Whatever Happened To Those Middle Class Income Gains?

This year's Economic Report of the President has an interesting analysis of the sources of the slowdown in income gains among the middle class. Given all the attention given to the issue of growing inequality, especially between those at the top and the other 90 percent you might think that was the major economic problem facing the nation. But no, it turns out that the biggest source of the slowdown is the poor performance of productivity since 1995 compared to the earlier postwar period.

The question the President's Council of Economic Advisers (CEA) asks is what if productivity growth from 1973 to 2013 had continued at the rate of the previous 25 years from 1948-1973? The answer is that the typical household would have had an additional $30,000 in income. (CEA report, p. 33)

The CEA goes on to ask parallel "what if" questions about income inequality and female labor force participation. How much better off would the typical middle class household be if income gains had been broadly shared after 1973 and female labor force participation had not levelled off after 1995? These changes produce smaller effects on middle class incomes of $9,000 and $3,000 respectively. However, all three factors combined can explain a whopping $50,000 in income foregone by our typical family. In other words, these families would have almost twice as much income if it hadn't been for the decline in productivity growth, the rise in income inequality, and the levelling off of female participation rates.

The very large role of slower productivity growth is surprising. After all, we have seen an explosion in technology fed by the increasing power of computers. Smart phones, driverless cars, computer-assisted design and manufacturing, robots, drones, and the innovations they have made possible should have boosted productivity smartly. But as Nobel-prize winning economist Robert Solow once quipped, " You can see the computer age everywhere but in the productivity statistics." So what's going on here?

According to the CEA, starting in 1973, labor productivity growth slowed dramatically to only 1.4 percent annually from its earlier pace of 2.8 percent from 1948-1973. (It has recovered somewhat over the last two decades but has not matched its earlier high levels.) They cite the exhaustion of pent-up innovations from World War II, reduced public investment, dislocations associated with a new international monetary system, and the oil shocks of the 1970s.

Other experts might add other factors to the list. Economist Robert Gordon believes that the technological breakthroughs of the late twentieth century cannot match earlier innovations such as those represented by electricity, cars, the telephone, and radio. It's also possible that we have not yet seen the full effects of the computer revolution. My colleague,Barry Bosworth, has shown that a lot of productivity gains are occurring in the service sector and that it isn't just capital deepening that is producing these gains. It is everything from better management to human capital investment and organizational innovation - all the things we cannot measure very well but which show up in the data as an unexplained residual.

In the meantime, the new technologies are contributing to growing income inequality. Because these technologies are replacing unskilled and even some medium-skilled jobs, we are left with the worst of both worlds - disappointing increases in productivity and declining opportunities for those without the education and skills to benefit from the new technologies.

The solution cannot be to slow down the pace of technology. It must be to encourage innovation, retrain workers, invest in the next generation, and help those dislocated by the changes. Yet we are not investing in research, in education, and in infrastructure in the same way we did in earlier decades. Taxes need to be reformed to provide greater simplicity, fairness, and growth. Policies such as paid leave, child care, and more flexible work places would encourage more second earners to join the labor force. Most innovation, to be sure, occurs in the private sector, but it has little incentive to invest as long as overall demand is constrained by policies that fail to mitigate financial instability or that are focused on short-term spending cuts in public investments combined with a longer-term explosion of consumption-oriented spending on the big entitlement programs. Until elected officials act to recreate these underpinnings of growth, any permanent improvements in middle class incomes are unlikely to be realized.

Via: RealClearMarkets

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For 'the Working Guy' But Killing Good Middle Class Jobs

 A tugboat pushing nine loaded coal barges chugged up the Ohio River, toward the confluence of the Allegheny and Monongahela rivers.

It eventually passed the McConway & Torley steel foundry along the Allegheny, likely headed for one of the few coal-fired power plants left in America.

Hold on to that imagery: It is part of the left-behind community of Americans whose struggles with the we-know-what's-best-for-you elite will be central to the fight over our direction in the next presidential election.

Workers in the coal industry and at McConway & Torley are in the cross hairs of the progressive left. The left rails against McDonald's for not paying a salary that sustains a family of four, as it simultaneously tries to snuff out the manufacturing base that provides well-paid middle-class jobs.

McConway & Torley has been in Pittsburgh for nearly 150 years. It is one of the few places in the city where laborers can earn enough to stay out of poverty, own a home and provide security for their families' futures.

All of that is what both Democrats and Republicans are preaching in the run-up to the 2016 election; each candidate promises to rebuild the manufacturing base that evaporated from the industrial Northeast and Midwest and shifted overseas, where labor is cheaper.

Since the Civil War era, McConway & Torley has made couplers that link railroad cars, a once-deadly task performed manually by brakemen; what it produces here accounts for 60 percent of the North American market.

