Inflation for the Poor, Stagnant Prices for the Rich

Beneath the mortgage crisis brought about by the deliberate systematic scamming of the poor by greedy lendersis the story of the disparity between the kinds of goods with steep mark-ups. The sector that has suffered the greatest inflation, it turns out, is the sector where low and middle class consumers spend most of their money. At the same time, wages have barely risen for the people hit hardest by inflation while luxury sectors have stabilized and incomes risen dramatically.

We all knew that but a new study of govt data by WaPo reporters (doing some actual investigative journalism for a change) proves it.

Inflation is walloping Americans with low and moderate incomes as the prices of staples have soared far faster than those of luxuries.

The goods and services Americans consumed in February were 4 percent more expensive than they were a year earlier. But there is a big divide in how much prices are climbing between the basic items people need to live and get to work, and those on which they can easily cut back when times are tight.

An analysis of government data by The Washington Post found that prices have risen 9.2 percent since 2006 for the groceries, gasoline, health care and other basics that a middle-income American family has little choice but to consume. That would cost such a family, which made $45,000 on average in 2006, an extra $972 per year, assuming it did not buy less of such items because of higher prices. For a broad range of goods on which it is easier to scrimp — such as restaurant meals, alcoholic beverages, new cars, furniture, and clothing — prices have risen 2.4 percent.

Wages for typical workers, meanwhile, have been rising slowly. In that same time span, average earnings for a non-managerial worker rose about 5 percent. This contradiction — high inflation for staples, low inflation for luxuries and in wages — helps explain why American workers felt squeezed even before the recent economic distress began.

(emphasis added)

So, once again, if you’re rich, the expensive trinkets you buy cost little more than they did a few years ago. If you’re poor, a much bigger part of your budget goes for basics like food, transportation, and heat. The reporters – Neil Irwin and Alejandro Lazo – claim that the culprit is foreign market pressure.

Inflation is not occurring because labor markets are tight or because the U.S. economy has been overstimulated; if that were the case, wages would be driving inflation up, leaving ordinary households in decent shape and doing more damage to those who lent money at fixed interest rates.

Instead, this inflation is driven by global commodity markets. China, India and other developing countries’ thirst for oil has been growing faster than producers can quench it, sending the price of oil up about 60 percent since 2006. Prices for oil and other commodities fell yesterday though they remain very expensive by any historical standard.

Expensive crude oil has translated into higher costs to heat a house or drive to work. The average middle-income household must spend $378 more per year on gasoline than it did in 2006 if it consumes the same amount, and an extra $38 on fuel oil.

Apparently the pro-war WaPo decided to skip over the pressure on oil prices caused by the second Gulf War and the obscene profits netted by oil companies the last few years. “It’s all China’s fault.” But at least they didn’t gloss over the difficulties caused by a Two Americas economy.

The rise in the basic cost of living means that inflation disproportionately affects those with modest incomes. For example, in 2006, the top 20 percent of households by income spent about twice as much on staples as households in the lower-middle bracket. But the top-earning families had almost six times as much income.

***

The pinch of inflation from energy, food and health care is a significant factor in softening consumer spending, which in turn is the reason economic growth is slowing sharply this year. It is not the only reason consumers are pulling back, however. Lower home prices, less credit availability and dropping stock market values are other likely factors.

Those different sources of weakness are affecting different groups of consumers. Poor and middle-income people are suffering the worst from inflation, middle- to upper-middle-income families are bearing the brunt of the softer real estate market, and the affluent are pinched the most by problems in financial markets.

Poor babies. But don’t worry. The Fed just promised them another $$$30BIL$$$ to help stabilize the market and it worked. For a couple of days.

Of course, that’s the fourth time $$$20-30Bil$$$ has been thrown at the investor class in an attempt to chivvy them into some semblance of sanity (the Bush Admin tossed them almost $$$200BIL$$$ just a couple of months ago) and each injection of cash calmed nervous investors for, like, a week before the next batch of bad economic news sent them into a tizzy of fret and foreboding, and Wall Street took another nose dive. It isn’t news that the effect of this latest give-away had just as temporary an effect.

