Economy's numbers encouraging on many fronts

Atlanta Journal Constitution ^ | 6/12/06 | AJC Editorial Board

[Oshkalaboomboom]

Edward P. Lazear, chairman of the White House Council of Economic Advisers, spoke recently about the U.S. economy. Here are excerpts:

Economic growth is the key to increasing living standards. Our economy has been growing strongly. with real gross domestic product increasing at a 5.3 percent annual rate in the first quarter of 2006.

Growth means higher productivity, and higher productivity translates directly into higher wages. Productivity has also grown strongly, with the most recent numbers showing 3.5 percent annual growth since the business cycle peaked in the first quarter of 2001.

Economic growth and productivity growth are also important to the government's budget. With strong growth in revenues, we are ahead of pace to meet the president's goal of cutting the deficit in half by 2009.

To date this year, tax receipts are up 11 percent compared to a year ago, reflecting an economy that is growing, expanding and creating jobs. Significantly, the Congressional Budget Office is now projecting the 2006 budget deficit to be down to $350 billion or perhaps as low as $300 billion, or about 2.3 percent of GDP.

These numbers are encouraging, particularly since this is a year during which the federal budget is strained because we are fighting a war and rebuilding after unanticipated natural disasters on a major scale.

Indeed, the evidence suggests that strong economic performance is improving revenues. Economic growth and spending restraint, not higher taxes, are the solution to reducing the deficit.

[Oshkalaboomboom]

This is under the AJC's equal time section of the editorial page, which means that now you've read this one short piece of good news it's OK to go back to bashing Bush, Repubs and the economy, proving that the AJC is committed to providing a fair and balanced look at the issues. Now, about that bridge I have for sale...

[Brilliant]

"tax receipts are up 11 percent compared to a year ago..."




I thought tax cuts did not work?

[M. Dodge Thomas]

"Growth means higher productivity, and higher productivity translates directly into higher wages..."

IMO, one reason that opinion surveys suggest that average Americans feel economically less optimistic and secure that they ought to based on "objective" fact is this sort of statement.

Looking around them, average working Americans suspect that this can't be the truth - or at least the whole truth - and they are right: in recent decades productivity has been increasing much faster than median incomes:

Output per Hour

a significant shift from the experience in the first few decades post WWII (when the US middle class was built), and when salary and productivity gains moved in tandem:

and no amount of economic happy talk from the CEA or anyone else can alter this perception.

IMO, it would be much better - and more convincing - if the same voices were telling the whole truth: that the American middle class is in the middle of a long era of belt-tightning and increased personal economic risk as the US scrambles to retain international competitiveness, that we are attempting compete by a strategy of increased corporate profits and redistribution of income upwards to reward the economic elite (both presumed to further increase productivity ), but that that the payoff for average wage and salary earners in terms of substantially renewed increases in real incomes is likely a decade or more further off.

[Rock N Jones]

“average working Americans suspect that this can't be the truth - or at least the whole truth - and they are right: in recent decades productivity has been increasing much faster than median incomes: “ ‘

In other words what this country needs is median incomes increasing faster than productivity. Bring Jimmy Carter back. Elect Democrats!

[widowithfoursons]

Do you know anything about the M3 money supply (how much is being printed). I understand that the govt stopped reporting that this year. Could deflation be the problem as the $ is worth less and less on the global market? Is that why gold is up about 67% in a year? Can it be that gas is so high because the $ is worth less, and that since oil cannot be mass produced we are seeing the result of artificial $'s in circulation to prop us up -

[expat_panama]

Bring Jimmy Carter back. Elect Democrats!

Exactly.  Carefully crafted graphs from the union thugs at the EPI are supposed to make us thing that "what's wrong with the economy" is "income and wages are down, debt is way up, and poverty is on the rise"  These are lies.  The whole picture is that private debt is down, incomes and wealth are at record levels and unemployment is nil.  

Some people are allergic to happiness.

[Rock N Jones]

"income and wages are down, debt is way up, and poverty is on the rise" These are lies."
Wherever I go I see folks that are flushed with bucks. Cars crowding the highways. Stores filled with customers, gas stations lines at the pump. I live in central Florida and the development going on everywhere in Florida is simply stunning. I just spent a week in Miami and downtown Miami littered with skyscraper cranes building 50+ story buildings for miles along Biscayne Boulevard and Brickell Avenue. I don’t see anyone complaining about the economy, just the opposite. Frankly it never has been so good. I am glad that productivity is high in USA. I do not want to see democrats control congress or a democrat President.

[Mase]

These are lies.

