Whose Recovery?

Luxury retailers are smiling. So are the owners of high-end restaurants, sellers of upscale cars, vacation planners, financial advisors, and personal coaches. For them and their customers and clients the recession is over. The recovery is now full speed.

But the rest of America isn’t enjoying an economic recovery. It’s still sick. Many Americans remain in critical condition.

The Commerce Department reported Thursday that the economy grew at a 3 percent annual rate last quarter (far better than the measly 1.8 percent third quarter growth). Personal income also jumped. Americans raked in over $13 trillion, $3.3 billion more than previously thought.

Yet it’s almost a certainly that all the gains went to the top 10 percent, and the lion’s share to the top 1 percent. Over a third of the gains went to 15,600 super-rich households in the top one-tenth of one percent.

We don’t know this for sure because all the data aren’t in for 2011. But this is what happened in 2010, the most recent year for which we have reliable data, and there’s no reason to believe the trajectory changed in 2011 or that it will change this year.

In fact, recoveries are becoming more and more lopsided.

The top 1 percent got 45 percent of Clinton-era economic growth, and 65 percent of the economic growth during the Bush era.

According to an analysis of tax returns by Emmanuel Saez and Thomas Pikkety, the top 1 percent pocketed 93 percent of the gains in 2010. 37 percent of the gains went to the top one-tenth of one percent. No one below the richest 10 percent saw any gain at all.

In fact, most of the bottom 90 percent have lost ground. Their average adjusted gross income was $29,840 in 2010. That’s down $127 from 2009, and down $4,843 from 2000 (all adjusted for inflation).

Meanwhile, employer-provided benefits continue to decline among the bottom 90 percent, according to the Commerce Department. The share of people with health insurance from their employers dropped from 59.8 percent in 2007 to 55.3 percent in 2010. And the share of private-sector workers with retirement plans dropped from 42 percent in 2007 to 39.5 percent in 2010.

If you’re among the richest 10 percent, a big chunk of your savings are in the stock market where you’ve had nice gains over the last two years. The value of financial assets held by Americans surged by $1.46 trillion in the fourth quarter of 2011.

But if you’re in the bottom 90 percent, you own few if any shares of stock. Your biggest asset is your home. Home prices are down over a third from their 2006 peak, and they’re still dropping. The median house price in February was 6.2 percent lower than a year ago.

Official Washington doesn’t want to talk about this lopsided recovery. The Obama administration is touting the recovery, period, without mentioning how narrow it is.

Republicans would rather not talk about widening inequality to begin with. The reverse-Robin Hood budget plan just announced by Paul Ryan and House Republicans (and endorsed by Mitt Romney) would make the lopsidedness far worse – dramatically cutting taxes on the rich and slashing public services everyone else depends on.

Fed Chief Ben Bernanke – who doesn’t have to face voters on Election Day – says the U.S. economy needs to grow faster if it’s to produce enough jobs to bring down unemployment. But he leaves out the critical point.

We can’t possibly grow faster if the vast majority of Americans, who are still losing ground, don’t have the money to buy more of the things American workers produce. There’s no way spending by the richest 10 percent – the only ones gaining ground – will be enough to get the economy out of first gear.

This post originally appeared at Robert Reich’s Blog and is posted with permission.

13 Responses to "Whose Recovery?"

  1. LCR   April 1, 2012 at 8:59 pm

    Policy makers and bankers are trying to move the mountains of the earth with shovels. The lopsided recovery is a function of our debt driven economy. You know this and need to acknowledge it.

    America needs to get back to national savings, manufacturing, agriculture, and infrastructure projects (virtually all in the private sector not public). We need to get back to a time when the banks (this includes the Federal private bank) were proper lenders on good credit not creators of money and simultaneously extraction machines. We need a government that respects market interest rates so we avoid malinvestment and policy measures that defy mathematics.

    America's GDP is essentially debt, and this debt is very very heavy. Our economic boat can not sail with this attached debt. So many argue that this can be overcome "with more debt now (stimulating)" or "with lower rates (Fed intervention) " or with "inflation" (money printing). All of these ideas are evil and the poor and middle class suffer the most from it.

    • John Cardillo   April 2, 2012 at 11:07 am

      Debt is not the problem. Money was invented to replace IOUs and proved much more efficient at facilitating the exchange of goods and services than trading ducks and chickens.
      Its the life blodd of our economy, as long as it keeps moving it serves a purpose.

      If everyone, including the government paided off all of their debts, there would be zero money in circulation and the economy would stop. Unless of course you are willing to trade ducks and chickens.

      The problem we have today is that a relatively few number of people have figured out all kinds of schemes to capture and hoard a larger and larger share of the money/IOUs that are in circulation. People who are hoarding stashes of IOUs are preventing people who are willing and able to work from participating in the economy. Thats the sad truth.

  2. J0wn   April 1, 2012 at 9:36 pm

    Behavior like this is why America is ruined http://www.youtube.com/watch?v=BLWnB9FGmWE

    • LCR   April 1, 2012 at 9:46 pm

      Proper banking would now allow highly leveraged firms to do these things. This is what gets us in the debt cycles. The leverage creates false goods and money supply. I am not a republican or Tea party fan. Do you have a solution to the debt driven economy? What did you buy today that you did not need and how many years worth of salary are you borrowing from?

