Opinion

David Cay Johnston

America’s long slope down

By David Cay Johnston
June 20, 2012

A broad swath of official economic data shows that America and its people are in much worse shape than when we paid higher taxes, higher interest rates and made more of the manufactured goods we use.

The numbers since the turn of the millennium point to even worse times ahead if we stay the course. Let’s look at the official numbers in today’s dollars and then what can be done to change course.

First, incomes and jobs since 2000 measured per American:

Internal Revenue Service data show that average adjusted gross income fell $2,699 through 2010 or 9 percent, compared to 2000. That’s the equivalent of making it through Thanksgiving weekend and then having no income for the rest of the year.

Had average incomes just stayed at the level in 2000, Americans through 2009 would have earned $3.5 trillion more income, the equivalent of $26,000 per taxpayer over a decade. Preliminary 2010 data show a partial rebound, reducing the shortfall by a fifth to $2.8 trillion or $21,000 per taxpayer.

Wages per capita in 2010 were 4.3 percent less than in 2000, effectively reducing to 50 weeks the pay for 52 weeks of work. The median wage in 2010 fell back to the level of 1999, with half of workers grossing less than $507 a week, half more, Social Security tax data show. The bottom third, 50 million workers, averaged just $116 a week in 2010.

Social Security and Census data show that the number of people with any work increased just 1.5 percent from 2000 to 2010 while population grew 6.4 times faster. That’s why millions of people cannot find work no matter how hard they try.

In May, nearly 23 million workers, 14.8 percent, were jobless or underemployed, the Bureau of Labor Statistics reported. At shadowstats.com, a website dedicated to exposing and analyzing flaws in government economic data, economist John Williams also counts people who have given up hope of finding work. His figure for May brings the total to almost 30 million people, one in five.

PRESSURE ON WAGES

An economy with many millions more workers than jobs puts downward pressure on wages, especially for those without highly developed skills.

Now let’s look at debt per American since 2000 using Federal Reserve data:

Mortgage debt grew 51 percent through 2010, even though incomes and wages fell, which should result in steady or lower housing prices, not higher prices.

(In 2011, as banks foreclosed on more homes, mortgage debt per capita declined, but was still 42 percent greater than in 2000.)

Consumer debt was virtually unchanged, at nearly $8,300 in 2010, helping explain weak sales of automobiles, furniture and appliances.

Now how about trade? Exporting more than we import creates jobs and riches.

From 2000, the year before China joined the World Trade Organization, to 2011 imports from China grew 62 percent faster than exports to China, Census data show. The annual trade deficit soared to $302 billion from $112 billion.

U.S. exports to China in 2011 ($106 billion) were smaller than US imports from China back in 2000 ($133 billion), showing the lopsided nature of trade with China, where workers lack rights, safety rules are minimal and pollution rampant.

Some 56,000 American factories have closed since 2000, as jobs and the knowledge that goes with those jobs moved to China.

Trade with China has destroyed every 55th job in America, nearly 2.8 million positions, analysis of government data by Robert E. Scott of the Economic Policy Institute shows. That equals wiping out every job in the greater Philadelphia metropolitan area. Nearly two million of those jobs were in manufacturing, Bureau of Labor Statistics and U.S. International Trade Commission data show.

SHRINKING TAX REVENUE

And what of taxes? The 2001 and 2003 tax cuts were promoted as keys to prosperity. Now Mitt Romney, virtually all Republicans and a fair number of Democrats say more tax cuts will make us prosper. President Barack Obama wants to cut corporate tax rates by a third.

Again, measured per capita, the IRS data show a pattern of shrinking numbers, with modest upticks in 2010.

Individual income taxes in 2010 averaged $2,995, down $1,654 or almost 36 percent from 2000. Use 2001 as the base year — because it was both a recession year and the first year of the temporary George W. Bush tax cuts — and in 2010 per capita income tax revenues were down one third.

In 2011, as the economy improved slightly, income tax revenues rose, but were still 26 percent smaller than in 2000.

The bottom line: less income, hardly any more jobs, sharply increased mortgage debt and Washington ledgers awash in red ink as voters are asked to endorse even more tax cuts.

How many years of evidence does it take to establish that a policy worked or failed?

Will continuing our current tax, credit and trade policies produce favorable results in the future? Will they produce higher incomes?

My reading of this and tons more data is that the Bush tax cuts utterly failed, the Fed’s artificially low-interest rate policies under presidents Bush and Obama do far more damage than good (especially to savers), and that the United States is harmed both by the imbalance in the trade relationship with China and scores of trade agreements with South Korea and other low-wage countries that are deeply flawed at best.

