Submitted by Charles Hugh Smith from Of Two Minds
The Erosion Of The U.S. Economy In Two Words: Jobs And Wages
The current de facto policy of inflating asset bubbles to spark a “wealth effect” is no substitute for policies that make it less burdensome to start new enterprises and hire employees.
The Status Quo is shameless when it comes to hyping the recovery by whatever metric is most positive. Recently, that has been the stock market, but if GDP rises significantly (and recall GDP increases if the government borrows and blows money), then that number is duly trotted out by politicos and Mainstream Media toadies.
If we scrape away this ceaseless perception management, we find that legitimate broadbased prosperity is always based on rising employment and increased purchasing power of wages. The phantom wealth that is conjured by asset bubbles vanishes when the bubbles inevitably pop, leaving all those who borrowed against their ephemeral bubble wealth hapless debt-serfs.
Since very few households own enough productive assets (i.e. financial assets above and beyond the family home equity) to replace earned income (i.e. a job) with unearned income, rising asset yields and prices do little to improve household wealth or income.
Those with investable assets of more than $1 million are labeled “high-net-worth individuals” or HNWIs. There are about 3 million Americans who qualify as HNWIs; roughly 1.8 million Americans own $2 million or more in investable assets. Number of Rich Americans Fell in 2011.
For context, the U.S. has about 307 million residents and about 110 million households. Roughly 112 million people have full-time jobs and about 38 million are self-employed or have part-time jobs.
Recall that thanks to the Federal Reserve’s zero-interest rate policy (ZIRP), $1 million invested in short-term Treasury bonds earns around $10,000 a year in interest–less than a job paying minimum wage. Owning $1 million in stocks that pay a 2.5% dividend yields $25,000 a year in income, considerably less than the median wage of around $35,000. So even $1 million isn’t necessarily generating enough income to replace earned income (wages).
If prosperity ultimately depends on employment and earned income (wages), how are we doing as a nation? Unfortunately, the answer is “terrible.” As a percentage of the population, full-time employment is down. Only 36% of the population has a full-time job.(Charts 1 & 3 were reprinted by permission from mdbriefing.com; charts 2,4 & 5 are courtesy of frequent contributor B.C.):
It is also down on a per capita (per person) basis:
Meanwhile, an increasing percentage of jobs are part-time. When the media reports that the number of those employed has gone up, note they never break down how many of those new jobs were full-time and part-time.
Total civilian employment is also down:
If we adjust GDP for the growth of M2 money supply and population, we find the broadest measure of the U.S. economy is tanking.
As for wages, I have often reprinted this chart by Doug Short: adjusted for official inflation, real wages are down by 7% – 8%.
(Doug recently reported on net worth, which has nominally matched previous levels but adjusted for official inflation is down 12% from its peak: Household Net Worth: The “Real” Story.)
Adjusted for inflation, the median income for the lower 90% of wage earners (138 million people) has been flat since 1970–forty years. Only the top 10% (14 million people) actually gained income, and only the top 5% gained significantly (+90%).
Clearly, current policies are not very employment-positive. We could start by noting that the only way 90% of the populace can buy more goods and services is if the cost of living declines, i.e. deflation.
We might also concede that saddling employers with skyrocketing healthcare costs is a tremendous drag on hiring. There is nothing sacrosanct about employer-paid health coverage; it was more an historical accident than a well-planned policy. It may be time to scrap employer-paid healthcare and set up a prevention-only national system and open the healthcare field to true competition. A Sustainable National Healthcare System: Prevention Only (August 20, 2012).
Perhaps corporate taxes could be radically lowered for companies that invest in domestic human capital. Were the nominal corporate tax rate 0% for companies that produce goods and services in the U.S. with U.S. workers, we might find such incentives yield significant employment dividends even as corporate tax revenues decline. (If more enterprises are launched and more people are employed, taxes will rise without needing to boost tax rates.)
The current de facto policy of inflating asset bubbles to spark a “wealth effect” is no substitute for policies that make it less burdensome to start new enterprises and hire employees.
AWD says:
U.S. Needs to Invest Its Way Out of Debt: Leonhardt
By Jeff Macke
In his new book “Here’s the Deal,” Leonhardt lays out his thinking starting with the premise that both sides have already won what matters to them most and it’s killing us. Republicans minimized the tax hikes that became inevitable with the drubbing they took at the polls in November. The Democrats kept the benefits, specifically those for seniors. The result is a country running huge defecits in order to invest in the our elders.
Sorry Boomers but the ROI on Medicare and Social Security is fairly close to zero in strictly financial terms.
Leonhardt’s idea is to keep the revenues from higher taxes but use it not for propping up our legacy Ponzi Scheme benefits program, but rather start investing in education and early science. For evidence that the government isn’t totally inept at such investments Leonhardt points to the Internet (which he says was developed by the Pentagon rather than Al Gore or the free market), the national highway system, synthetic rubber and the jet engine as programs that all started as government programs prior to being handed off to capitalists.
Of course, the jet engine and synthetic rubber were the result of defense spending. So was the highways system which was good for the economy but not at all coincidentally a function of President Eisenhower’s admiration for the autobahn. There’s also ethanol, Solyndra, the Volt… Let’s just leave it at “hundreds of billions of dollars in pork-laden boondoggles” for the sake of brevity.