Meanwhile, absolutely NO ONE is suggesting that maybe wages should be raised past the level of inflation or that maybe prices on staples should be frozen for a while, and the price of oil fixed. Or all three. None of those would chill weak investor nerves or put money in their pockets. So, even though such moves would be far more likely to stimulate a recessed economy than pouring more money down the financial sector rat hole, they won’t be coming our way any time soon.

The people who caused this disaster with their greed and unscrupulous, predatory practices are focused on saving their own asses at our expense.

And as usual, the Bush Administration is happy to oblige.

An Economy That Turns American Values Upside Down

By BOB HERBERT

Published: NYT, September 6, 2004

The Labor Department reported last week that 144,000 payroll jobs were created in August. Let’s put that in perspective.

The number was below market forecasts. It was also below the number of jobs needed to accommodate the growth in the employment-aged population. In short, this was not good news. It’s only by the diminished job-creation standards that have prevailed since the last recession that any positive spin could be put on last month’s performance.

As the Economic Policy Institute tells us, in a book-length report it is releasing today: “The United States has been tracking employment statistics since 1939, and never in history has it taken this long to regain the jobs lost over a downturn.”

In “The State of Working America 2004/2005,” the institute shows in tremendous detail how those lost jobs and other disappointing aspects of the recovery are taking a severe economic toll on working families.

According to the institute:

“After almost three years of recovery, our job market is still too weak to broadly distribute the benefits of the growing economy. Unemployment is essentially unchanged, job growth has stalled, and real wages have started to fall behind inflation. Today’s picture is a stark contrast to the full employment period before the recession, when the tight labor market ensured that the benefits of growth were broadly shared.

“Prolonged weakness in the labor market has left the nation with over a million fewer jobs than when the recession began. This is a worse position, in terms of recouping lost jobs, than any business cycle since the 1930’s.”

What is happening is nothing less than a deterioration in the standard of living in the United States. Despite the statistical growth in the economy, the continued slack in the labor market has resulted in declining real wages for anxious American workers and a marked deterioration in job quality.

From 2000 through 2003 the median household income fell by $1,500 (in 2003 dollars) – a significant 3.4 percent decrease. That information becomes startling when you consider that during the same period there was a strong 12 percent increase in productivity among U.S. workers. Economists will tell you that productivity increases go hand-in-hand with increases in the standard of living. But not this time. Here we have a 3.4 percent loss in real income juxtaposed with a big jump in productivity.

“So the economic pie is growing gangbusters and the typical household is falling behind,” said Jared Bernstein, the institute’s senior economist and a co-author of the new book.

This is the part of the story that spotlights the unfairness at the heart of the current economic setup in the U.S. While workers have been remarkably productive in recent years, they have not participated in the benefits of their own increased productivity. That doesn’t sound very much like the American way.

According to the institute, “Between 1947 and 1973 productivity and real median family income both grew 104 percent, a golden age of growth for both variables.” That parallel relationship began to break down in the 1970’s, but it is only recently that it fell apart altogether, leaving us with the following evidence of unrestrained inequity:

“In the 2000-03 period income shifted extremely rapidly and extensively from labor compensation to capital income (profits and interest),” so that the “benefits of faster productivity growth” went overwhelmingly to capital.

American workers are in an increasingly defensive position. In a tight labor market, when jobs are plentiful, workers have leverage and can demand increased wages and benefits. But today’s workers have lost power in many different ways – through the slack labor market, government policies that favor corporate interests, the weakening of unions, the growth of lower-paying service industries, global trade, capital mobility, the declining real value of the minimum wage, immigration and so on.

The end result of all this is a portrait of American families struggling just to hang on, rather than to get ahead. The benefits of productivity gains and economic growth are flowing to profits, not worker compensation. The fat cats are getting fatter, while workers, at least for the time being, are watching the curtain come down on the heralded American dream.
(emphasis added by me)

Tax system benefits only the rich

C.F. BAUMGARTNER
SPI GUEST COLUMNIST

The squeeze on the middle class is real. It began with the bailout of Social Security (FICA). In 1983, Social Security appeared to be in trouble. Congress acted to make certain it remained solvent.

Many Americans believe that FICA is a contribution, which goes into their retirement account. That is not so. FICA taxes finance monthly payments to retired Americans. It is not a savings account.