Via: Real Clear Politics

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Chairman Priebus Op-Ed: With Florida Visit, Clinton Shows She’s Out-of-Touch

Since declaring her candidacy for president more than a month ago, Hillary Clinton has spent very little time with “everyday Americans”—the people she claims she’s fighting for.

None of her campaign events have been open to the general public. That is probably for the same reason she avoids reporters: She doesn’t want to answer questions about her email scandal, about her record, or about her positions on controversial issues. (In the first month of her campaign, she only answered nine questions from the press.)

Her time has been spent in closed-door fundraisers and carefully choreographed campaign events. The “average” Americans at her “roundtable” discussions are pre-selected by her campaign, and they are often former Clinton or Obama campaign volunteers. Her trip to Florida this week is no exception.

It’s remarkable that Clinton continues to avoid the public because she desperately needs to earn the public’s trust. Polls show a majority of Americans do not believe she is honest or trustworthy. And more and more Americans see the Clintons for what they are: hopelessly out-of-touch with the middle class.

Via: GOP.com

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Obamacare: Unfair to the young middle class, punished enough already

The Obama administration came out with a report Monday arguing that 1 million single adults between the ages of 18 and 35 will be eligible for an Obamacare insurance plan costing less than $50 a month.

That’s news to me.

I’m a healthy 34-year-old with a taxable income hovering right around the Obamacare subsidy level who, for the last several years, has purchased a relatively inexpensive catastrophic health insurance plan from Blue Shield. I get to see the doctor four times a year for a $30 co-pay, and I won’t have to spend the rest of my life working off the debt if I get hit by a bus.

Last month, however, I received a letter from my insurance company informing me that my plan was “no longer available” due to “new requirements for health coverage under the Affordable Care Act.” I am being funneled into the closest equivalent plan under the new California health exchange, and my monthly premium is going to rise by nearly 43% to $214 a month.  

My old plan was as bare-bones as they came, so I assumed that even though the new plan would cost more, my coverage would improve under Obamacare, at least marginally.

It did not.

Under my old plan, my maximum out-of-pocket expense was $4,900. Under the new plan, I’m on the hook for up to $6,350. Copays for my doctor visits will double. For urgent-care visits, they will quadruple. Though slightly cheaper plans exist if I decide to shop around on the exchange, I will lose my dental coverage should I switch.

Needless to say, I am not pleased.  

Most young, middle-class Americans I know are happy that millions of previously uninsured people will receive free or heavily subsidized insurance under the Affordable Care Act.

We just didn’t realize that, unless we had health insurance at work, we’d be the ones paying for it.

Via: LA Times

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The Democratic Disasters to Come

The defunding wars are over. The accusations are fading. We are back to reality. Of course, America’s long-term prospects, at least in comparison with other countries’ futures — whether in terms of demography, military power, food-production, constitutional stability, energy sources, or higher education — are bright.

But short term, we are walking over landmines that threaten to blow up the normal way of doing business, and pose far more harm for Democrats than for Republicans.

Zero Interest

The real story about the debt is that by the end of Obama’s eight years, he will have matched the borrowing of all previous presidents combined.  Yet incredibly, the present huge sum of $17 trillion in debt is serviced at the same cost that we paid over 15 years ago. Such free use of money without raging inflation is almost historically unprecedented — and it won’t last.

Indeed, we are paying today about the same amount in aggregate annual interest payments, in non-inflation-adjusted dollars no less, as in 1997 — even though the 2012 figure of $17 trillion in debt is about three times larger than it was a decade-and-a-half ago. That anomaly is possible only because today’s interest rate of about 2.2% is only a third of what it was back then.

If interest ever returned to 1997 levels, at say 6.6%, we’d be paying over a trillion dollars a year in debt service. In crude terms, the winners of this Ponzi scheme are the very wealthy connected to Wall Street, which is flooded with foreign and domestic capital. It need not do much of anything more than outperform a pathetic 1% return on savings accounts.

The poor benefit from the vast increase in federal spending and exemption from federal income taxes. In contrast, the middle class still pays high interest on its student loans, credit card, and, to a lesser extent, car debt, receives almost no interest on its meager savings accounts, and is not so ready, after 2008, to dabble in real estate and the stock market.

In some sense, holders of U.S. Treasury debt and passbook savers are giving up hundreds of billions of dollars in interest returns (cf. the difference, say, between 1% and a more normal 5%) to subsidize the redistributive policies of the federal government.

The lack of interest, or de facto negative interest, keeps the near-retired working and hampers job prospects of the young; discourages thrift, savings and investment; and plays an underappreciated role in the slow economic recovery. The Democrats must deal with the contradiction of needing zero interest rates to service their recent extra $6 trillion in debt, and higher interest to encourage savings, investment, and job growth.

