Friday, June 23, 2006


Death Of The Middle Class: GOP's Finger On the Trigger

More evidence that the wonderful "Bush boom" is booming only for those at the very top of America's income pyramid:

Chief executives of U.S. corporations earned 262 times the pay of the average worker in 2005, the second-highest level in the 40 years the data's been kept, an economic research group said this week. Last year, the average CEO was paid $10.9 million a year, or 262 times an average worker's earnings of $41,861, the Economic Policy Institute said Wednesday. The research group also found a CEO earned more in one workday in 2005 than an average worker earned in 52 weeks. The group includes salary, bonuses, stock options and other payments in its definition of CEO pay.
While the CEOs are doing great, the average American? Um, not so much:

Let's compare that to regular guys salary increases in this expansion.  According to the Bureau of Labor Statistics, average hourly pay for production workers was $14.79 in November 2001 (when this expansion began) and $16.62 in May 2006 for an increase of 12.37%.  Over the same period the inflation gage increased from 177.4 to 202.5 for an increase of 14.14%.  This means 80% of the population has seen their wages decrease 1.77% during this expansion.

At the same time, corporations are doing extremely well.  According to the Federal Reserves Flow of Funds statement, corporate profits as a percentage of national income have increased from 8.5% in 2001 to 13.88% in the first quarter of 2006.  Over the same period (2001 to the first quarter of 2006) corporations are the only economic sector to actually save any money.  Their savings increased from $192.3 billion in 2001 to $606.3 billion in the first quarter of 2006.  In other words, if corporations wanted to increase salaries beyond inflation, they clearly have the money to do so.

But of course, they aren't -- and America is suffering as a result:
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.
And yet the House Republicans just passed another bill designed to give the CEOs and companies even more money while further starving those government services that most benefit those of us who aren't CEOs or corporations.


I am hoping you can clarify what you are arguing here. The title of your post mentions the "death" of the middle class, yet there was no evidence provided for that point. It would be helpful if you clearly defined what "middle class" is and where it is going. I understand "death” to be a metaphor but more information is needed to identify your argument.

Further, you suggest the GOP is responsible. And most interesting, you infer that CEO pay somehow correlates with that same death or serves as an indicator.

CEO pay, no matter how high, would have nothing to do with who's in office. The decision to pay these CEOs usually comes from a board of directors elected by the company owners. The more a CEO gets paid, the less the company owners are left with, so it is in their best interest to pay CEOs accordingly. In any case, CEO compensation is apparently not correlated with the White House's political party. In fact, CEO pay rose steadily during the Clinton years and hit an all time high during that same presidency. CEOs also make up such an absurdly low percentage of the population that they're hardly numbers to include in broad analysis.

Forgetting all that, you did not show that standards of living have suffered among the income group you cited. Merely saying that their wages increased or decreased a percentage point does not by itself suggest a problem. Simply saying that the rich are getting richer does not lead to the conclusion that the non rich are suffering. Even if the top 20% are billionaires, the remaining 80% could still enjoy very decent lives. Though the 80% may not enjoy decent lives, you have not shown that. It would be helpful to specify a percentage of those below a specific income bracket and how much income they should have in order to have a life you would deem decent. Because none of this is specified, I cannot discern an argument, nor have found a proposed solution in your post.

Citing the performance of corporations does not appear to be relevant either. Perhaps you can expand why a better corporate balance sheet is relevant to an individual’s standard of living.

I was especially alarmed that you included that the CEO/average worker comparison was based on an average worker salary of almost $42000. I think that's a good salary, and even accounting for purchasing price parity, this wage amounts to an income and standard of living higher than about four billion people. (Probably more, for that number includes only the destitute.) I cannot tell that many people how "bad" life is in the US. Can you?

The answers to all of your questions are at the various links I enclosed in the post -- but you knew that. Pardon me for not wanting to test Blogger's word-posting limits.
Actually, the answers are not in the links you posted. I checked them prior to posting, which is where I found some of the information that I cited. In any case, if your blog is just a link to other blogs, maybe you should discontinue it? Perhaps I am mistaken, but if you're just a link service it would be easier for any readers you have to just go straight to Daily Kos or others.

Understandably though, your response is an unquestionable cop out, but I suppose I anticipated as much. Maybe Charles or somebody else will approach.
John, I am always up for talking about economic issues, but only if we're discussing and not playing.