Indeed they are. Anytime I see stats claiming the middle class is suffering and that wages are not increasing it's always provided by some lefty source like the E.P.I. Their doom can be easily explained away. Why some FReepers insist on using them to build their case cannot.

In addition to your stats expat, conservative economist Stephen Moore from the Club for Growth, also offers some interesting stats to answer the distortions described by our doubting Thomas.

• in 1967 only one in 25 families earned an income of $100,000 or more in real income, whereas now, one in six do. The percentage of families that have an income of more than $75,000 a year has tripled from 9% to 27%.

• The percentage of families with real incomes between $5,000 and $50,000 has been falling as more families move into higher income categories -- the figure has dropped by 19 percentage points since 1967.

• The middle class has not been "shrinking" or losing ground, it has been getting richer. For example, the Census data indicate that the income cutoff to be considered "middle class" has risen steadily. Back in 1967, the income range for the middle class (i.e., the middle-income quintile) was between $28,000 and $39,500 a year (in today's dollars). Now that income range is between $38,000 and $59,000 a year, which is to say that the middle class is now roughly $11,000 a year richer than 25 to 30 years ago.

• The upper-middle class is also richer. Those falling within the 60th to 80th percentile in family income have an income range today of between $55,000 and $88,000 a year, which is about $24,000 a year higher than in 1967.

• Median household wealth for 2004, is estimated at $105,000 in 2004. This is almost double the median family-wealth level of 1983 and nearly triple the level of 1962.

• The media and the poverty lobby have seized upon the news that the poverty rate has spiked upward to 12.7% in 2004, up from 11.3% before the recession. This rise was widely reported and condemned, but again this is a short-term phenomenon attributable to the aftershocks of the recession. What was not widely reported was that the 12.7% poverty rate was the lowest coming out of any recession in the last 25 years, and that the poverty rate has been lower than 12.7% in only five of the last 25 years. It certainly is better than the 15.1% rate poverty-rate peak in 1993.

Source: WSJ (subscription required)

[Mase]

Let's try the chart again in a size that makes it a little easier to read.

[expat_panama]

Fabulous graphs!

They tell a lot-- the fact that so many people are switching incomes from < $50k to > $75k,  They also explain a lot about why tax revenue has been increasing  --and that's good too.   In fact, as far as I'm concerned I wouldn't mind it a bit if my taxes doubled --as long as it's because my income has tripled.

[M. Dodge Thomas]

IMO there’s sort of an allergy to the facts in a lot of commentary about income and productivity in the US.

Productivity is up.

Median family incomes (for example) are up much less.

The difference in part results from increased corporate profits and an upwards redistribution of income, these are the result of deliberate policy choices, and these are choices almost all posters here - and a majority of voters nationally – support.

For example virtually everyone here – and likely most US voters – would prefer to live under these arrangements that those in France or Germany.

IMO people feel this way in large part because they believe that this is the path to the most productive sort of economy for most participants, and to date aggregate economic performance suggests that the US economy is in fact outperforming that of many other advanced industrial societies – that’s the part of the story the administrating likes to have told.

Another part of the same story – that these policies have also resulted in two decades of low growth in median family incomes - is a part that some conservatives would understandably prefer to gloss over... so of course we are not going to find charts highlighting these trend lines on the AEI website.

But IMO responsible and realistic conservatism – when planning for either family or national economic choices - requires that observers face the fact that for average families this disconnection between overall economic progress and their economic position is all too evident; that for example it’s for example the reason why good macroeconomic news fails to translate into corresponding satisfaction around the dinner table.

And it also requires recognition that for the majority of Americans the ultimate pay-off for these choices is at least a decade away, and that even then it may consist of only moderately improved or even moderately reduced real standards of living, rather than precipitous decline in the face of international competition.

[expat_panama]

the $ is worth less, and that since oil cannot be mass produced we are seeing the result of artificial $'s in circulation to prop us up -

A month ago it took ten oz of gold to buy a hundred barrels of oil.  Today it "costs" 12 oz.  If we were on the gold standard we'd have had 20% inflation this past month. 

If you still think your $ are "worth less" let me know when you're throwing them away and I'll take out your trash.

[expat_panama]

Some people are allergic to happiness.     IMO there’s sort of an allergy to the facts

We do not disagree on the facts, that both incomes and productivity are up.  What we disagree on is whether this is something to be happy about.

There is no way that I can prove to anyone that increases in both incomes and productivity are good.  Value systems are not logical.  Mine are based on accepting the Will of our Creator is that we live in plenty and we that we must rejoice, praise, and give thanks.   If someone else's values prefer falling incomes and productivity that's their choice.  IMHO that choice is sick.

