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Median Household Income

September 16, 2011

Median Household Income. While we’re on the subject of income, we’ll show that income disparity, particularly the rise of the super-rich, is a signal of decay, instability and potential collapse. That signal has been flashing red for several years.

but first a note on the Jobs Bill.

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As we predicted last week, the President’s jobs speech is more likely to revive his political fortunes than the economy. And as we were afraid, it is heavy on the tax breaks. These will not produce jobs, as we said last week, yet they cost a bundle. Now I’m not going to turn down a 3 percent raise from the payroll tax reduction, but I will be saving it, paying down debt and continuing to buy a latte every once in awhile. No net job growth if I am at all the common person. That half will be saved, used to pay down debt, or support jobs already in place. The employer portion will disappear into the employer’s balance sheet. Hiring is made on the basis of demand, not tax breaks. The economy operates … say it with me … from the demand side. If there is increased demand of 1 or 2 or even 3 percent from the employee half and that causes you as a businessperson to hire somebody, then you are not suffering in this economy. We got support from Bruce Bartlett on this point this week.

The modest … no, the tiny, miniscule … support to states and infrastructure is the part that might do something, but it is a day late and a dollar short.

Still, it demonstrates that reality IS seeping into DC. The downward trajectory of the economy must have caught somebody’s eye. A day late. Even IF this so-called jobs bill were passed tomorrow, it is hard to see how it could prevent the layoff of the 280,000 teachers as advertised. Didn’t school start last week? Total infrastructure spending, pitiful, not even the amount needed to get back up to speed.

The most politically astute thing the Republicans could do is pass the entire thing as-is, showing they are bi-partison and willing to compromise, not obstructionist, and watch it not work. Of course, that won’t happen because they are playing to the brown shirts.

Could you do better with the $450 billion?

How about the first installment of $250 billion in infrastructure spending for surface transportation and energy transmission, per year, for twenty years. The first installment of $100 billion per year for at least three for states and localities to hire. And the first tranche of $100 billion in direct hiring for a CCC-, WPA-style program to give anyone who wants a job some work doing what needs to be done. In addition, a plan that did not see the light of day in Obama’s speech, but which former president Clinton proposed in a recent Newsweek article. Retrofitting buildings for energy efficiency. These projects can pay for themselves in five to seven years by reducing energy consumption. All that is needed is the accounting architecture to segregate the energy savings. If we made it 6-8 years, we could offer a pretty good interest rate for private financing. Are you telling me there wouldn’t be takers? One million jobs, says Clinton.

Counting it up, the Demand Side plan, 6-9 million jobs. The Obama Day Late Plan, 750,000 jobs. Cost. Demand Side $450 billion plus guarantees and support to the energy retrofitting. Year one. Obama’s plan. The same, except ours creates 6-9 million taxpayers. His, to be generous, three-quarters of one one million.

We’ll even pay for it. Uncap payroll taxes, add in to the 6-9 million new taxpayers contributions, plus the jobs multiplier in the realm of 1.6-2.0. Increase the gas tax five cents a year. Done. That is the hole we have to fill.

The best of the week:

Paper of the Week: Michael Hudson, Real World Economics Review, Issue 55, The use and abuse of mathematical economics (

Podcast of the week: Lewis Latham interview David Graeber on his book, Debt: The first 5,000 years

Median Income

The next in line for indicators we are going to forecast is median income. As a metric for the economy median household income has its problems, but they are not necessarily crippling. We’ll touch on them in a moment. The primary strength of median household income is its direct connection with the well-being and strength of the economy. A vital middle class is both the symptom of current health and the condition for improvement and development in an advanced capitalist economy.

Census Bureau

Real median household income in the United States in 2010 was $49,445, a 2.3 percent decline from the 2009 median…. Since 2007, the year before the most recent recession, real median household income has declined 6.4 percent and is 7.1 percent below the median household income peak that occurred prior to the 2001 recession in 1999.