You asked for a definition of "middle class," which doesn't sound like a serious question. Do you also need a definition for the words "and" and "the?"

Granted, "middle class is a vague term. But as the Washington Times, concedes after much obfuscation, economists define the middle class as the middle 50% of wage earners. When that article was prepared, that was people earning between about $40-$95K/year. One can define it in different ways if one likes, but that's sufficiently precise.

Now, I don't want to quibble over chicken droppings like this, and if you had signalled that that wasn't your intention, you might have gotten a less testy initial response.

I take it that you would argue that the middle class is not shrinking, that its fortunes have improved, so that even if the very wealthy have done much better, the middle class has also done better (graphics available here).

This is indeed the argument suggested by The Economist article quoted by PW when it states that, "Put another way, the typical worker earns only 10% more in real terms than his counterpart 25 years ago, even though overall productivity has risen much faster." . If one likes, one can get even more prestigious sources for this claim; for example, Mary Daly, writing in the San Francisco Fed Newsletter: While inequality increased in the United States between 1979 and 1989, a great majority of Americans were economically better off at the peak of the business cycle in 1989 than they had been at its earlier peak in 1979. The largest share of the increase in inequality over the 1979-to-1989 period was due to positive but unequal income gains in the middle of the income distribution, not to disproportionate losses by the middle class.

Unfortunately, this is baloney. Statistics can only capture so much. At some point one who wants to understand what is going on has to look behind the statistics and develop a coherent picture.

One big obvious point: if the US weren't running a huge deficit now, incomes would be markedly lower. The economy under Bush may be OK-- he just had to borrow a helluva lot of money to achieve it. And we will pay for that later with lower incomes and higher interest rates on car and auto loans.

Some other obvious points: Any gains in income over the last 30 years have been accompanied by a rise in working spouses and a decline in job security. Debt has risen and the savings rate has fallen. Bankruptcies have been rising. More Americans are in prison. Health and pension coverage is falling

On and on through the statistics, one finds that the long term trends are much more consistent with a picture of declining incomes than a picture of rising prosperity.

There are methodological reasons why the statistics might be simply misleading. Does the CPI accurately capture how much Americans are investing in education and technology as a precondition of obtaining gains in income? Are demographic shifts, especially the shift in entry-level vs. peak earning power workers adequately accounted for? Are minimum/subminimum wages paid to illegal aliens accurately captured-- could middle income start and end 10 million workers lower than official statistics would have it? Is Bushco cooking the statistical books, similar to how they've been falsifying science?

These are real questions, ones I have posed to professionals in the measurement biz. I haven't had good answers.

There's also a huge, hidden fairness concern. People are living longer, and they need deeper savings just to have minimal comfort in their last years. Shouldn't they share in productivity gains, which were achieved in part through their sacrifices?

But finally, I want to leave you with this parable. There was an elephant who lived in a jungle next to an anthill. At first, while the elephant was very young, he was close to the ground and he saw the ants. Since he was a very kind elephant, he avoided stepping on the ants. But as he grew larger, and his eyesight grew poorer, he could no longer see the ants. Despite his kindness, he began stepping on ants, killing hundreds and thousands of them. Not because he was cruel, nor because they were stupid, but because he had lost his vision of the their world.

Similarly, the rise in wealth inequality means a decline in the political power of the middle class. Whatever they may be earning, the concerns of the middle class barely register in the political system. Since a strong, confident middle class is required for a democratic republic, the death The Economist describes is not so much of the middle class.

It is of America.
Well done, Charles.

When I gro up I want to hire you to write some of my political speeches.

I do not think "john" is serious. Sounds rather trollish to me. Yes I'm envious.
My, my. It's been nearly 24 hours since Charles made his comment. Where's John? He was so quick to respond, when he thought he sensed weakness. Heh.
Thanks, S and PW.

But I find it hard to celebrate a national tragedy. I doubt that "John" is has been one of the real beneficiaries of inequality. The GOP recruits people who imagine they will share in being the new overclass ... and whose math skills are thin enough not to figure out the shell game.

The America of today is so much less free and vibrant than the America of past years. PW has posted on how prevalent dishonesty has become. The nation, both individuals and the government, are wallowing in debt. It's very hard to see where we are heading as a nation if not into decline.

There are lots of "John"s out there, getting screwed and thinking they're having a good time.
This comment has been removed by a blog administrator.
It's also funny how all these "johns," the term is so appropo, are *against* redistribution of wealth UNLESS it takes money out of their own pockets and gives it to Paris Hilton. Then they're all for it.