Financial planners advise us that paying taxes sooner than later is unwise. Paying a tax sooner rather than later makes our present and future less prosperous.

From 1984 to 2002, the government collected $1.7 trillion more in FICA taxes from wages of Americans making under $87,000 (income exceeding $87,000 is exempt from FICA) than it paid to beneficiaries. How much is $1.7 trillion? Enough to have paid off all the U.S. consumer debt at the end of 2001. Today three of four families pay more in FICA taxes than income taxes.

Corporations pay dividends from after-tax profits, and shareholders must report dividends as profits, which means dividends are twice taxed. President Bush has declared the double taxation of dividends fundamentally unfair.

He didn’t mention FICA, but it is also double taxation. FICA taxes apply to wages that have already been subject to income tax. If double taxation of dividends is fundamentally unfair, he can make a stronger case against FICA taxes because they affect more Americans.

Ronald Reagan was elected president in 1980 because he promised to reduce taxes. The highest tax rate in 1980 was 70 percent, and 40 percent was common for some in the middle class.

Congress passed the biggest tax cut in history using the rationale of supply-side economics. Fewer taxes would lead to more investment and, thus, to economic growth. It failed. By 1982, the deficit was $343 billion, three times what it was when Reagan took office, and unemployment had reached 10 percent. Reagan’s solution? Raise the price of a gallon of gasoline 5 cents.

By 1983, Social Security was in trouble. Congress increased Social Security taxes more than was needed in order to have a surplus ready for the retiring baby boomers 30 years in the future.

The late Sen. Daniel Patrick Moynihan saw the Social Security scare as bogus and called the proposed increase in taxes thievery, which masked the drop in revenues caused by the Reagan tax cuts for the rich. The “bailout,” however, took place. FICA taxes now take $5,400 from every worker earning up to $87,000, and his employer pitches in the same amount. In 1970, the figure was $327.

The cumulative effect of FICA taxes and income taxes makes the system regressive, not progressive. Workers earning up to $87,000 pay 15.3 percent, while the $500,000 executive pays 5.6 percent.

Here is the truly egregious rip-off. Congress created a trust fund for the increased taxes. It would earn interest and be ready for the boomers. Instead, surplus FICA taxes went to pay for the day-to-day operations of the government. There is no trust and no fund.

Since 1983, the government has spent $5.4 trillion more that it took in from income taxes, estate taxes and excise taxes. However, government debt grew by only $3.6 billion because Congress allowed surplus FICA taxes collected from the wages of Americans earning less than $87,000 to finance a rip-off of the middle classes by the wealthy, and it’s all perfectly legal.

(emphasis added by me)

The Middle-Class Squeeze

When I was growing up, many workers were part of the middle-class; most of them, in fact. Today that’s not the case. Wages have been static for a quarter-century while costs have, of course, risen markedly during the same period. This piece discusses why this has been less noticable than you might have expected, and why it’s now beginning to loom as a real crisis.

Middle-Class Tightrope
It’s More Dire Than The Numbers Show

By Jacob S. Hacker
Washington Post, Tuesday, August 10, 2004; Page A19

In an election dominated by terrorism and Iraq, the outcome may not come down to what Democrats are calling the “middle-class squeeze,” but no one should pretend that the issue isn’t real.

Of course, the Bush campaign and its allies are claiming just that. They note that unemployment and inflation are low and that the economy is growing at around 3 percent — far from stellar but also far from a recession.

Family incomes rose across the board in the lead-up to the recent downturn, and housing wealth — most families’ main asset — increased handsomely. Even the jobs picture, seen as Kerry’s biggest weapon, has shown some improvement, though last week’s figures demonstrate how shaky it remains. As a result of all this, many commentators have joined the Bush campaign in openly wondering what the continuing fuss is all about.

But the commentators, and the numbers, are missing the deeper story — a story reflected in the continuing anxiety about the economy that survey after survey shows. Over the past two decades, two great transformations have been on a collision course — the rise of the two-earner family and all but stagnant real wages for most workers. The sluggish economy of the past few years has made the resulting strains unmistakable. By many measures, American families in the middle of the income ladder are stretched thinner today than at any point since the early 1980s. Perhaps more important, their economic situation has, in ways both big and small, become notably more precarious.