Demand Side sees real efficiencies in an interrelated society of not too disparate incomes, the lowest adjusted being no more than one-third of the highest. We’re talking economic efficiences. The book Spirit Level: Why Greater Equality Makes Societies Stronger by Richard Wilkinson and Kate Pickett details the empirical evidence of societal well-being, from obesity to incarceration rates and so on, and finds more equal societies always perform better. They may be dismissed by the crass as “normative,” not positive indicators, but saying they are not important is equally normative. And even from a crass GDP economic outcomes perspective, and confining ourselves just to the U.S., we see that when the society has been more equal, the economy has growth faster, with more stability. If you think economic outcomes are limited to how much money you make, we suggest a career in drug dealing or strong-armed robbery.

So the first drawback to median household income is that the data comes out with a lag. We’re giving you 2010 data today and it came out, what, Tuesday? September. It is produced by the Census Bureau, not the Bureau of Economic Analysis or the Bureau of Labor Statistics. The BLS has wage statistics, and they are useful in getting to the concept we want, which is How well is the broad center doing? And is there a broad center?

As a high wage worker loses her job and falls to the bottom, the measure ticks down a fraction to record the worker having been pushed off the ship and now occupying a lifeboat, some of which are getting very overloaded.

One problem, since “income” includes taxes and other stuff, “disposable income” looks better. We don’t use it because we think taxes buy real goods like schools and police. But even so, while disposable income subtracts taxes, it does not subtract costs like health care or debt payments or mandatory utilities and fuel that ARE large subtractions from the English meaning of disposable.

Median household income tracks average hourly compensation – itself inflated by high health care costs – and other measures of the financial well-being of households. In so doing it both describes and predicts the trajectory of the economy much better than GDP, even per capita GDP. It’s the difference between looking through a tinted window and looking through the same one with a magnifying glass. If you’re interested in the view, much better to put away the distortions. If you want to check out the surface of the window, use the lens. Or something like that. GDP can signal a bunch of things that are not healthy.

Our forecast is, then, for a serious and continual deterioration of median household income over the next six years, falling to a level below that of the first data point available from the Census Bureau, which is in 1980. In our view, by 2017, households will be in worse shape than they were at the low in 1983. Wiping out thirty years of gains in six years.

We would characterize these projected losses as optimistic absent significant policy changes not now in prospect. We include in the transcript a graph displaying historical data and our projections. These are not the jaw-dropping dramatic you might think, because median household income growth has been anemic for years. This is a problem 30 years in the making. The transcript also displays a chart from Atkinson, Piketty and Saez showing median household income basically stagnating since 1980. That same chart offers a comparison to GDP per capita.

You would expect perhaps that GDP per capita and median household income have some correlation, but that would be wrong. Income growth over the period has gone to the rich, and notably the super-rich, it has drawn up the average aka per capita, as displayed in charts borrowed from Uwe Reinhardt and his Economix column at the New York Times. Income growth for the top one percent has been surging for decades. The top one percent captured 58% of income growth since 1976 and 65% since 2002.

This new upward pulse in income disparity and its absolute level are key indicators of impending crisis. It clearly foreshadowed the 2008 meltdown, and since the policy response since then has been socialism for the rich, basically cover their losses, and cut loose the middle class, that disparity is only increasing AFTER the crisis.

Another chart from Atkinson et al makes the point that the super-rich top 1% made off with nearly 25% of total income in 2008, the same figure as in 1928.

(click on image for larger view)

Interesting here is that it is not just the rich, but the super-rich who are leading us into the new plutonomy. While the four percent directly below the top percentile HAVE done better, it is more by comparison to the ninety-five percent who have done worse than in absolute terms. Even the next highest five percent, not so good.

So does the collapse indicated by the income disparities and our personal experience have a silver lining? Or maybe it won’t collapse completely. Maybe bread and circuses combined with the Fed’s promotion of ever-higher credit and governmental socialism for the rich will morph into a national socialism for the rich. Well, that is collapse, of democracy anyway.

Forecast? The outlook for median household income is bleak.


From → Income

One Comment
  1. David Lazarus permalink

    The longer the wealth inequality continues the greater the probability that the only solution will be a wealth tax. Levied on say $50 million and above. A better solution in the interim is to tax capital gains at the same rates as marginal income. One thing that does seem to be unrealistic is the housing subsidy for home owners. This is unfair and excludes renters so scrapping that allowance, would be fairer. The UK scrapped this subsidy more than a decade ago. It might have a short term impact on households but that could be compensated by some other system, such as a higher tax allowance.

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