We need to recognize that the tax cutters were snake oil salesmen, the Federal Reserve an enabler of damaging debts and that bilateral trade deals are written of, by and for global financiers, not workers.

To paraphrase the Huey Lewis song, we need a new policy.

Comments
66 comments so far | RSS Comments RSS

The simple fact is that social cohesion in the USA is gone. Ended. Kaput.

The wealthy and “well off” people here cluster together in walled (“gated”) compounds and seldom see ordinary Americans except when ordering at a restaurant. Not only are they isolated, when it comes to social concerns, they communicate almost exclusively with one another. Not so surprisingly, their range of opinion, like the range of choices in American elections, is quite small. They are very, very myopic and hostile to anyone who does not share their myopia.

If you divide the US population into quintiles by income, and quintiles by wealth, and then generational cohorts by decade, you will see the concentration at the top. And you will also notice that those top rungs are occupied by elderly people who will die relatively soon, setting loose a cascade of wealth and power that will establish a new order in this country. It is simply irresponsible not to try to direct the outcome of this shift in wealth, which will result in a shift in power. No one lives forever, however much money or power they have. What do these people want to leave behind? That is very unclear. Primarily it seems they do want to live forever and to go to their graves clutching their titles and money. But it is still true that you cannot take it with you.

At least leave freedom and taxes which have a positive effect on all citizens. And cutting the prison population by 50% would be a good goal too.

Posted by usagadfly | Report as abusive
 

@ robb1
Indeed, the problem is the Chinese (because they are what you are referring too) have got a heavily controlled economy (Marxism, supported by capitalism) and we support that economy by allowing our companies, because of the benefits for the financial side, to export production there.

In fact the two (Financial economy vs. social economy) work against one another, a battle that will never be won without building -compensating for R/E and diference in living cost (no more)- barriers in the trad with those labor pulling countries.

The relentless pursue of the “ideal” of the supply side economy…the race to the bottom.

As Stephen King speeched before the share holders of HSBC in 2009, we have seen nothing yet…the middle classes in the west will inevitibly will all go down. It is a win, win, win situation for capital.

If so desired I give the full text.

This has been going on since the period of Reagan and Thatcher, the fall of the iron curtain and the opening upo (mid nineties) of China…look at their space and nuclear ambitions.

Posted by Checksbalances2 | Report as abusive
 

US medical costs are 2.7T$ per year. Other countries provide as much, or greater, health care at half the cost, using a single payer system. Single payer could free up 1.35T$ per year, every year. (And don’t believe that we pay so much because of research by Pharma. That number is only $15B/year, according to the National Academy of Sciences.)

If we could reduce our per capita health costs to those of Canada, UK, Australia, and others, the savings would cover most of our annual 1.5T$ federal deficit. Moreover, medical care would be universal rather than the present limited coverage. We would probably also be in much better health, and consequently more productive.

Obviously, to do this, as a people we would need to take charge or our own thinking. Gobbling junk food may be good for US corporations, but it is not good for Americans.

In addition, reduction of our military/security complex by 50% would save an additional 0.5T$. We would still spend 5X the world average. A greater portion of our tax dollars would be spent at home, giving a multiplier effect.

Actually, reinstating the Bush tax cuts would only bring in 0.1T$ (unless I’m mistaken). However, a fairer tax system would make education more available to all Americans, and thus make it more productive as compared to sending only the elites children to top schools regardless of how intelligent they are.

Some of the savings could be devoted to making ourselves more competitive in the world, say through education.

Posted by xcanada2 | Report as abusive
 

The beginning comment that when wealthy elderly people die in the US “setting loose a cascade of wealth and power that will establish a new order in this country” is ludicrous. The money is inherited within family using the same wealth managers running the empire. The Johnson and Johnson family don’t leave all of their companies and holdings to America when one of them passes. Where in America have you been seeing a “new order in this country”???? Ever? The Hearst and Sedgwick families are still the one percent as well as all of the one percent families in America. Dreaming?

Posted by J.O. | Report as abusive
 

In July 2000 there were 111 million private sector jobs, and in April 2012 there were 111 private sector jobs. No growth, even though the growth of the “working population was 25 million from 217 to 242 million. No growth in private sector jobs. There’s an article by professor Andrew Sum analyzing the decade 2000-2010. He says incomes of workers grew 2%, corporate profits by 58%. The slowest growth of the economy occurred, 17%, and it had not been below 37% since the 1930s. http://www.huffingtonpost.com/andrew-sum  /ringing-out-the-old-year-_b_802711.htm l
My blog deals with inequality. http://benL8.blogspot.com
DCJohnson here reports, in 2010 50 million U.S. workers (1/3rd of all workers) had an average income of $6,032 for the year. The average personal income for workers is over $76,000 a year (dividing all personal income by all workers). The average contribution per worker to GDP is over $109,000 according to the S.F. Federal Reserve.

