For The Economy, Income Is Everything

This is the 5th and final day of my DOTE fundraiser. If you value this website, please consider making a donation. See Monday's post DOTE Needs Your Support to get the details. Of course there is no statute or law of the Universe prohibiting you from supporting this website after today — Dave

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When an important subject largely disappears from public discussion, you know that something's up. You also know that America's elites are up to no good. What has disappeared is a serious discussion of wage levels and income inequality in the United States. When the occupiers were camped out in most of our major cities, their slogan We Are The 99% was on everybody's lips. Where is it now? What's ironic about this glaring omission, and not terribly surprising, is that we are in the midst of an endless political campaign. Although this campaign is centered around how to jumpstart our moribund economy, a serious discussion of wages and income inequality is nowhere to be found.

Yet for the economy, income is everything, a point I've made over and over again in the last 36 months. No serious discussion about the destruction of America's middle class can take place without a serious discussion of wage levels and income inequality.

But that's precisely what politicians are trying to pull off in 2012. Candidates talk endlessly about jobs and growth without ever mentioning wages. They're trying to pull the wool over your eyes. You're being hoodwinked, misled, bamboozled. The entire political discussion about the economy is unmitigated bullshit. The wealthy who own (or rent) the politicians do not want a serious discussion of the distribution of incomes and wage levels. And the occupiers are gone, so there's nobody around to remind people to think about this stuff.

Marketplace columnist Rex Nutting recently rediscovered America's income problem in American incomes are barely growing. In modern industrial economies this is akin to rediscovering the wheel. In the text and video that follows, you will have to overlook the constant references to "consumers" and other insults your intelligence.

WASHINGTON (MarketWatch) — Those who say that uncertainty about the future is weakening the economy have it exactly backwards.

It’s the weak economy that’s feeding our uncertainty.

The American economy is losing momentum because it’s running out of fuel. Our economic fuel is income, and it’s in short supply. Right now, real disposable incomes are growing at barely 1% a year, the slowest growth on record outside of a recession.

Without income, people can’t spend. If people don’t spend, businesses won’t expand. And if businesses won’t expand, incomes won’t grow.

For a while, back during the housing bubble, lots of people were able to pretend their incomes were higher by borrowing heavily against their homes and spending the proceeds. From 1998 to 2007, U.S. households withdrew an estimated $5 trillion from their home equity, amounting to an additional 5% of personal income over that period.

Then, after the bubble burst, the federal government stepped in to support incomes by cutting taxes and expanding the safety net, which boosted after-tax incomes by about $3 trillion over the past four years, or about 6% of incomes. That support was absolutely critical in preventing an even deeper depression, but now it’s disappearing.

Running as fast as we can

Absent a housing bubble or extraordinary government support, what do we have that can keep the economy humming? Not much.

The initial surge we got from increasing our exports has faded, now that the rest of the world is slowing down. Housing investment is recovering, but until the foreclosure crisis is resolved, housing can only contribute a modest amount to our gross domestic product.

No, our economy is tied to the fortunes of the consumer sector, for good or ill. Consumers are doing as much as they can.

Compensation received by workers — the wages, salaries and benefits that together account for about two-thirds of all income received — is rising because more people are working. But the average paycheck isn’t rising any faster than prices are.

Lots of people are running as fast as they can just to stay in the same place.

Over the past year, total consumer spending has increased 1.9% after adjusting for price changes, quite a bit faster than the 1.1% growth in incomes. As heroic as consumers have been, there’s a point at which they just can’t do any more. 

This is aggregate income which doesn't show its skewed distribution.

The numbers that we’ve been discussing are aggregates; they treat 310 million people as if they were all the same: consumers.

But, of course, there are big differences within that label. Some are rich; some are comfortable; some are poor. Some are saving a healthy portion of their income; many more are simply living paycheck to paycheck. Some are losing their homes; some are just trying to pay down their debts a little; others could spend more without breaking the bank.

Have a nice weekend. There will be a Saturday Oil Report tomorrow.

 

Comments

[Anywhere But Here Is Better]

Hi Dave

I get the feeling that your usual visitors are scarce today, with that debacle in Denver. I'd like to dig up Charlton Heston and ask him how proud he feels about his underbelly patronage on behalf of the NRA and other apologists for the thuggishness of infantile primitives hiding behind a twisted interpretation of the Second Amendment.

No rhyme, no reason. Lovely way to run a species.

Regards, Oliver