Sheesh. Math is hard.
I didn’t realized I was under such a tight time constraint to respond…

Anyway, responding to Charles’s first post:

I am discussing not playing. You mock my asking for a definition of middle class but it’s always essential to have a healthy definition of the subject matter one is discussing. Your definition of said term is $40-$95K or the middle 50% of wage earners. $95K is ridiculously high. So is the range of that estimate. So if you’re going to mock me, do it with another figure. Oh, and there will always be a middle 50% of wage earners, so that is of no help either. In other words, you definition was not “sufficiently precise”.

I am not sure why what I wrote was not received as anything but serious, so I don’t know why you felt you were “quibbling over chicken droppings”.

But to the meat of your argument:

Though you have not addressed whether standards of living have risen or fallen in any time period, you have provided some statistics, even after you admitted that “statistics can only capture so much.” But you did say:

“Debt has risen and the savings rate has fallen.”

Does not address much or identify a problem. Home ownership is at all time highs. It stands to reason that debt would be high, too. But I’m no worse off. And consumer debt is not at all alarming. People are furnishing their houses. Tough life it must be… Scare me with something else.

“Bankruptcies have been rising.”

Sure, but the cost of declaring bankruptcy has been falling. If federal and state legislation makes filing for bankruptcy cheaper, more people will use this tool, which is exactly the problem now. And it doesn’t indicate less prosperity. How about a $4 million dollar filing fee? I think bankruptcies would fall, but that would not indicate more prosperity.

“More Americans are in prison.”

Again, you’re not connecting anything. (You’re not writing from prison, are you?)

“Health and pension coverage is falling.”

Interesting that you cite a graph of recent college graduates. That age group, through that of those in their late 30s, are exactly the demographic priced out of the market by Medicare and Medicaid and a nasty web of state and federal regulation. (But look at the bright side; a whole industry of lawyers is now employed. Yay! Employment is up!) Do you think government regulation has anything to do with identical healthcare plans costing 4 times as much in New Jersey as they do in Kansas? But this is a whole other subject…

“On and on through the statistics, one finds that the long term trends are much more consistent with a picture of declining incomes than a picture of rising prosperity.”

Again, declining incomes doesn’t tell anybody anything. And you’ve shown me nothing to suggest that prosperity is not rising. Sure, everybody wants more than they have. Welcome to being human. But prosperity can increase even in the presence of unlimited wants and limited resources. And I’m still especially confused by your use of statistics to show things and you’re frequent mention that statistics are misleading…

“There's also a huge, hidden fairness concern. People are living longer, and they need deeper savings just to have minimal comfort in their last years. Shouldn't they share in productivity gains, which were achieved in part through their sacrifices?”

But this is real argument. I cannot agree with you that socialism is fair. You couldn’t even define “middle class,” and you’ll never in your life come up with a definition for “fair”. Because however you choose to define it, your remedy to achieve this fairness will not be viable.

Chiefly because of your definition problem with “fair”, you’ll never be able to define what “Sharing in the production” means. See, salaries and wages are paid for “their sacrifices.” So that problem is solved. But you want more. How much more? And for whom? Can you tell me what the smallest house or dwelling should be allowed by law? And why that much space? Why not more? Why do some get a bigger place than others after your standards are met? It’s a seriously flawed economic idea, but you know that. You’re argument is a moral one. Which is fine, and it’s why we can’t agree. You think the workers deserve more because the owners have more. I think that the owners should not have their property confiscated because you think they can afford it. Your socialism and my knowledge of the impossibility of that system (as a means for greater wealth for all) will prevent our ever agreeing on topics like this. So forget it.

However, I would like to ask about the final thought of your original post. What’s this about political power and a strong confident middle-class being necessary for a democratic republic? Political power originates from votes. Every vote is worth the same, so I don’t see the connection between wealth inequality and political power. If there’s a problem… vote for somebody else! And if the middle-class is so important, shouldn’t it be well defined?

And in response to the other postings, shrimplate is just not all there. So forget about that one. I didn’t sense weakness, though I know PW to have it, at least with respect to sound argument. And Charles, it is a shame to see you repeatedly assume that disagreement with your thoughts somehow means the GOP is involved. I think I even criticized the GOP in my previous posts, and I certainly never claimed affiliation with the GOP because I certainly have none.

