Money is flat and meant to be piled up. ~ Scottish proverb
When money speaks the truth is silent. ~ Proverb
Money talks...but all mine ever says is good-bye. ~ Anon.
The fallout from the Nov. election is finally dying down, sort of – Keith Olbermann is back on the silver screen apparently without any bruises, which cannot be said about his employer MSNBC, President Obama is on a long-ish tour (escape?) to Asia, and we're breathlessly awaiting the beginning of the lame-duck session of our beloved Congress. How much more exciting can it get? We're fast returning back to a political reality distinctively defined by Washington's strange, discordant view of how stuff happens inside the beltway. Unfortunately, Washington continues to be its own fairly self-contained world.
In my mind the election results once again showed the importance of a single, key characteristic – voter age. Sure, geographic location is important – witness the interesting distinction in results on the east and (especially) west coasts as compared with almost everywhere else – but unsurprisingly older voters again voted distinctively differently from younger voters. The most important distinction is that older voters actually voted this November, as they consistently do, whereas younger people (especially 18-24 year olds) don't vote nearly as often or consistently – much to the chagrin of more liberal, Democratic candidates. Unlike the 2008 presidential election, where a multitude of young people first voted (that the media dutifully then reported as an "important new trend"), this November was shown to return to the norm. This time, because the still-charismatic Obama wasn't on any ballot, "the kids" mostly stayed away from the voting booths as they mostly do; so much for the important new trend.
Speaking of Washington, I believe the newly-empowered Republicans will defy the President's stated hope that they seek some accommodations with Senate Democrats to "get stuff done." I hope the President will take a harder (and perhaps uncharacteristically aggressive), more focused position about talking with House and Senate Republicans. I for one don't want you Mr. President to be as cerebral, calm and detached as you've been to date. I want you to stand up for your and your administration's many substantive accomplishments so far. [For an interesting and a bit too-late-for-the-election listing of such accomplishments, see a website produced not by the administration (as it should have been) but by three individuals that had a few hours to kill.] And, please Mr. President don't give away the administration store before you get something worthwhile in return from the likes of soon-to-be House Speaker John Boehner.
Now that I've officially entered the Medicare generation, and become aware how uninformed I am about the vast majority of "central topics" of interest to folks under 30 years old (should I really feel that bad that I'm not part of Team Coco?), I can increasingly feel the diffidence cast by media/advertising forces on my age bracket. [I've never really understood why the media weighs youth so heavily when older folks (including youths' parents like me) actually control the majority of economic resources – so it goes.] For Baby Boomers like moi it's a new and disturbing sensation. And as I've mentioned before, we Boomers will be accounting for a disproportionate share of longer-term deficit spending because of entitlement receipts – principally Medicare, Medicaid and, of course, Social Security.
Here's what I see as facts regarding the first piece of the Big D, Demographics...
Demographics. As I mentioned in a previous Grey Paper, Generations of Progress, there are three (3) demographic groupings that soon will be struggling with one another about how to allocate stretched fiscal resources in the US. [If the elected tea partiers really can reduce the size of federal and state government expenditures – not at all a sure thing once they take their relatively small number seats of power – then this struggle will be that much more raucous.] Unsurprisingly, this struggle will focus on the fairly generous entitlements that are now starting to be provided to us Boomers, and that will be mostly paid by Gen X and Gen Y.
· Baby Boomers - folks born in 1946-1964 inclusively; in 2010, aged 46-64, ~78M people, account for 29% of the US population; remain the majority of the work force; and since Boomers came on the scene, remain the largest age-related demographic the nation has ever seen. Although technically I missed Boomerdom by about 5 weeks, I've always considered myself a (leading edge) Boomer. Needless-to-say, we're very used to wielding influence and power and getting attention.
· Generation X - (aka, Gen X, the Baby Bust Generation and the 13th Generation (the 13th generation since the US was created)) – folks born right after Boomers, 1965-1981 inclusively; in 2010, aged 29-45, ~46M people.
· Millennials - (aka, Gen Y and Echo Boomers) – folks born in 1982-2001 inclusively; in 2010, aged 9-28, ~60M people. Gen Y is composed mostly of kids of Boomers.
I hope for the nation's sake we Boomers take a broader, less self-serving view than we have before of what's realistic and needed for our collective national health (fiscal and otherwise). If we want progress, all of us – the Boomers, Gen X and Millennial generations – will need to provide some fiscal sacrifice. If we Boomers obstinately refuse to budge, everyone including us will suffer.
Income. The distribution of income across the US population is not often a front-page topic of discussion, but it does occupy some thought space when macroeconomic trends are judged to be out of balance – as they've been for a while in the US. Income distribution is especially relevant when government expenditures and tax policy become more prominent issues in the next sessions of Congress with the soon-to-be expiring Bush income tax cuts and needed increase in the federal debt limit. Here are some of the relevant facts related to the current US income distribution.
