Solutions for the Economy

 Today, on December 5, 2024, I am expanding on a set of proposals that would restore broadly shared prosperity. 

     I see the path forward involving
1) a national charter for the 2,000 largest corporations. Each of these 2,000 mega corporations employ at least 5,000 employees, and the average for all is 20,859 employees. These firms account for "40.0 percent of payrolls, and 45.2 percent of revenues." They create a majority of the corporate profits of the nation. (These data come from an essay by William Lazonick, page 6.) They should confront three or four necessary impediments: 

2) The PRO Act would grant unions considerable power to negotiate for higher wages. The NLRAct of 1935 has been nullified by judicial interpretation, so states Ellen Dannin in her book "Taking Back the Workers' Law". Labor also needs a system of "sectoral bargaining" to streamline the formation of labor power in firms in the same economic sector. David Madland wrote the book, "Re-Union, How Bold Labor Reform Can Repair, Revitalize and Reunite the U.S.". These are the first instruments for restoring wage income levels. In France, for instance, only 9% of workers are actual members of a union, but 98% are covered in a collective bargaining contract (page 78). In Denmark 67% are union members but 82% are covered in a collective bargaining contract. If I'm not mistaken, a MacDonald's worker in Denmark earns over $22 per hour, while in the U.S. that worker earns $13.27 per hour. This article describes the additional benefits the Danish worker enjoys, like 6 weeks of paid vacation. 

3) The Reward Work Act would require these mammoth corporations to seat 33% of their corporate board with members chosen from workers' selection. Leonore Palladino has several essays about this idea. In November, 2024, she published the book "Good Company: Economic Policy After Shareholder Primacy". We need a new paradigm for our largest economic agents, corporations. William Lazonick titled his last book "Predatory Value Extraction: How the Looting of the Business Corporation Became the US Norm and How Sustainable Prosperity Can Be Restored". Clearly these two author-scholars wish to undermine and reorient our present complacent thinking about the mega corporation. David Korten, William Mitchell, Paul Adler, and Gus Speth also challenge our present corporate system of production.

4) A minimum wage of $25/hour for all large corporation employees. A full-time employee would make at least $50,000 per year. The most recent Social Security Administration report on wage income, for 2023, shows that $41.29773% of workers, or over 71 million out of 173 million, earned less than $35,000. The average yearly income for the 71 million workers was $15,443. Not much. The year-round full-time minimum wage workers earn $15,080 per year -- not much. The report "Executive Excess" shows the annual pay of the median worker at the 100 very large companies who pay the least to their workers, and all are listed on the S&P 500. For instance,  
"Walmart: The country’s largest employer last year spent $9.9 billion repurchasing company stock, enough for a $6,166 bonus for each of Walmart’s 1.6 million U.S. employees. Half of the giant retailer’s employees made less than $27,136 in 2022. CEO Doug McMillon, meanwhile, has amassed nearly $285 million in Walmart stock, up an estimated 35 percent in value since the beginning of 2020. 

It looks like McMillan, the CEO, had $211 million in Walmart stock in year 2020, and in year 2023 had $285 million, a 35% increase. His stock value increased by $24.6 million per year for three years, or by a total of $74 million. He "earned", or his stock grew, at a rate of $11,827 per hour for three full years (2080 hours X $11,287). In 2.5 hours of watching his stock grow (without lifting a finger) he earned more than half his employees (800,000 workers) earn in a year. What was his salary, or does that matter? I'm trying to rub something in, aren't I?  

Denmark to U.S. Income and Wealth Comparisons 

Since I brought up the comparison with Denmark, I'll add some additional comparisons. The World Inequality Database shows the percentage of national income going to different groups: the upper 10%, the middle 50th to 90th percentile (by implication), and the lower 50% of earners. It's a tedious arithmetic problem, but I'll show how incomes would change if the U.S. had the same income distribution as Denmark. I use the data at RealTime Inequality to help make the calculations. 

The average income of the Upper 10% in the U.S. adults, working ages 20 to 64 years-old is $448,100. This would drop to $305,240 with the Danish distribution.
The middle 50th to 90th percentiles have an average of $102,100. This would rise to $115,882.
The lower 50% of worker have an average of $25,400. This would rise to $42,135. 

If the average wealth of the U.S. was distributed as in Denmark, then the top U.S top 10% of households would own -- not $8.97 million average but $6.40 million.
The middle 50th to 90th percentiles would own not $564,774 but $1.44 million. 
The lower 50 percent of households would own not $38,075 but $101,533. 