But that mentality speaks to your political power problem. You assume that Dems and GOPs are the only possible selection in the ballot box or anywhere else. A lot of people assume this even though there are frequently more than two choices. And there’s always a write-in. The problem is that people just wanna be like everybody else and think they have to vote for an R or a D.

The sooner you realize that there are more than two words to describe political thought, you will show more strength in your arguments. Mentioning the GOP as the culprit in everything you have a problem with suggests myopia and anger and weakness.
Better to focus on solutions. If nothing else, your blog will appear to be more than a just a rant fest like many others. And remember, for a solution to come anywhere close to viable, you must first clearly define a problem. This element is quite unavailable from the original posts on this cite.
John, John, John:

Come off it with the fake quasi-Libertarian pose. For someone who pretends to be "independent" you sure have the GOP talking points all memorized, backwards and forwards.

I've lost count of all the Republican operatives I've known who've tried to pull that dodge. Besides, everyone knows that Libertarians are just Republicans who like to smoke pot. When the crunch time comes, they pull the "R" lever because they hate paying taxes, especially when those tax monies might go to assist brown people. (And if racism isn't a key plank in the GOP's platform, go read up on the "Southern Strategy" sometime.)

As for the original point of my post -- that the middle class is dying and the GOP's policies are killing it -- answer me this:

If the middle class is as healthy as you imply, then why is it all but impossible for them to save any money nowadays, even with two-income families being the norm?

In fact, as was noted in my original post (and in the Federal Reserve's Flow of Funds Statement:

...corporate profits as a percentage of national income have increased from 8.5% in 2001 to 13.88% in the first quarter of 2006. Over the same period (2001 to the first quarter of 2006) corporations are the only economic sector to actually save any money. Their savings increased from $192.3 billion in 2001 to $606.3 billion in the first quarter of 2006. In other words, if corporations wanted to increase salaries beyond inflation, they clearly have the money to do so.

Now, why have they been able to save all that money during Bush's time in office, even as the rest of America has a negative savings rate? Hmmm?

Remember those huge Bush tax cuts that were designed to give the lion's share of the benefit to Corporate America and the wealthy? Think that might have had something to do with it?

And yes, undoing this huge free-money program for the rich and the corporate would indeed be one part (and an important part) of the process of fixing what's wrong with America.

I don't understand your obsession with party politics and the utter need to label people. I never claimed to be a Libertarian. Nor did I claim to be an independent as you said I did. Forget this labeling crap. Deal with the facts.

So if you'd like to respond to the questions in my orignial post, I'm all ears. Though I do not think you can effectively respond. Anything you could muster would be a tireless rant about GOP this and that. Blah blah blah. Mindless ranting.

Either way, Charles is due a response and I'm so much more interested in that. Shoo.

1) You wanted to know how I could claim that the middle class was in dire straits. I provided data. If you choose to blow off that data by pretending that I didn't provide it -- as you are doing in your last post when you falsely imply that it's nothing but partisan jargon -- then you are simply arguing in bad faith, and it wouldn't matter if I, Charles, Paul Krugman, or the ghost of John Maynard Keynes himself tried to answer your bad-faith questions.

2) It's rather rich of you to accuse someone else of speaking only in partisan jargon, when every single one of your talking points has been road-tested by one or more conservative and/or Republican groups. I can just see you in some Leadership Institute or Rendon Group cubicle farm, quietly typing away.

But thanks for showing everyone who's reading this thread that when provided with honest answers, you can do nothing but attempt dishonest evasions.
John says, "$95K is ridiculously high [for the upper end of the middle class.]

But who is John? Is John a well-known economist? (Probably not). Does he have a link to the income distribution ? (No). He just takes a documented fact-- which may be wrong; it's in The Washington Times, after all-- and SAYS it's wrong.

And we are supposed to genuflect, I suppose.

It's this attitude which makes me think you're playing rather than discussing, John. The complaints about being treated unkindly, even as you reel off gratuitous ad hominem. The attitude is of a spoiled teenager, not of an adult.

John says, "Though you have not addressed whether standards of living have risen or fallen in any time period..."

But, John, in fact I have addressed it very carefully. I not only provided statistics showing that median family income has increased-- but only very slightly--over the last 30 years, and I have pointed out exactly why that statistical improvement is illusory. You choose to ignore the warning signs of falling living standards, things like debt and bankruptcy, but--again-- who are you?

