has happened to the U.S. dollar and the S&P 500 since July 1, then we can measure the effects on the household balance sheet.

Let's collect a few key numbers from the Balance Sheet of Households and Nonprofits. All numbers are as of June 20, 2010 (Q2 2010).

•  Real estate: $18.8 trillion, down from $24.9 trillion in 2006 (bubble top)
• Total financial assets: Q2 2010 $43.7 trillion, down from $50.6 trillion in 2007 (pre-recession)
• Deposits (cash): $7.55 trillion, down from $7.9 trillion
• Credit market instruments: (bonds etc.) $4.3 trillion, up from $4 trillion in 2007
• Corporate equities (stocks): $6.7 trillion, down from $9.6 trillion in 2007
• mutual fund shares: $4 trillion, down from $4.5 trillion in 2007

Liabilities (debts, mortgages, etc.):

• Total liabilities: $13.9 trillion, down from $14.4 trillion
• home mortgages: $10.15 trillion, down from $10.5 trillion
• Net worth: $53.5 trillion, down from $64.2 trillion, a decline of $10.7 trillion

So mortgage debt decreased by a trivial $.35 trillion, total liabilities decreased by a modest $.5 trillion, and net worth declined by a whopping $10 trillion. Most of the mortgage and debt declines result from write-downs of debt by lenders, not from households paying down debt.

In other words, after suffering a staggering 17% decline in net worth, households managed to write down or pay down a tiny 3.4% of their liabilities. Complete Post

Welcome to the Banana Republic: The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976

C.E.O.’s of the largest American companies

earned an average of 42 times as much

as the average worker in 1980,

but 531 times as much in 2001.

By Nicholas D. Kristof
The New York Times
11/6/10

In my reporting, I regularly travel to banana republics notorious for their inequality. In some of these plutocracies, the richest 1 percent of the population gobbles up 20 percent of the national pie.

But guess what? You no longer need to travel to distant and dangerous countries to observe such rapacious inequality. We now have it right here at home — and in the aftermath of Tuesday’s election, it may get worse.

The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976. As Timothy Noah of Slate noted in an excellent series on inequality, the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.

C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent.

That’s the backdrop for one of the first big postelection fights in Washington — how far to extend the Bush tax cuts to the most affluent 2 percent of Americans. Both parties agree on extending tax cuts on the first $250,000 of incomes, even for billionaires. Republicans would also cut taxes above that.

The richest 0.1 percent of taxpayers would get a tax cut of $61,000 from President Obama. They would get $370,000 from Republicans, according to the nonpartisan Tax Policy Center. And that provides only a modest economic stimulus, because the rich are less likely to spend their tax savings.

At a time of 9.6 percent unemployment, wouldn’t it make more sense to finance a jobs program? For example, the money could be used to avoid laying off teachers and undermining American schools.

Likewise, an obvious priority in the worst economic downturn in 70 years should be to extend unemployment insurance benefits, some of which will be curtailed soon unless Congress renews them. Or there’s the Trade Adjustment Assistance program, which helps train and support workers who have lost their jobs because of foreign trade. It will no longer apply to service workers after Jan. 1, unless Congress intervenes.

So we face a choice. Is our economic priority the jobless, or is it zillionaires? Banana Republic Continued

Nicholas Kristof Blog

Looking at Inequality By The Numbers (Working Group on Extreme Inequality)

The Program on Inequality and the Common Good periodically releases a “data chart pack” with summary charts that look at inequality trends. Our latest edition includes the most recent data available on income and wealth distribution. We’ve just published an updated version, which you can review here online. It’s a great tool for educators, activists and journalists. Please share with others!

Looking at Inequality By The Numbers

December 9th, 2010

Inequality Index

1. Percentage of U.S. total income in 1976 that went to the top 1% of American households: 8.9. Percentage in 2007: 23.5.
2. Only other year since 1913 that the top 1 percent’s share was that high: 1928.
3. Combined net worth of the Forbes 400 wealthiest Americans in 2007: $1.5 trillion.
4. Combined net worth of the poorest 50% of American households: $1.6 trillion.
5. U.S. minimum wage, per hour: $7.25.
6. Hourly pay of Chesapeake Energy CEO Aubrey McClendon, for an 80-hour week: $27,034.74.
7. Average hourly wage in 1972, adjusted for inflation: $20.06. In 2008: $18.52.

Income data

Median household income in 2008 was $50,303, according to Census data. Half of American households had income greater than this figure, half had less.

Between the end of World War II and the late 1970s, incomes in the United States were becoming more equal. In other words, incomes at the bottom were rising faster than those at the top. Since the late 1970s, this trend has reversed.

For example, data from tax returns show that the top 1% of households received 8.9% of all pre-tax income in 1976. In 2007, the top 1% share had more than doubled to 23.5%.

There is reason to suspect that this level of income inequality is dangerous to our economy. The only other year since 1913 that the wealthy claimed such a large share of national income was 1928, when the top 1% share was 23.9%. The following year, the stock market crashed, which led to the Great Depression. After peaking again in 2007, the U.S. stock market crashed in 2008, leading to what some are now calling the “Great Recession.”

Between 1979 and 2008, the top 5% of American families saw their real incomes increase 73%, according to Census data. Over the same period, the lowest-income fifth saw a decrease in real income of 4.1%.

In 1980, the average income of the top 5% of families was 10.9 times as large as the average income of the bottom 20 percent, according to Census data. In 2008, the ratio was 20.6 times.

The current recession has hit incomes hard across the board. Median household income declined 3.6% in 2008, the largest single-year decline on record. Adjusting for inflation, incomes reached their lowest point since 1997. (Center on Budget and Policy Priorities analysis of Census data)


Complete report