“The question is do you thnk the value of the Internet is greater than the cost of Solyndra?” Leonhardt responds in a way that will certainly get him a return visit to Breakout for a more spirited debate.
Leonhardt’s basic idea is sound. When the country spends on the elderly it pays for it by reducing investments in the future. Regardless of how that makes you feel emotionally, the economics of it are straight forward. If you take spending as a given you should at least try to put the money to work in places that have the chance of benefiting future generations.
“Relative to other countries the United States spends more of its money on older people and less of its budget on younger people,” Leonhardt notes. If that doesn’t change, a nation of under educated generations toiling at low-tech dead-end jobs is all but inevitable. It’ll be 2030 all over again.
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11th March 2013 at 12:38 pm
ThePessimisticChemist says:
“but rather start investing in education and early science.”
Throw in infrastructure and you got a deal.
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11th March 2013 at 1:11 pm
Bostonbob says:
I might be wrong, but I believe we are spending about 4 to 5 times whar we spent in 1960 in inflation adjusted dollars. Are we getting better results? I do not think our “investment” is getting the returns that our dear leaders keep promising. It is giving us an education establishment thas churns out poorly educated, liberally indoctrinated sheeple and educators and administrators that make on the order what doctors made in the 1970′s, adjusted for inflation. Probably more if you include 20 to 30 years of pension at 80 to 90 percent of their last three years pay averaged out. We would be much better off eliminating the established education system, giving the money back to the taxpyers and letting them decide for themselves how and where to educate their children. This may not sound fair, but I am sick and tired of fair. I think good people in good communities will do the right thing and find the best ways to educate their children since they will be personally vested in the process. People who do not care and want to just house the children someplace for 6-8 hours a day will find a way to do just that. As bad as the educational system is, I am surprised that some actually do come out with a decent education. There are some very good teachers and even schools out there, but the system is broken and needs to be blown up.
Bob.
Well-loved. Like or Dislike:
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11th March 2013 at 2:44 pm
JIMSKI says:
Imagine what we could have done with the money spent on the last 2 wars 3? was Iraq and Pakistan… wait pakistan is later……OK Iran? was it Iran?
Well if all the money from the wars since 2001 and the DHS would have been used for infrastructure HERE not THERE.
Guy can dream……
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11th March 2013 at 2:48 pm
Administrator says:
JIMSKI
That would be $1.43 TRILLION that could have been invested in this country rather than blowing up the infrastructure of 3rd world countries and then building chicken factories in the desert.
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11th March 2013 at 2:57 pm
JIMSKI says:
Admin.
That seems like a lot of fake money that we could have used. Perhaps they decided that we could not use fake borrowed money for infrastructure as we might have to give China a bridge or tunnel when we can not pay? Since it all went boom in a war well……….
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11th March 2013 at 3:02 pm
Zarathustra says:
I can’t verify the number, but in a radio interview the other day, I heard that the cost of the Iraq war up to and including the present, has been $15,000,000 per day. Surprisingly the Afghan war has been even more expensive, due to large scale capital infrastructure projects that the US has undertaken.
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11th March 2013 at 3:17 pm
The Erosion of the U.S. Economy In Two Words: Jobs and Wages | Prepper Podcast Radio Network says:
[...] Who Needs a Job? – We’ve Got the Government & the Stock Market [...]
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11th March 2013 at 11:01 am
TeresaE says:
We don’t NOT need to spend ONE MORE dime on “education.”
That has to be one of the biggest fallacies (next to we will all be working “high-tech, thinking” jobs and Global Warming) that has been pushed ad nauseum.
We waste TRILLIONS “educating” 100% of our children. Which wouldn’t be wasted if 100% of our children were CAPABLE of the education benefiting them.
Why can’t we tell the truth in this country? Is it in the freaking fluoride? or flu shots?
Anyway.
If we quit trying to make silk purses (engineers) out of sow’s ears (low IQ with no family support), we would have ALL the money we need to turn the best and the brightest into something better.
There will ALWAYS be ditchdiggers – and the IQs that tend to thrive there – and we cannot EVER, no matter how much we want to believe, turn them into scientists.
We need to accept the reality of our differences, and use what we have to make the most out of it.
My daughter is easily in the top of her class, but this bullshit of shoving facts and memorization down their throats at ten times the learning pace is NOT making her smarter. It makes her depressed, and frustrated, and want to give up.
I cannot imagine how it makes the 20 kids in her class that are reading three or four grade levels below her. And these kids are only 7 & 8 years old.
EDUCATION isn’t going to fix our job situation. Just because you build a barn doesn’t mean your neighbors cows decide to move in.
The education myth always pisses me off. More common sense, more allowing for and highlighting differences, more work ethic, would work. Spending more money won’t.
Michigan believed that it would and went forth and doubled both teachers pays and education mandates and standards. Twenty years later our kids IQs are still dropping and now the teachers are ever more firmly embedded within their golden-egg contracts.
We don’t need MORE education, we need SMARTER education. Now someone tell me how that has become such an oxymoron.
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11th March 2013 at 2:23 pm