Posted by BenL8t | Report as abusive
 

The WW2 peace dividend was spent about 25 years ago. That peace dividend was of reconstruction, massive global market for easy picking, world reserve currency, millions of immigrants of the world’s best arrived to develop America. It was so good; US became the latest superpower in world history.

A second good fortune of peace dividend arrived just in time in 1990 as the first one ended – that of the USSR and Communism both ending. The US could have taken this one smartly and move to the next stage. But it did not. It squandered it, completely. In fact, it messed things up so bad, we had the 9/11 blowback.

Americans had lived in a pervasive culture of pure selfish gains since 2000. People, private enterprise and governments even plunged into unfathomable debt to keep up the good times. With a population of 320 million, you’d think there is enough wisdom, enough check and balance, and enough well-educated to self-sustain prosperity. But these have also been squandered. Everything, the whole country, lived for the moment, for instant gratification. The wealthy wanted and got ever less taxed. The less fortunate wanted and got ever more welfare. The military wanted and got ever bigger budget and world’s most expensive armament. Nationally, spending hit beyond 100% and saving hit negative. All for the good times of the moment.

So enough of this. Is there a way out? Yes, but the way out will comes only when enough balance has been restored. And there are a thousand big things way off balance. It will take at least a generation to work things out. In the meantime, everybody, and that include the 1%, pays the unfathomable bills due.

Step one is to take what happened the past decade, condense it into a nice easy understood text book, and start teaching it to grade 5′er. And hope they will grow up smart enough to create a more sane and sustainable nation.

Posted by TomKi | Report as abusive
 

ConstFundie-

Taking on debt is not income and the USCEnsus data i cited doesn’t count it as such. The data i cited is income and shows a very clear trend. Sory to burst your gloom and doom bubble.

Posted by jambrytay | Report as abusive
 

it will be the last days of the french monarchy and the russian empire redux, if something isnt dont to redress this imbalance, and the rich will lose.

Posted by brandonhstubbs | Report as abusive
 

You’ve voted. As for loss of manufacturing jobs, what China does, America won’t want to do. Do you really want to slog 7 hours a day for just USD 70? Its much cheaper in India. Its equally cheap too in Indonesia, Vietnam, Philippines, Africa…… and the list goes on. With EU going down, it looks like they will be the next candidate with low wages amongst the skilled industries (China and India are largely in unskilled industries) competing directly against Japan and US. That’s probably even more serious. But Japan gets to harp on US for defence and China for businesses – that’s one smart nation, just nice in small numbers (population) with also hoards of forex reserves that will get by largely unscathed.

Posted by vision966 | Report as abusive
 

@jambrytay,

National debt is simply creating money out of thin-air. The created money enters the economy as real and very spendable, and adds directly to incomes. Although, i note that the added income is much less equally distributed than the future liability.

Speaking of bubbles, that seems to be exactly what economic bubbles have in common, a build up of ‘created’ money (typically called debt) until it towers so beyond reality that an economy fails(pop!). This is what we witnessed in the US, i.e., the bank bailouts, and are seeing throughout all of the Banks/economies of the west.

Posted by ConstFundie | Report as abusive
 

There are other factors at play.
us population growth v.s. those that left the work force.
u.s is now about 310 million v.s. 210 million a decade to 2 ago. yet the manufacturering jobs left to other shores due to “outsourcing” Corporations built “shell” companies to “shelter taxes off shore and not paid to IRS. The Housing Bubble and the Banksters and their Derivative Funny Money Dealings. Maybe it’s time to RETHINK and REWRITE the Tax code for the Modern Era we find ourselves in as the inequalities have reach their Pinnacle.And for God’s Sake TERM LIMITS on our “DO NOTHING” Congress and their Lobbying Friends !!!!!

