THE STATE OF THE ECONOMY, SEPTEMBER 2013

PAUL KRUGMAN DAILY BEAST

A few days ago, The Times published a report on a society that is being undermined by extreme inequality. This society claims to reward the best and brightest regardless of family background. In practice, however, the children of the wealthy benefit from opportunities and connections unavailable to children of the middle and working classes. And it was clear from the article that the gap between the society’s meritocratic ideology and its increasingly oligarchic reality is having a deeply demoralizing effect.

The report illustrated in a nutshell why extreme inequality is destructive, why claims ring hollow that inequality of outcomes doesn’t matter as long as there is equality of opportunity. If the rich are so much richer than the rest that they live in a different social and material universe, that fact in itself makes nonsense of any notion of equal opportunity.

By the way, which society are we talking about? The answer is: the Harvard Business School — an elite institution, but one that is now characterized by a sharp internal division between ordinary students and a sub-elite of students from wealthy families.

 

The point, of course, is that as the business school goes, so goes America, only even more so — a point driven home by the latest data on taxpayer incomes.

 

The data in question have been compiled for the past decade by the economists Thomas Piketty and Emmanuel Saez, who use I.R.S. numbers to estimate the concentration of income in America’s upper strata. According to their estimates, top income shares took a hit during the Great Recession, as things like capital gains and Wall Street bonuses temporarily dried up. But the rich have come roaring back, to such an extent that 95 percent of the gains from economic recovery since 2009 have gone to the famous 1 percent. In fact, more than 60 percent of the gains went to the top 0.1 percent, people with annual incomes of more than $1.9 million.

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An aside: These numbers should (but probably won’t) finally kill claims that rising inequality is all about the highly educated doing better than those with less training. Only a small fraction of college graduates make it into the charmed circle of the 1 percent. Meanwhile, many, even most, highly educated young people are having a very rough time. They have their degrees, often acquired at the cost of heavy debts, but many remain unemployed or underemployed,  [see below]  while many more find that they are employed in jobs that make no use of their expensive educations. The college graduate serving lattes at Starbucks is a cliché, but he reflects a very real situation.

[  Economic Policy Institute:   Unemployment and underemployment rates of most young graduates have only modestly improved since last year, and rates among all graduates are substantially higher than before the recession began.

• For young high school graduates, the unemployment rate is 29.9 percent (compared with 17.5 percent in 2007) and the underemployment rate is 51.5 percent (compared with 29.4 percent in 2007).
• For young college graduates, the unemployment rate is 8.8 percent (compared with 5.7 percent in 2007) and the underemployment rate is 18.3 percent (compared with 9.9 percent in 2007).

The long-run wage trends for young graduates are bleak, with wages substantially lower today than in 2000. Between 2000 and 2012, the real (inflation-adjusted) wages of young high school graduates declined 12.7 percent, and the real wages of young college graduates declined 8.5 percent.

•  Between 1989 and 2011, the share of employed young high school graduates who receive health insurance from their own employer dropped from 23.5 percent to 7.1 percent. Over the same period, the share of employed young college graduates who receive health insurance from their own employer dropped from 60.1 percent to 31.1 percent. [Thank God Obamacare begins soon--Esco]

Between 2000 and 2011, the share of employed young high school graduates who receive pension coverage from their employer dropped from 9.7 percent to 5.9 percent. Over the same period, the share of employed young college graduates who receive pension coverage from their employer dropped from 41.5 percent to 27.2 percent. 

• Young graduates with jobs lack opportunities for advancement, a trend underscored by the fact that there are now more than 20 percent fewer total voluntary quits each month than there were each month in 2007.]

What’s driving these huge income gains at the top? There’s intense debate on that point, with some economists still claiming that incredibly high incomes reflect comparably incredible contributions to the economy. I guess I’d note that a large proportion of those superhigh incomes come from the financial industry, which is, as you may remember, the industry that taxpayers had to bail out after its looming collapse threatened to take down the whole economy.

