March 24, 2020
The Economic Fallout of the Corona Virus Crisis -- The Nation Is Not Prepared, and What To Do?
Why a Moratorium on Rent and Mortgage Payment Is Needed
American families must now brace for the steepest collapse of GDP since 1958, says Barron’s magazine quoting Goldman Sachs and J P Morgan banks. A quarter of GDP will soon be missing, a drop from $21.4 trillion to $16 trillion is projected. Personal and household incomes will collapse also. This is will be a year to remember.
Americans are not financially prepared for this. In September 2017 the Consumer Financial Protection Bureau published a Financial Well-Being report and asked adults "How much money do you have in savings today (in cash,checking, and savings account balances)?” This is called "Liquid savings."
less than $250 — 24%
less than $1,000 — 35%
less than $5,000 — 54%
less than $20,000 — 73% American adults answered.
Meaning the majority are not prepared for an extended loss of income.
The Prosperity Now web page, Scorecard, found that -- Nationwide 25.4% of credit card holders have reached the 75% of credit limit on their cards;
Those who have saved for emergencies — 57.8% have saved — 42.2% have not saved
Consumers with Debt in Collections — 21.2%
Another poll asked about missing a paycheck, every two weeks, would it be a difficulty? The American Payroll Association reports 74% said yes; 40% said a major difficulty, and 34% said a slight difficulty. A Harris poll found that respondents say they always (23%) or usually (17%) or sometimes (38%) live paycheck to paycheck, for a total of 78%.
Many household budgets cannot fall back on savings to get through a "shelter in place" order. Without savings and without an income, many Americans are between a rock and a stone wall. A HUD.gov site says that 9% of Americans pay more than 50% of income on housing. A Harvard University study shows that 30% of Americans pay over 30% of their income on housing. Another Harvard University study found that 1 in 4 renters pay more than 50% of their income in rent. Workers in “non-essential” jobs no longer have incomes, they are directly affected by the work stoppage, and many rent their living quarters.
The Brookings Institute report “Meet the Low-Wage Workforce” examines the incomes of roughly half of U.S. workers, the low-earning half. It shows that $19,000 a year is the average income for 67% of workers who earn below the median wage income for all workers, $32,838. The other 33% are very low earning workers earning below $7,500 a year. If we take the total income in the economy, about $18.8 trillion, and divide that among the 168 million workers, we arrive at an average of $112,000 per worker.
We have staggering inequality. The U.S. is peculiarly bi-polar in the department of income and wealth. It may surprise many to know, and it surprised this writer, that the average wealth per household is $924,000. On March 12, 2020, the Federal Reserve reported in its Flow of Funds report, page 2, that total household net worth peaked at $118.3 trillion. Divided among the nation’s 128 million households that comes to $924K per household. Unfortunately 40% of households own just 0.1% of all wealth, states the Credit Suisse report on Global Wealth. Average wealth per adult in that group is about $2,000.
The average yearly household income, not wealth, before taxes is over $140,000, states the Bureau of Economic Analysis, Table 2.1. But half of households have incomes below $64,000, and many of them much below $64,000. The per person annual “disposable personal income” after taxes is now $50,504 says the same BEA table. Does it surprise anyone to learn that $24,405 is the median income per person for all four person households? The average is $50,504, but half have less than $24,405 per person, and often much less than $24,405. Those in official poverty live with below $6,500 per person. See the U.S. Census hinc-01 table. The numbers are difficult to digest, but the incongruity is not.
It’s a sad truth, that many Americans are unaware of the great disparities among U.S. households. The household medians, for both wealth and income, are far below the averages which are raised by the very high amounts at the tippy-tippy-top, the 1 percent.
The United Way charity reports in its ALICE report that 40% of Americans live with hardship or experience poverty. In a land where $50,000 of after-tax income per person is a fact, and over $400,000 of savings per adult is a fact, we have 40% who struggle to pay for necessities. It is a strain on the imagination. An income of $61,589 for a four person household, in 2020, is the ALICE Survival Budget income. This is 2.4 times the poverty official level. Meaning that the poverty level is much lower than the stressed out level.
Will low income workers be able to pay for necessities over the next few months is an extremely critical and unanswered question. The nation is watching. We have the resources, the nation is very wealthy, but can and will we protect and support those who have no “spare tire”.
The next few months or year will be an agonizing struggle economically for most households. The objective of planners and of our democratic process should be to insure that most workers and families get through this desperate period, and that future prosperity will be shared instead of our past 40 to 50 years of one-sided advantage.
WHAT TO DO --
The above was a letter to the New York Times, March 24, 2020. Below are 1) an article by Robert Pollin, and 2) a series of proposals from economist Jack Rasmus, and 3) an Op-Ed in the NYTimes written by economist Robert Kuttner.
Let me recommend a few real economists. Jack Rasmus has a very elaborate plan for $4 trillion in government stimulus.
Robert Pollin, at PERI, UMass/Amherst, also can add some intelligent thought that the nation would be happy to consider.
To the New York Times: Thanks for publishing the Robert Kuttner piece calling for a WWII-like mobilization.
I'm disappointed with Google, but it is free. I lost my original blog -- http://benL8.blogspot.com -- Economics Without Greed --- due to some error with passwords, and now I start a new "son of . . ." blog, part two. Try to find the original with it's laborious essays. And read on here. I'll post something soon enough. Nice photo, that is Hosmer Lake in Oregon's Cascade range, near Bend, Oregon. It originally was called Mudd Lake, and then changed to Hosmer, an improvement. Like this new blog!
