Posts Tagged ‘United States’

Chart of the day

Posted: 24 October 2014 in Uncategorized
Tags: , , ,

wages-dcj

As David Cay Johnston explains,

American paychecks shrank last year, just-released data show, further eroding the public’s purchasing power, which is so vital to economic growth.

Average pay for 2013 was $43,041 — down $79 from the previous year when measured in 2013 dollars. Worse, average pay fell $508 below the 2007 level. . .

Flat or declining average pay is a major reason so many Americans feel that the Great Recession never ended for them. A severe job shortage compounds that misery not just for workers but also for businesses trying to profit from selling goods and services. . .

Which group of lucky duckies didn’t see their pay fall? Workers making more than $50 million, who saw their average pay rise by $12.8 million, to $111.7 million. . .

Overall median pay — half of Americans make more, half make less — rose slightly last year. It was up a scant $109, to $28,031. That was still $320 below the 2000 median. It also was slightly lower than the 1999 median of $28,109, a troubling measure of long-term wage stagnation.

 

Note: here’s a link to the Social Security Administration’s wage statistics for 2013.

cucalazyimmigrants

Special mention

Steve Bell 22.10.2014

 

The second part of That Film about Money is even better than the first.

That’s because it explores the connection between money and the crisis of 2007-08, including giving the working-class more debt instead of increasing wages (which is why, as you can see below, household debt service payments as a percent of disposable personal income rose so precipitously from the early-1990s onward, until the crash) and why the banks have recovered since the crash (by taking cheap money from the government and lending it back, to finance the deficit, at higher rates of interest).

fredgraph

Toles-14-10

Special mention

mike2nov-500x361 155086_600

2000-2012

While median household incomes in the United States have fallen since the economic recovery began (down almost 6 percent since 2009), incomes at the top (as documented in the chart above) have soared.

The question is, how much of that inequality can be blamed on monetary policy—in particular, on quantitative easing?

As I see it, Richard Barwell, Senior European Economist at the Royal Bank of Scotland and former Senior Economist of the Bank of England, offers the correct answer:

“Given an unequal distribution of income and wealth it is always likely to be the case that a policy which generates a robust and sustained recovery will benefit those at the top more than those at the bottom.”

Of course. Concentrate incomes and wealth in the hands of a tiny minority at the top and a recovery that restores corporate profits and equity share prices will per force lead to more inequality in the distribution of income and wealth.

The issue Barwell and others simply don’t want to address, however, is: has the resumption of the pre-crisis inequality trend, which is a condition and consequence of quantitative easing during the past five years, itself undermined the possibility of a “robust and sustained recovery” going forward?

wealth ratio

Credit Suisse [pdf] appears to celebrate the growth of wealth, in the United States and around the world, during the last few years.

But the investment giant also sounds an alarm concerning the growth in the ratio of wealth to income:

For more than a century, the wealth income ratio has typically fallen in a narrow interval between 4 and 5. However, the ratio briefly rose above 6 in 1999 during the dot.com bubble and broke that barrier again during 2005–2007. It dropped sharply into the “normal band” following the financial crisis, but the decline has since been reversed, and the ratio is now at a recent record high level of 6.5, matched previously only during the great Depression. This is a worrying signal given that abnormally high wealth income ratios have always signaled recession in the past.

 

This is the first part of a two-part series on money, directed by James Schamus (best known as the producer of such films as Hulk and Brokeback Mountain). The films about money are part of We the Economy, 20 Short Films You Can’t Afford to Miss (from writer and director Morgan Spurlock and Microsoft cofounder Paul G. Allen).

That Film about Money does a good job challenging certain common myths about money and banks, especially the idea that currency and money are the same thing, and it introduces important ideas, such as debt as the basis of the expanding money supply.

I only wish, during the discussion of trust, Schamus and the people he interviews had introduced the notion (developed within Modern Monetary Theory) that the basis of our trust in fiat money is the fact that only specific monies—in the United States, the U.S. dollar, the national money of account—can be used to pay taxes. That places the state (and its sovereign authority to levy and collect taxes) at the center of the process of accepting and issuing a particular kind of fiat money.

We can conclude that taxes drive money. The government first creates a money of account (the Dollar, the Tenge), and then imposes tax obligations in that national money of account. In all modern nations, this is sufficient to ensure that many (indeed, most) debts, assets, and prices, will also be denominated in the national money of account.

(Note the asymmetry that is open to a sovereign: it imposes a liability on you so that you will accept its IOU. It is a nice trick—and you can do it too, if you are king of your own little castle.)

The government is then able to issue a currency that is also denominated in the same money of account, so long as it accepts that currency in tax payment. It is not necessary to “back” the currency with precious metal, nor is it necessary to enforce legal tender laws that require acceptance of the national currency. For example, rather than engraving the statement “This note is legal tender for all debts, public and private”, all the sovereign government needs to do is to promise “This note will be accepted in tax payment” in order to ensure general acceptability domestically and even abroad.