In any case, however, whatever is causing the growing concentration of income at the top, the effect of that concentration is to undermine all the values that define America. Year by year, we’re diverging from our ideals. Inherited privilege is crowding out equality of opportunity; the power of money is crowding out effective democracy.

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 Golden Age of Deficit Reduction Continues


DANIEL GROSS DAILY BEAST

....fresh evidence that there has been enormous progress in the effort to cut the annual budget deficit.

In fact, we’ve long argued that we live in a Golden Age of Deficit Reduction. The August Treasury Monthly statement, released Thursday, and a Congressional Budget Office report released earlier this week, show just how far we’ve come in the space of a year.

.....Through the first 11 months of fiscal 2013, which ends at the end of this month, revenues are up 13 percent and spending is down 3.6 percent. The deficit for the first 11 months, at $755 billion, is off $409 billion, or 35 percent, from $1.164 trillion in the first 11 months of fiscal 2012. The picture is likely to get better, because in September, the government typically runs as a surplus as companies and individuals pay quarterly taxes due. Last year, the surplus for September was $75 billion. Should the September 2013 surplus come in at the same amount, the full year deficit would come in at $680 billion. That would represent a decrease of $409 billion, or 37 percent from last year. All in the absence of a grand bargain.

Many professional deficit hawks have argued that this year’s deficit reduction has come in the worst way possible. There hasn’t been any rational grand bargain or tax reform, and the sequester has functioned as an indiscriminate meat cleaver. But that’s not entirely true. A lot of the deficit reduction has come in the best way possible – from taxing those who can most afford to pay, from economic growth, from cutting spending on defense, and from falling spending on recession-era entitlements like unemployment benefits. According to the CBO, some $24 billion of the reduction comes from a decline in spending on unemployment benefits, because the number of people filing claims and receiving benefits has plummeted as the labor market improves. Because companies are earning more profits, they’re paying more income taxes—$216 billion through the first 11 months of fiscal 2013, up 16 percent from the first 11 months of fiscal 2012. That accounts for another $30 billion in deficit reduction. Individual income taxes are up $160 billion so far this year, because people are earning more and because the very rich are now paying higher taxes. And social insurance receipts (basically the Social Security and Medicare payroll taxes) are up by $101 billion so far this year, in part because the two-year cut on the Social Security payroll tax expired on January 1, in part because of the Obamacare excess payroll tax on Medicare, and in part because two million more people are on payrolls today than last year. The cuts attributed to the sequester, about $75 billion this fiscal year, account for only a small portion of the deficit reduction we’ve experienced this year.
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N.Y. TIMES

Median household income has begun to recover over the last two years, but households still have not come close to regaining the purchasing power they had before the financial crisis began, a new study says.

Although median annual household income rose to $52,100 in June, from its recent inflation-adjusted trough of $50,700 in August 2011, it remained $2,400 lower — a 4.4 percent decline — than in June 2009, when the recession ended. This drop, combined with the 1.8 percent decline that occurred during the recession, leaves median household income 6.1 percent — or $3,400 — below its level in December 2007, when the economic slump began.

Since the end of the recession, the study said, household income has declined for all but a few population groups. Some of the largest percentage declines occurred for groups whose income was already well below the median, like African-Americans, Southerners, people who did not attend college, and households headed by people under age 25.

Households headed by people with only a high school diploma have seen their post-recession income decline by 9.3 percent, to $39,300 in June of this year, the report said. For households headed by people with an associate degree, median income declined by 8.6 percent in those four years, to $56,400. And among households headed by people with a bachelor’s degree or more, median income declined by 6.5 percent, to $84,700.

Since the end of the recession, the report said, income has declined by 3.6 percent for non-Hispanic white households, to $58,000, and by 4.5 percent for Hispanic households, to $41,000. Those changes were smaller than the 10.9 percent decline, to $33,500, for non-Hispanic black households.