Via: PJ Media

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RING IN THE NEW YEAR WITH YOUR NEW HEALTHCARE TAXES

Most of the new healthcare taxes will fall on high income earners, but the middle class and medical device industry will also take a hit.

Directly impacting taxpayers is the Medicare tax hike on high income wage earners, higher taxes on investment income, lower contributions to flexible spending accounts and a higher threshold for deducting medical expenses from income tax. 

The Affordable Health Care Act is funded through the Medicare taxes of high income earners. These taxes hit individuals earning over $200,000, and joint filers earning more than $250,000.  Medicare taxes will go up by .9% for these folks and they will be hit with an additional 3.8% on unearned income.

Also hit will be folks who earn a greater share of their income from investments. Even if their regular income isn't high enough for the additional taxes, their investment income would be hit with an additional 4% tax. The consequence will most likely be less investment.

The cost of the Affordable Healthcare Act will not just hit the "rich." Two new taxes will affect the middle-class. Taxpayers used to be able to deduct health care expenses that total more than 7.5% of their income. Starting in 2013, that threshold will rise to 10%. This deduction is most often utilized by lower income earners with high medical bills.

According to Lindsey Buchholz of the H&R Block Tax Institute, about 10 million taxpayers deduct around $80 billion in health care expenses a year.

The second of the two middle class taxes is a limit on flexible spending accounts. Previously there was no limit to what an individual could contribute in pre-tax dollars, but now contributions will be limited to $2500.  These two provisions are expected to raise $40 billion of the next 2 years.

The medical device tax, and addition 2.9% tax on medical devices, is expected to raise $29 Billion over the next ten years.  Unlike other taxes that can be passed on to the consumer, Medicare is the largest purchaser of medical devices; Medicare doesn't function in a free market where companies are able to pass the costs on to consumers. The industry will have no choice but to absorb the costs by cutting the work force or reducing their output.

Happy New Year!

Via: Breitbart

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CONGRESSMAN: OBAMA'S TAX INCREASES FUND GOVERNMENT FOR EIGHT DAYS

President Barack Obama has proposed raising taxes on the rich to put America's fiscal house in order, but critics say federal spending is so massive that the wealthy don't have enough money to cover the nation's unprecedented debt.

In an interview with MSNBC's Andrea Mitchell, Rep. Tom Price (R-GA) said President Barack Obama's plan to raise taxes on the wealthy would only generate enough revenue to fund the federal government for eight days.

"The president’s plan to increase taxes on the upper two percent covers the spending by this federal government not for eight years, not for eight months, not for eight weeks but for eight days. Eight days only," said Mr. Price. "It’s not a real solution. So, again, I’m puzzled by an administration that seems to be more interested in raising tax rates than in gaining economic vitality."

The problem is that the rich don't have enough money to put so much as a dent in America's $16 trillion national debt. "If the IRS grabbed 100 percent of income over $1 million, the take would be just $616 billion," writes John Stossel. "That’s only a third of this year’s deficit. Our national debt would continue to explode."

Still, Mr. Obama's supporters persist in proposing tax hikes on the wealthy. On Sunday, billionaire Warren Buffett proposed a minimum tax for America's top earners. "We need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that."

There's just one problem with such an approach, says author Mark Steyn:

If you took every single penny that Warren Buffett has, it'd pay for 4-1/2 days of the US government. This tax-the-rich won't work. The problem here is the government is way bigger than even the capacity of the rich to sustain it. The Buffett Rule would raise $3.2 billion a year, and take 514 years just to pay off Obama's 2011 budget deficit.

Indeed, even Mr. Buffett seems to concede that he and the president's "soak the rich" proposals are more an act of political theater designed to generate an emotional response than serious solutions: Mr. Buffett told Matt Lauer he believes his proposal would boost the "morale of the middle class." 

Via: Breitbart

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America Won’t Exist With Four More Years of Obama - UN Rule Within Two Years

A November 02, 2012, FoxNews.com online article authored by Christian Whiton, was titled “Would an Obama second term save America’s struggling middle class?” This is almost equal to asking if Obama’s first term helped America’s middle class.  No amount of terms of Obama in office would help America’s middle class.

Secondly, his affiliation and subservience to the Islamic religion, and the Muslims thereof, preclude any possibility that the Christian pretender Barack Obama can serve any loyalty to the American middle, upper or lower classes who are overwhelmingly non-Islamist in their primary theological beliefs.  Obama bows only to the Islamic rulers of the non-free world; his obeisance to Christians and others of the free world is barren.

Over the past four years Obama has paid lip-service only, to America’s middle class.  His prime attention has been concentrated on the upper levels of income earners and concocting efforts to make them pay even more than the inordinately high levels they already do pay in taxes.

