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Friday, December 26, 2014

Some Thoughts on the Economy and the Imperial Presidency



Just a few miscellaneous topics that seem to describe the new political and economic reality in the United States. One of the large disconnects between the coastal elites and Joe Everyman has been the "recovery"--that is, the wealthy have been doing well, while the middle-class continues to struggle. A short article from the Brookings Institute looks at this issue from one perspective--wealth. From the article:
“America’s wealth gap between middle-income and upper-income families is [the] widest on record.”  So reads the title of a Pew Research Center analysis by Richard Fry and Rakesh Kochhar that sheds new light on the persisting anxiety of middle-class Americans. 
The analysis offers a useful definition of wealth as the difference between a family’s assets and debt.  Wealth is an important dimension of household well-being, notes Fry, because “it’s a measure of a family’s ‘nest egg’ and can be used to sustain consumption during emergencies (for example, job layoffs) as well as provide income during retirement.”  Wealth is an index both of resiliency in the face of shocks and of preparation for the future. 
In the 30 years that the Federal Reserve Board has been collecting these data, the gap between upper-income and middle-class families has rough doubled.  In 1983, the median net worth of upper-income families was 3.4 times that of their middle-income counterparts.  In 2013, that figure stood at 6.6 times.  Although the increase occurred by fits and starts throughout the past three decades, it accelerated dramatically during the Great Recession and its aftermath. 
The key point, however, is not that the ratio doubled but why.  Corrected for inflation, the median wealth of upper-income families has doubled since 1983, from $318,000 to $639,000.  By contrast, the median wealth of middle-class families has stagnated during that period--$94,000 in 1983, $96,000 today.  To be sure, middle-class wealth increased to $158,000 between 1983 and 2007 but the Great Recession reversed that gain, and the middle class has not participated significantly in the stock market surge that began in mid-2009.
Unfortunately, the author never goes on to explain the "why" aspect. One clear issue that jumps out is that the increase of "wealth" seen by middle-class families between 1983 and 2007 was not a result of large jumps in income--adjusted for inflation, the average worker saw wages stagnate during the same time period--but the increase in the value of residential housing. The collapse of the real estate market wiped away most of those gains, and it is unlikely that the value of houses will rebound, overall, although certain markets will show growth.

Part of the reasons are demographic, and some of it is economic/debt related. Here are a few articles on the topic from The Atlantic and The Washington Post and the Futurist. Essentially, the main problems related are (i) high student loan debt that keeps younger people from accumulating the savings necessary to buy a home; (ii) lower marriage rates, which eliminates one of the main reasons for buying a family home--a family; and (iii) stagnating wages, as noted above. At the same time, however, retiring baby boomers will be seeking to sell their homes to fund their retirements. More people attempting to sell at the same time there are fewer buyers means that housing prices will at least stay flat, if not decline, when viewed nationally.

Breitbart notes that the mega-rich overwhelmingly donated to the Democrats in 2014. No surprise there--it has been a trend for a long time. Unfortunately for them, their investment did not pay off, and so they are having to resort to other tactics to advance their agenda. Victor Davis Hanson warns:
Obama’s promised new legislation — gun control, climate change, Obamacare — was either rejected by Congress or passed but found to be both unpopular and nearly unworkable. Positive changes — such as lower gas prices brought on by new American oil and gas discoveries and innovative new methods of extraction — came despite, not because of, Obama. 
Yet the president presses on with his unpopular agenda, believing, as did Napoleon, that he alone is the revolution — intent to ignore popular opinion, the rule of law, and Congress. He assumes that his mastery of the teleprompter and iconic status as the first black president exempt him from congressional censure or outright public revolt. 
In the next two years, we will see presidential overreach that we have not witnessed in modern memory.
Great civilizations don't die--they commit suicide.

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