  3. Robert P. Coutinho   April 1, 2012 at 11:59 pm

    Here is a solution to the 'debt driven economy'. Simple, yet profound. Stop creating T-bills.

    What? Default? By no means. We have a fiat currency. Our currency exists with only one promise: you can pay your taxes with it. Don't believe me? Go to Ben and ask him to exchange your $100 bill for what is guaranteed to you. Anyone in the Fed or Treasury will just stare at you. We don't exchange the things for gold anymore.

    This means that the Treasury does not need to collect taxes in order to purchase things. They just need to change the number in a spread sheet (in previous-world terms, they just need to print money, but we don't even do that anymore, so we don't actually need to pay for machine parts, paper and ink. We only need to keep current with our computer software.)

    Wait? What? It's true. If you pay your taxes by bringing cash to Andover, MA (one of the IRS sites), they will give you a receipt and shred the money. They don't even bother to tell the Treasury department. Meanwhile, the Treasury department does not ask the IRS if the taxes have been collected. They don't need to. When they spend money, they spend it into existence. When the IRS collects money, it collects it out of existence.

    We do not have a national 'debt' per se. We have no obligation to 'pay off' the debt (other than to give dollars to those who hold T-bills). Dollars are a measurement (mostly in bank accounts). If a foreign entity were to no longer roll over its debt, they would get credited with money in their reserve account. With it they could go to the open market and purchase goods denominated in USD. That's it. We keep a running 'national debt' tally only as a means of setting the Prime Lending Rate of the Federal Reserve.

    It is impossible for the current group of people to be borrowing from future production. It is impossible for us to 'save up' for future generations (other that antiques, I suppose). Our children and grandchildren do not inherit our national debt in any real sense, because whatever goods and services they produce will be consumed by them in the future. They can no more send us their goods and services than we can possibly receive future goods and services.

    • LCR   April 2, 2012 at 9:00 am

      We do not have a national 'debt' per se. We have no obligation to 'pay off' the debt (other than to give dollars to those who hold T-bills).

      Yes, you are correct. We have a printing press and will ALWAYS pay our bills. However, as Mr. Reich points out, the middle class and poor pay the most out of that as a percentage of their "earnings". Government transfers (what we are seeing as deficit spending) moves money very inefficiently and it will always be that way. This is the incredible skew we see in the economy

      • R. Coutinho   April 2, 2012 at 11:37 am

        Although we do have a problem with income disparity, it is not due to how the government pays its bills. In fact, the biggest problem we have with how the government pays its bills is that congress, the president and (very possibly) multiple Federal Reserve top people do not understand how the government pays its debts.

        Meanwhile, we need to get rid of unemployment and then determine how much tax revenue is needed to prevent inflation. Instead, congress thinks it needs to balance the budget (or even worse, get a surplus). This is completely wrong-headed because the only way that the Federal Government can run a surplus is if the economy has a net drop in savings.

        • LCR   April 2, 2012 at 12:00 pm

          Income disparity has everything to do with government spending since government reperesents over 50% of take home pay for the US citizen (rich and poor combined). Government income is predicated on taxes and borrowing. We are too far down the fiscal cliff to run a surplus, I agree with you.

          The government's money has in fact come from abroad (treasury bills) and with IOUs placed on the backs of the US citizens. Raising taxes on the wealthy (or anyone) and slowing the economy with other tax programs (cough, "affordable care act") will kill the economy. However, the ecomomy gets killed either way since the money has already been spent. It is a vicious cycle.

          We need prolonged deflation of the bubbles. The government bond bubble will have to lose air very slowly to avoid catastrophy and the Fed is trying its best to manage that.

  4. sierra7   April 2, 2012 at 11:53 am

    From Feudalism to Slavery to Capitalism…….somewhat going down the tubes, don't you think?
    Debt is eventual slavery of the many to the few.
    Very simple.
    Problem is, we do not have the political/overall will to change. It must be massive change.
    What next????

    • LCR   April 2, 2012 at 12:56 pm

      Mice want government cheese and we have plenty of mice. Inflation will wake the masses

    • LCR   April 2, 2012 at 1:00 pm

      By the way, we have "capitalism" with central government banking. The Fed is making the interest rates and economic planning which is foolish. The Constitution never allowed it. The least evil system is pure market capitalism where money flows to productive assests and people strive to attain production of good and services that are needed. we just don't have that anymore and is was destroyed by government and tinkering by financial institutions greed.

  5. zzz05   April 2, 2012 at 3:20 pm

    Money is, of course, just a proxy/intermediary/placeholder. If we aren't producing more consumer goods or services, as we outsource more and import more, then dividing the value of those that we do produce over larger and larger numbers of people, as more people invest either directly or indirectly through funds, cannot possibly result in increasing prosperity. The only ways a decreasing production can result in a rising economy is if the number of shareholders is decreasing more quickly, or we are inflating a bubble, or both.