This may come as a shock, but it shouldn’t. Middle-class earnings are up, but this is mostly because women have moved into the workforce. Without the huge one-shot boost of a second breadwinner, according to Jared Bernstein of the Economic Policy Institute, most families would barely have moved upward since 1980.

And that might have been fine — if the cost of a middle-class lifestyle had remained stable. It has not, as Harvard Law professor Elizabeth Warren and her daughter, Amelia Tyagi, argue in their book “The Two-Income Trap.” Two-earner families need to spend more, not less, than the “Leave It to Beaver” set. They need child care, help when kids are sick, a second car.

Plus, they pay more in taxes. (It’s rarely noted that two-earner families are the ones hit by the “marriage penalty”; traditional one-earner families usually get a “marriage bonus.”) Above all, the things that Americans value most — health care, housing, college — have simply gotten much more expensive. These higher costs often bring major benefits. But they mean that being middle class is a lot more costly than it used to be.

---

My own recent analyses of income statistics, for instance, suggest that family incomes have become two to three times more unstable in the past three decades, even for well-educated workers and two-earner families. The causes are multiple: Jobs are less secure, wages are more volatile, government programs and employment-based benefits have been cut, and families with two earners in the workforce are more exposed to job instability than one-earner families. But what seems clear is that many of the arrangements that once protected the middle class from economic risk — not just public programs but also private workplace benefits and help from within communities and families — aren’t doing the job today.If America is to remain a nation in which economic security isn’t just the province of the affluent, these arrangements must be rebuilt. The most daunting task will be to encourage strong, broadly distributed growth, and this goal will require private leadership as well as public policy. But government can and should deal with the pervasive risks that mark our postindustrial economy — and, indeed, only government can deal with many of them. America’s ever more creaky structures of risk protection must be adapted to the new realities of work and family. Expanding health coverage and helping families with major expenses is an important start. But the task we face today is greater, and more necessary, than even Kerry and Edwards may realize.

The writer is an assistant professor of political science at Yale and a fellow at the New America Foundation. He is completing a book on economic insecurity, “The Great Risk Shift.”

(Thanks to Just a Bump on the Beltway)

College Crisis in California

It seems like whenever a state has a fiscal crisis, education funds are at the top of the list for cuts. The budget crunch in California–which is being repeated all across the nation–has ‘necessitated’ large-scale cuts in funding for community colleges just at a time when one of the largest classes in CA history is graduating.

The report [by the National Center for Public Policy and Higher Education] criticizes the state for abdicating its responsibility to prepare for the new tidal wave of new college students — more than 700,000 high school graduates bound for college from last year to the end of the decade. Most are Latino, and many will be the first in their families to attend college. And although three-fourths of them are headed for community colleges, those systems are not currently funded to serve their existing base of students, the report concludes.

“We saw these students coming; everyone knew they were there,” said Patrick Callan, president of the National Center for Public Policy and Higher Education.

Yet increased demand and shrinking state support have resulted in an estimated 175,000 students forgoing community colleges in recent years and an estimated 25,000 eligible students being turned away from California State University and University of California systems for the coming year, according to the report.

“Multiply that by another five or six years and you will have an educational and economic catastrophe for California,” Callan said.

The good news is that a coalition of business, labor and community groups are beginning to grapple with the problem that the State government has ignored, although nothing they’ve proposed will solve the problem by itself. But the question is: why is this happening?

It’s happening, at least in part, because California was raped mercilessly by the Texas energy industry, who stole–that’s the only word for it–$$billions$$ from CA’s treasury by creating phony shortages to justify massive increases in their prices–as much as $250/kilowatt-hr. That crime all but emptied CA’s coffers at a time when other factors were putting enormous pressure on the budget. CA was deeply in the red and cuts had to be made.

This is an over-simplified picture, I realize, but there’s no getting around the fact that much less harsh cuts would have had to be made were it not for the embezzlement by Texas’ energy corps. That money, despite CA’s slam-dunk lawsuit, will likely never be recovered. So who is paying for this theft? The ones who usually pay for it–kids.