· The richest 1% of income-earners (folks now earning over $368k/yr) receive 21% to 24% of total US income, depending on who you talk with. This proportion has steadily increased for some time; in 1976 the richest 1% received about 9% of total income. Timothy Noah has written an extensive assessment of changes in income distribution that he and Paul Krugman call the Great Divergence. He states this very select group's income share has more than doubled since the 1980's.
· The share of national income going to the top 0.1% (the richest of the rich, who make over $1 million/yr) has increased nearly fourfold according to Noah and account for almost 8% of total income. Never in the past have the super-rich had such a large share of national income.
· Most interestingly from my perspective, from 1980 through 2005, more than 80% of the total gains in US national income went to the richest 1% of earners. And who said the Republican-sponsored tax cuts haven't re-distributed income big time?
As an example of how different income groups have been affected by these changes in income distribution, the ratio of a typical CEO's income to an average worker's income has increased more than an order of magnitude – from a "mere" 42 times as large in 1980 to a beyond astounding 531 times as large as a worker's in 2001. The above facts lay bare the complete hypocrisy behind the alleged popular support for the Republicans' single-minded demand to extend after Dec 31st the Bush tax cuts for the top 2% of earners. In my mind this demand wins a Gordon Gekko Gold Star award for excessive greed to the already-richest people. While crowds of tea-partiers (including seemingly thick folks like Joe the Plumber) claim to want much smaller, less oppressive government, they apparently (once again) want "their" politicians to vote against the own economic self-interests and not venture to redistribute income (to them). I guess it's a good thing tea-partiers don't seem to understand economic irony of any sort.
Wealth. Discussions about wealth distribution in the US (or almost any other nation) are less common than income. In part this is because most people are understandably confused about the difference economists make between income and wealth. Income and wealth are not interchangeable. Income is a "flow variable," it's measured over a particular period of time, say a year; thus Jane Doe's annual income of $81,000 in 2009 is a flow variable. On the other hand, wealth is a "stock variable" in that is measured at a specific moment in time, and represents the accumulated value of existing assets at that particular point in time (say, December 31, 2009), that have accumulated during the past. Jane's wealth of $171,000 is the accumulated value of what she owned on that Dec 31st. Unlike income, wealth measures are more challenging to come by – taxpayers have to state what their annual income is on their 1040 form, but there is no uniform reporting of their wealth. Also, wealth can be measured as a person's net worth (their assets' value minus their liabilities (what they owe)), e.g., the market value of Jane's home minus the value of her mortgage). Nevertheless, here are a few facts regarding the distribution of wealth in America.
· Given the disparity in income distribution shown above, it's no surprise that the distribution of wealth is even more top-heavy than income. According to Mr. Noah, the richest 1% of Americans account for 35% of the nation's net worth; if you subtract housing from net worth (which is the most-often owned large-value asset in the US), then the richest 1% share of wealth rises to 43%. In 1913, this number was 18%.
· The richest 20% of Americans account for an astonishing 85% of our nation's net worth; if you subtract housing, this net worth share rises to 93%. Unlike the income distribution, the distribution of wealth has been relatively stable and hasn't changed much in several decades.
Why aren't the majority of (unwealthy) Americans more vociferous about this significant wealth (and income) disparity? Perhaps because most Americans remain (or choose to be) ignorant about the Big D. Surveys that asked respondents to estimate what how much wealth the top 20% of Americans owned guessed about 60% (the answer is 85%, from above). Does that mean Americans are more or less OK with a small number of folks owning virtually all of the nation's wealth? Who knows, but I expect the Big D should become a far more prominent facet of political discourse over the next year or so. Why?
Because as the lame-duck and subsequent Congressional sessions are forced to considers changing entitlement, tax, government expenditure policies to reduce the deficit (a stated major goal of Republicans), the Big D will need to be understood - assuming factual reality has a place in political dialog and policy. Every policy change will, as always, have consequences and likely affect different generations, groups of income-earners and wealth-holders quite distinctly. Knowing the facts about the Big D hopefully will allow more informed policy to be created.
The Nov 10th announcement by the two chairmen of the Debt Commission is witness to the underlying importance of the Big D, and of the fact that after unemployment subsides some, it's unlikely local, state and Federal government in the US can continue to spend that so exceeds our revenues. The Chairmen's very draft proposal includes spending cuts, tax increases and changes/cuts in Social Security. In the abstract, most of their ideas make sense; but the politics of eventually enacting such changes will involve much effort and require perspective about the Big D. Even though this proposal is "a starting point" (duh), the stridency of instantaneous comments by politicians and interest groups is regrettable, but not surprising. Now as a beneficiary of Medicare and eventually Social Security, I could be directly affected. I expect to be. My July 2010 paper, Economic Eyeglasses for Our Fiscal Myopia (see my July post below), recommended a number of changes similar to those identified by the Chairmen.
We citizens and politicians (not just the 12 on the Debt Commission) need to discover the good sense and courage to serve the broad public interest (not just one generation or one income grouping), put our economy more into balance and allow the US to move forward in a positive and influential manner. Should I hold my breath? I hope so.