Posted by Pangaea7 | Report as abusive
 

I have to disagree and say that the tax cuts are not what is leaving the economy in the red! Tax money goes to the government and let’s face it, the government is not creating jobs or shoring up the economy with that money (no matter what the TARP defenders told themselves in the past or even still do). Further, when you have unemployment so high, employers slashing pay, benefits, etc. to the point that even employed people are taking big financial hits, how is raising taxes going to help them or the economy? It won’t help at all! We need to stop sending so much of our money to China, they have largely the US to thank for their economic boom b/c we freely buy so much of their crap. And the US needs to get serious about what it spends our tax money on. I bet it isn’t a stretch to say that 50% of tax money is flushed down the toilet on bloated salaries, bloated staffing, the chronically abused myriad of welfare services (now including health care), pork barrel spending (like the doomed funding of a Pakistani Sesame Street (meanwhile there is quite a movement to cease federal funding for public television here in our own country – what a joke, we were supposed to fund public television in a foreign country but cease funding here???? Who thinks of this stuff?), billions spent on illegals and trying to stem their flow. I could go on and on. When will the politicians pull their heads out of the ground, to put it nicely??? Nobody wants to do the right thing anymore b/c their only concern is pandering (hand outs, hand outs, hand outs) to the right groups of people so they can get votes, get into office and then do nothing to help the country as a whole! All anyone ever does anymore is vote for the person they think is going to get them the most stuff/benefits/money/handouts. Everyone votes for themselves, not the country, that is a huge part of the problem! When will people smarten up and realize that the politicians who will make wise decisions for our country AS A WHOLE IN THE LONG TERM are the best politicians to vote for? Everyone will end up benefitting from those decisions over time! We are in a vicious cycle right now where politicians make promisses to people (sometimes follow thorugh, sometimes not), people say, “yes please, I will vote for you”, over and over and over. It’s not working people, can’t you see that? Start voting for the country and everyone wins in the end! Unfortunately it appears that most people are not smart enough to realize what is best for the country long term, only what is immediately best for them! Either that or they truly don’t care!

Posted by JLS123 | Report as abusive
 

I believe David Cay Johnston makes an important statement by using the word failure, as he says:

My reading of this and tons more data is that the Bush tax cuts utterly failed, the Fed’s artificially low-interest rate policies under presidents Bush and Obama do far more damage than good (especially to savers), and that the United States is harmed both by the imbalance in the trade relationship with China and scores of trade agreements with South Korea and other low-wage countries that are deeply flawed at best.

At what point can we declare that supply-side economics (Bush tax cuts) and Keynesian stimulus (low interest rates) have totally lost credibility? The Economics community seems to offer the same remedies with each market correction, and if the remedies don’t work, try some more! And more! And more! (Etc.) They’re mad, like doctors who keep shocking the patient with defibrillator paddles again, and again, and again, and again. We have to acknowledge that true economic growth can only be made by gains in efficiency either through production or trade.

Posted by stejamdev | Report as abusive
 

I think we would do well to remember, trees don’t grow to the sky. Economies ebb and flow, sometimes ebb for longer than we’d like. It doesn’t mean the end of the world. If a forest gets overgrown, like our housing market did, either trees starve, or a fire starts. Eventually there is new, healthier growth. The scorched earth in between is ugly, that’s unfortunate, but inevitable, and painful though it is, for the best.

Posted by daphnesylk | Report as abusive
 

This is such a simple logic. This is such simple math. Years ago as a kid, I figured this out.

I recall observing the life of such old American brands as RCA, Zenith, and others who had moved to less expensive countries for labor. Their American manufacturing bases ultimately withered, then died. When just a FEW companies do so, it may not be noticeable. But, the “great escape” of manufacturing to offshore locations seemed so logical. It was cheaper to use labor over there, than here.

Decades on in this great escape, the globalization has actually worked as it should, allowing OTHER countries to raise THEIR standards of living. What I don’t understand, though, is how Americans are so surprised that also at play with the “raising of all boats” to the same level, is the logical expense of lowering the level of OUR boats.

At the end of the day, with the Cold War long over, Capitalism WON. WE, America, WON! Everyone IS playing our game, and isn’t THAT what this was all about?

This idea is so overlooked (or as I believe, is misrepresented to the electorate). To “win” election, politicians “decry” the loss of manufacturing, or “blame” those bad companies, or “bad” policies of someone (anyone) else, just to get elected, or reelected.

“Saving” the U.S. Auto industry made me think of Britain’s attempt decades ago to do the same for their auto industry. You can’t legislate away logic going another direction.

Freedom of speech is a wonderful thing. It’s a shame that such a simple logic isn’t espoused as to what has happened, and why we are where we are, and where we are really going.

Those jobs aren’t coming back. Americans will need to learn new skills, just as happened in the industrial revolution, or any other revolution, in any other era.

Misleading American’s to think they’ll “fix” manufacturing, or “bring” those jobs back, well, politicians will do anything to gain or keep power, won’t they?

Posted by BrilliantEcho | Report as abusive
 

But saddling the middle class, who is making less while burdened with even more debt, with an increase in taxes is dooming them. Rise taxes if you must but leave the struggling middle class out of it. The so-called “job creators” have had their cuts and they’ve created few jobs, time to try something different.

Posted by advocatusdiabol | Report as abusive
 

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