Via: Canada Free Press

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THE BIG FAIL: Look Out The Window

As Obama Travels Across The Country In A Last-Minute Bid For Votes, America’s Middle Class Deserves An Explanation For His Failed Policies

 

“Sometimes All President Barack Obama Has To Do Is Look Out The Window To Get A Firsthand Look At The Country’s Economic Woes.” (Julie Pace, “Rough Economy In Clear View For Obama On The Road,” The Associated Press, 10/2/12)

OVER THREE YEARS OF OBAMA’S FAILED POLICIES HAVE LEFT THE MIDDLE CLASS IN A SQUEEZE OF HISTORIC PROPORTIONS

“Obama, Who Came Into Office Promising To Bolster The Middle Class And Reduce Inequality, Has Presided Over A Turbulent Economy That So Far Has Done Neither.”“Analysts call continuing high levels of joblessness a prime factor in the income and wealth declines that have continued for most Americans even after the recession ended. Obama, who came into office promising to bolster the middle class and reduce inequality, has presided over a turbulent economy that so far has done neither.” (Michael A. Fletcher, “Obama’s Record: Struggling To Bring Back Jobs,” The Washington Post , 10/18/12)

• “The Tepid Pace Of Job Creation Looms As Perhaps The President’s Biggest Political Vulnerability As His Re-Election Campaign Enters Its Final Weeks.” “The tepid pace of job creation looms as perhaps the president’s biggest political vulnerability as his re-election campaign enters its final weeks. The unemployment rate had been stuck above 8 percent for 43 consecutive months before falling to 7.8 percent in September. Still, nearly 5 million Americans have been out of work for six months or more.” (Michael A. Fletcher, “Obama’s Record: Struggling To Bring Back Jobs,” The Washington Post , 10/18/12)

• “[T]he President’s Policies Have Failed To Ignite Anything Close To The Robust Jobs Growth Needed To Overcome The Horrific Losses Caused By The Downturn.” “The aggressive series of actions helped construct a floor under the most severe economic collapse since the Great Depression, many economists agree. Yet, the president’s policies have failed to ignite anything close to the robust jobs growth needed to overcome the horrific losses caused by the downturn.” (Michael A. Fletcher, “Obama’s Record: Struggling To Bring Back Jobs,” The Washington Post , 10/18/12)

The Washington Post Headline: “Census: Middle Class Shrinks To An All-Time Low”(Carol Morello, “Census: Middle Class Shrinks To An All-Time Low,” The Washington Post , 9/12/12)

“Far From A New Dawn Of Broad-Based Growth, America’s Middle Class Decline Is Getting Worse.” “Second, the hollowing out of America’s middle class – still politely described as median income stagnation rather than ‘decline’ – is accelerating rather than slowing. According to the US Census last week, the US median household is 4.8 per cent poorer now than at the start of the recovery in 2009. Median incomes have now fallen to the pre-internet level of 1993. All of the gains of the Clinton years have been lost. The decline in the past three years follows a 3.2 per cent drop during the recession, which itself followed a shrinkage during the 2000-2007 cycle. Far from a new dawn of broad-based growth, America’s middle class decline is getting worse.” (Edward Luce, “The US Economy Is Still In A Sorry State,” Financial Times, 9/23/12)

Via: GOP.com

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Obama And The Triumph Of Cargo Cult Economics

Over the past four years the American middle class has suffered an unprecedented decline. At this writing the labor for participation rate is the lowest since 1981 and for men it is the lowest since that statistic has been gathered. Household income has plummeted by 7.3% equating to over $4,000 per family. The number of persons on food stamps has nearly doubled in a mere four years. The unemployment rate continues to decline only by statistical legerdemain and reducing the number of people actively looking for work by demoralizing them.

Instead of taking firm action to preserve the middle class, the Obama regime has engaged in a full frontal assault on the middle class in order to reduce it to a state of government dependency.

Our home loans are no longer held by local banks, they are secured by the United States government. Superficially private sector jobs in industry sectors chosen to be winners by government bureaucrats only exist because of extravagant government subsidies… and some of those jobs being created in foreign countries. The agricultural sector is being wildly distorted in the service of ethanol production. Students are being inveigled into taking out loans to acquire an education that is either irrelevant or superfluous in the modern world (really, a master’s degree in jazz flute? What did you think was going to happen?)

As we’ve chronicled over the past month, the economic strategy pursued by the Obama regime is nothing more that cargo cult economics (here | here | here | here). Simply put, the regime has attempted to bolster the middle class using exactly the same method that Neolithic South Pacific islanders have used to continue receiving food and supplies from the United States. Instead of building a bamboo C-47 they are creating the trappings of a middle class society, e.g. a college education, a job, etc., without strengthening the underlying economy which supports it.

Via: Red State

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