[M. Dodge Thomas]

If someone else's values prefer falling incomes and productivity that's their choice. IMHO that choice is sick.

I don't see anyone around here taking that position.

[expat_panama]

someone else's values prefer falling incomes and productivity    "I don't see anyone around here taking that position."

Neither do I, now.  

Your post 11 suggests that rising incomes and productivity don't "translate into corresponding satisfaction around the dinner table."   Now, I can tell you that you weren't talking about my dinner table nor any table that I'm familiar with because we're satisfied as all get-out.   If you've been talking about your own personal experience, than I hoped that if there were anything that could bring about mealtime satisfaction it would have to have been falling incomes and productivity.   I blew it --I got no idea what you want.

We're stuck because you're not saying what it is you value.  You post seems to hint that our increased income is not satisfactory, even though it's brought about record levels of wealth.  This is because of an excessive productivity that leaves us dissatisfied with the additional wealth we've amassed. 

Just what is it that you do want anyway?

[M. Dodge Thomas]

In fact, ALL of these charts are roughly accurate:

What you have above is nearly stagnant (or declining) long-term median individual incomes:

plus a huge increase in two income households:

feeding into rapidly changing income distributions:

... which gets us backs where we started the discussion:

And IMO goes a long way toward explaining what I’ve noted above: that despite aggregate economic progress, average Americans apparently don’t preceive recent productivity gains as providing anywhere nearly equal improvement in their real standards of living.

[DJtex]

I agree that there is evidence that a significant portion of the middle class is seeing flat income expansion for the last decade or so. It's to your credit that you can see this as a response to globalization and the constant challenge that this poses on wages for our general labor base.

Even our skilled sector of IT professionals are being outsourced, slowly, but this doesn't imply that more governmental regulation could change this or "improve" it for the average worker. We should continue to get the government out of the economy if we want increased growth and opportunity.

Just to survive globalization without putting all of our labor force at risk is a huge win for us. I've talked to a number of economic experts who flatly state that it's impossible for the USA to have a significantly higher average labor wage than the average worldwide labor wage ultimately.

[texastoo]

In 1967, what was the percentage of families that had both husband and wife working compared to today? In other words a salary of $35,000 is fantastic as long as 2 people work to make $75,000.

Here is a link to the census bureau medium family of 4. This goes back to the 1970's before (the savior of the U.S.) free trade. As you can all see, we have progressed at pretty much the same rate for all these years.

http://www.census.gov/hhes/income/4person.html

[texastoo]

Oops, $70,000.

[Mase]

Median family incomes (for example) are up much less.

Where does it say that increases in productivity must be matched with equal increases in median family income?

The difference in part results from increased corporate profits and an upwards redistribution of income, these are the result of deliberate policy choices

Nonsense.

The Federal Reserve Bank of St. Louis took a longer perspective in the August issue of its "National Economic Trends." Michael Pakko used a graph to show that, "labor's share of income has averaged 70.5 percent (of national income) over the past 50 years and has remained within a narrow range of that average."

Some folks deliberately confuse wages with total compensation. As the author notes in his article:

To sum up, there has been no decline in labor's share of national income once benefits are counted as income. The share going to corporate profits is cyclically volatile -- declining sharply in recessions, after interest rates and labor costs peak. Employees' share of (declining) national income looks high in recessions because profits are bad, not because pay is good. Rising health care premiums in the past few years have not increased U.S. labor costs, because collecting more of your pay in the form of benefits necessarily means getting less in cash.

Mythology of Wages vs. Profits

that these policies have also resulted in two decades of low growth in median family incomes - is a part that some conservatives would understandably prefer to gloss over... so of course we are not going to find charts highlighting these trend lines on the AEI website.

Your charts say this is so and my charts say it is not so. If you're right, maybe you can explain why it is that our middle class is able to afford all those second cars, electronics, cable TV, cell phones, vacations and dinners out if their incomes aren't increasing? All I need to do is look around me and compare what I see today to what I saw in the 70's to fully understand that we're all getting much wealthier in this country and are therefore able to afford more luxuries in our lives.

that for the majority of Americans the ultimate pay-off for these choices is at least a decade away

More nonsense from the Eeyore school of economics. The ultimate payoff has been occurring for decades now and will continue for decades into the future as long as those who advocate for more government control of the economy don't win. Just look at how vastly our lives improved from 1970-1990. Please go to page 6 (of 40) here and explain the chart comparing 1970 to 1990. If the middle class in this country is not becoming much wealthier, how are these gains possible?