Community colleges are magnets for poor, low-income, and minority kids who want to make their lives better because they’re affordable. Without the community colleges, these kids are cut off from a chance for a brighter future. Is the fact that they are poor and often minority the reason this problem has been ignored until now? Is this a class and race war all at once? I’d hate to think these kids were the ones the state legislature voted to dump on because Latinos don’t count….

The College Aid Crisis

Almost two weeks ago, we posted an interview with Richard Kahlenburg of the Century Foundation who said that low income students were being kept out of college in large numbers because they couldn’t afford it and grant programs had been cut to the bone by a Federal govt that wasn’t interested and state govts that were already severely strapped by the Federal pull-out from its responsibilities. Today the NY Times editorial board weighed in.

Published: May 25, 2004

Nearly a half-million Americans will be turned away from four-year colleges this year for financial reasons, thanks to rising tuition costs and declining state and federal aid for low- and middle-income students. Congress should modify the federal college loan system to deal with this problem. A proposed bill would save billions of dollars that could then be redirected into grants for tuition aid.

Right now there are two basic college loan programs. The direct loan system, which actually makes a small profit, allows students to borrow from the government through their schools. Under the vastly more expensive Federal Family Education Loan Program, private banks receive federal subsidies to make government-backed student loans. Colleges can participate in only one of the two systems. In the 1990’s, Congress talked about phasing out the costly bank-based program and replacing it with the direct loan program. Such a step could save billions of dollars a year that could be directed into the federal Pell Grant program, which helps pay the college expenses of low-income students with outright grants. This common-sense plan was killed by the banking lobby, but it has returned in the form of a bipartisan House bill known as the Direct Loan Reward Act.

The bill would encourage the nation’s colleges to participate in the less expensive direct loan program by giving half of the savings to them in the form of Pell Grants for needy students. Backers of the loan reform bill say it could channel enough money into Pell Grants to increase the size of the awards by more than a third at some public colleges, raising the maximum grant to about $6,000 a year.

Supporters of the bill calculate that taxpayers may save more than $6 billion annually if all of the nation’s colleges and universities move to the direct loan program. But the money saved and the increase in Pell Grants would be substantial even if only a significant fraction of the nation’s colleges made the switch. That result alone makes this bill a good idea.

You can help by calling your Representative and demanding that s/he support the Direct Loan Reward Act for low income students. While you’re at it, the next time you go to your bank, take a few minutes to speak to a manager and tell them you don’t appreciate the bank’s lobbyists killing the first reform bill and that you’ll pull your account if they don’t support DLRA this time around. Remember: it’s your money, not theirs.

Overtime Trojan Horse Rejected

On Tuesday, Senate Democrats, aided by a handful of moderate Republicans, handed a major rebuff to the Bush administration by blocking a Labor Department plan to scrap overtime pay for many white-collar workers. It’s not clear whether the House will follow suit and, if so, whether the White House will veto the legislation and go ahead with the changes anyway. It’s perfectly clear, though, that overtime has become an election-year political football.

The Labor Department’s changes to overtime are part of a larger overhaul of labor law, the first in 50 years. When first introduced last year, Labor’s changes included broadening overtime coverage for low-paid workers, but cutting back on eligibility of those better paid, as many as 8 million, according to Democrats. Last year’s plan capped rights to overtime at $65,000. But when the Senate voted to block the plan and the House decided to go along, the Labor Department agreed to rewrite the rules.

The Senate on Tuesday was voting on a revised version the rule changes that substantially reduced the number of workers who might lose overtime pay by guaranteeing overtime rights for workers who earn less than $23,660 a year. The new rules would also make those who earn more than $100,000 a year ineligible for overtime.

The Senate voted 52 to 47 for an amendment, tacked onto a corporate tax bill, to scrap the new rules, with five moderate Republicans breaking ranks to prevent the Bush administration from cutting overtime pay. Democrats argued that even under the revised plan, 4 million workers could lose their overtime pay.

Senator Tom Harkin, D-Iowa, who led the charge against the new labor rules, said, “This was a great victory for American workers and families” and sent a “clear message to the administration” to drop its efforts to rewrite the nation’s overtime pay rules.

(Read more…)