The plight of the "middle class"

David Leonhardt (see here) has the following data for us regarding the middle class.

He says:

"Since median inflation-adjusted family income peaked in 2000 at $64,232, it has fallen roughly 6 percent. You won’t find another 12-year period with an income decline since the aftermath of the Depression."

Another thing you think you know... that isn't true

Jared Bernstein (see here) takes a close look at BLS data regarding firm size and job creation (see graph below, click to enlarge).

Bernstein says,

"So, the question is, do any of these size classes contribute disproportionately to job growth?  In fact, they do, and the winner is…not small firms.  Whether is business cycle expansions or the full run of these data, large firms — 500+ employees — contribute disproportionately to job growth.  The small firms — less than 50 workers — in fact, contribute proportionately less than their share."

As he explains in his post, the BLS looks at the data by firm size, while others (especially those who make the claim that small business contribute more to employment) do so by establishment size.  An an establishment can be "units of large firms."

Some important data

Paul Krugman (see here) has a chart (see below, click to enlarge) that places the issue of compensation growth in historical perspective.

This is a serious issue and a disturbing long-term trend.  Note the graph is for "compensation" - not just wages.  There is a lot of talk during this election season about the "middle class" and the extent to which it should or shouldn't be an issue.  It doesn't matter what you think "should" be an issue - it is one.  If that fact doesn't fit your economic ideology - get over it!

The "fiscal cliff" and its implications

The Washington Post (see here) has a good explanation of the "fiscal cliff" and its consequences (see chart below, click to enlarge).  The piece reminds us that the "fiscal cliff" is "wonk-speak for a series of major policy changes that will happen automatically at the end of this year if Congress does nothing."

You may have heard some of the questions about this posed to Chairman Bernanke on Tuesday.  The general consensus is that failure to address the policy changes that are set to go in effect will represent a huge "fiscal contraction, one which, according to conventional economic theory, could pose a real threat to the economic recovery."

Bruce Bartlett on government spending

Bruce Bartlett (see here) has an insightful post in the New York Times on the role of government spending.  Bartlett, a life-long Republican - is one of the view "reasonable" voices out there these days.  The post is worth ready in its entirety.

Bartlett looks at the components of the GDP and assesses their relative importance as a "stimulus" to the US economy.  His post includes the following data.

He says:

"Government’s role in economic growth turned negative in 2011 because of budget cuts, subtracting more than four-tenths of a percentage point from the real G.D.P. growth rate. Federal consumption and investment spending for both military and nonmilitary purchases fell in real terms relative to 2010, and cutbacks at the state and local level were especially severe, as teachers and other workers suffered layoffs, which subtracted almost three-tenths of a percentage point from real G.D.P. growth."

" I think that much of the criticism of the stimulus legislation on both sides of the political spectrum has been misplaced. Liberals tend to decry the small overall size of the original package, while conservatives say it was too big. But perhaps the very limited allocation for investment and consumption was the problem."

I think Bartlett gets it exactly right.  In my view, the Obama administration made a huge mistake by presenting the government spending efforts in the beginning of his term as "stimulus," since most of it was in a form that prevented future layoffs or wasn't particularly stimulative at all.  To be clear, I think preventing future layoffs in a recession was a good thing to do, but it wasn't a "stimulus."   And, again, to be clear, the Republicans ongoing argument that federal spending can't be stimulative is just crazy talk.  The data clearly contradicts that.

Living long ... and needing healthcare

The Wall Street Journal has an interesting article (see here) with timely data about "The High Price of a Long Life" - see the graph below (click to enlarge).

CBO report on Federal Tax Rates

The CBO is out with a new report (see here).  The report states that:

"The overall average federal tax rates of 18.0 percent in 2008 and 17.4 percent in 2009 were the lowest in the 1979–2009 period and were well below the previous low of 19.4 percent in 2003 and the average of 21.0 percent over that period."

The graph below tells the story (click to enlarge).

 

 The report also notes that tax liability increases significantly with income.

"In 2009, the shares of federal taxes paid by households in certain income quintiles were:

• Lowest quintile: 0.3 percent
• Middle quintile: 9.4 percent
• Highest quintile: 67.9 percent"

We find ourselves in an interesting situation - one that doesn't get much honest discussion.  That is, overall average Federal Tax Rates  have been falling for 30 years. When is the last time you heard someone mention this?  Not often.  Instead, the chatter is meant to convince us that we are paying more Federal Taxes than ever - something that is patently false as you can see.  But the portion of total Federal Taxes paid continues to be the major responsibility of upper income earners.  Any real "reform" has to begin by honestly confronting the facts.

I looked at some other data in the report on Median Household Market Income (unadjusted).  See the graph below.

 This graph provides evidence for the claim that "average incomes" (though it is actually median) have been relatively flat for years.