Whoever you are, you're completely out to lunch on the costs of bankruptcy. Individuals have lost the protections they once had under our bankruptcy laws. We were told by the Congress this would eliminate the moral hazard of debt. But half of all personal bankruptcies are caused by illness (and many others by job loss, spousal abandonment, and other catastrophic events). Not too many people run up cancer treatment just for laughs. The costs of filing for bankruptcy aren't the couple of hundred bucks it costs to file: it's entering debt slavery in which debts are never forgiven.

You don't know what you're talking about and don't seem to have the wit to find out.

Overall, you're playing a game where you pretend it's impossible to define or measure or know anything, so PW and I are supposed to do lots of work to refute... what? A nowhere man.

Sorry. That's not how it's done.
Charles: A-yep. I thought it was amusing how "John"'s now pretending that you're the only person here that he'll climb off his gold-plated potty throne to condescend to talk to on matters economic, when his non-acknowledgement of the meat of your replies shows that he has no intention of having (or perhaps ability to have) a good-faith discussion with anyone on this subject.

By the way, Charles, Bonddad over at DKos seems to be reading your mind, because he just cited stats showing that health care costs are a primary reason for bankruptcy among Americans.

I read again my original post to you, and I must apologize. So, I'm sorry, but you did not address my questions. 15 posts later and we're a little off topic, but you have ignored the only response to your original post. Simply saying that you responded and saying that I'm taking things from playbooks and whatever else doesn't change the fact that you have not responded to my post. You have only responded to me personally via insult and political blah and labeling and with things that have nothing to do with my original post. But I take no offense, as that's all you can do.

But on to Charles...

You took the bait, but what is bait for? There is no definition for middle class, it’s a politician’s/pundit’s phrase that has empty meaning, which was one point you have helped me make. And that point was indeed a mockery of the "death of the middle class" nonsense from PW. You can easily say that the middle class is dying if one day your definition is an average income of $40K and the next day it’s $30K. Or if you can't define it at all. But what played out especially well was the fact that you used $95K as a (admittedly the high end) middle class income. $95K! Are you crazy to tell me the middle class is dying! If so, it's not from being poor! Oh Nelly, anymore of this and it will be my laughing, not your negativity and bitterness that dooms me. The dying middle class and their $95,000 salaries…

This whole thing started with the “middle class dying” but I’ve yet to read who they are, what incomes they earn, how they live and where they’re going. I hear about CEOs and corporations. What? Still trying to connect this stuff. FYI, your supposed middle class has an income range that accounts for the third and fourth highest quintiles (that lovely $95K figure sneaks in to the top 20%) and say it’s the middle. Sorry, but if you can’t tell anyone what you’re talking about, I am not sure how you expect to form a sound argument…

“But, John, in fact I have addressed it very carefully. I not only provided statistics showing that median family income has increased-- but only very slightly--over the last 30 years, and I have pointed out exactly why that statistical improvement is illusory. You choose to ignore the warning signs of falling living standards, things like debt and bankruptcy, but--again-- who are you?”

No. You have not addressed standards of living. You haven’t told me thing one about how people live. In Utah, Mexico, Bangalore or anywhere else. It took you until your last post to even use the term "living standards" or anything like it. You have not refuted that the great majority of Americans live extremely well. You have cited statistics, as you say, and then you come back and say statistics are illusory. And you can’t even tell me who you’re talking about! Stop trying to make me laugh to death!! Debt and bankruptcy are not warning signs of anything. I explained that in my previous posts. It was you who ignored my response. I addressed those points directly. DUHrectly. Try again.

And if you’d like links, I can provide them. Is there any way for me to include links in my text like you, or is that for hosts only. It'd be much easier than multiple messy clippings... Either way, for your bankruptcy pleasure:

You could probably get by just reading the intro, but if you really care, sections III and V are the money sections... no pun intended.
John, you're one short of a positive integer.

This is the worst sort of empty, narcissistic time-wasting. If you'd started out with a the link to Todd Zywicki, I'd be willing to waste more time on you to show you why it's the same stale moral hazard argument dressed up in laughably misleading economic statistics produced by an Olin teat-sucking propagandist. But it's clear to me that you came here with an opinion from which no fact would make you willing to part.

Please go engage in self-stimulation or something more useful.
Perhaps you'll be worthier on another topic. I am disappointed you let pass so many questions but I understand why you are frustrated. And I'd really like to know if I can attach links to text.
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