Here is a comparison of the Income and Wealth Ratios for both U.S. and Denmark, separating the average income and wealth levels of the lower 50%, then the middle average for 50th to 90th percentiles, and lastly the top 10% average. For instance, the U.S. lower 50% has an average income of $25,400, the 50th to 90th group has an average of $102,100, lastly the top 10% has an average of $448,100. The ratio is 1 to 4 to 17. 

            Income,   U.S. --  1  ---  4     ---   17           Wealth, U.S.  1  --   15   ---  235
                       Denmark  --  1  ---  2.7  ---     7                 Denmark       1  --   14  ---     63  

I reluctantly summarize anything, but I should here speculate that if we really wanted to 
Make America Great Again  --  we'd have to look to Denmark.  

    Income Comparisons -- Denmark today, U.S. in 1976 and U.S. in 2023

I'll now show the income percentages going to each of the three groups (lower 50%, middle 40%, top 10%), that of Denmark today, the U.S. in 1976 and the U.S. in 2023 (from RealTime Inequality.org).

                                    Denmark - 2023            U.S. 1976              U.S. 2023 
            lower 50%                  22%                        12%                         7.9%

            middle 40%                47.4%                     50.4%                     39.1%

            top 10%                      30.7%                     37.7%                     53.1%   

Which country has a strong middle class? Which country has lost its middle class?     
            This is the cause of our sorrows in my humble opinion.                 

Incomes of Higher and Lower Paid Full-time Workers 

Today, or in November, 2024, the average yearly income of the lower-paid 55% of full-time workers (just under 60 million full-time workers) is $37,046/year states the Job Quality Index (page 9). The average for the upper-paid 45% is $73,494/year. The high wage group earns about double the lower wage group. And the average for 100% of the 110 million full-time workers is $53,052/year. The lower 55% yearly income comes to $17.68 per hour and a 40 hour work week. Most part-time workers who work year-round earn less, about $25,000 is my guess. Therefore, about 87 million (or 55% of all 160 million workers, full- and part-time) currently employed are earning very little. That's a big, important concept: 55% of all workers are underpaid. 

I can underline this -- the Social Security Administration publishes a report on wage earners' incomes each year. For 2023 some 41% of all workers, over 71 million out of 173 million, earned an average income of $15,414, and all earned less than $35,000. A minimum wage worker, full-time and year-round, earns $15,080. Conclusion, about 40% of workers, who mostly depend on wages, are earning very little. This low income group earns a total of $1.1 trillion. Stock buybacks for 2023 were $795.2 billion, and in 2022 they were $922.7 billion. Domestic nonfinancial corporate post-tax profits in 2023  were $2.1 trillion shows the Fed's Flow of Funds, Table F.3, page 10. The top 10% of wealth holders own 87.2% of all corporate equities, shows the Fed's Distributional Accounts page. The top 10% also own over half of all pension benefits. Professor Lazonick's study shows that over 90% of corporate profits since 2004 have gone to shareholders. Therefore, there's no question about the benefits of wealth accumulation and the often life-long insecurity, deprevation, and hopelessness due to low-paying wages.  

One should remember the national income ($24.277 trillion) divided by the number of households (131 million) equals over $185,000 per household, the average income for all households. On December 12, 2024, the Fed's Flow of Funds report shows that total household net worth is $168.800 trillion, and that equals around $1,288,000 of assets net of debt per household. (Figures are updated to most recent Flow of Funds report, page 2 and 10) Two median employees at these largest companies would be earning perhaps $74,000 together. And $74,000 is less than the survival budget for a family of four. (You might search here, here and here to verify that statement.) It is no wonder that the United Way report, ALICE, states that 42% of U.S. adults face hardship or poverty. If we want "wonder" we might wonder how such a fabulously wealthy nation can have 42% living in hardship or poverty.

 
5) I also suggest a "workers' dividend" or a mandatory annual bonus to workers earning less than $70,000 per year. This concept is explored in the book "The Citizens' Share: Putting Ownership Back into Democracy" by Freeman, Di Blassi, and Kruse. My September, 2023, essay explains. 

Raising incomes and decreasing expenses will instill economic security so urgently needed for many  Americans. A higher Earned Income Tax Credit, a permanent refundable (meaning universal) Child Tax Credit, providing subsidies for child care and preK instruction, and a government jobs program are ways to increase incomes.

Reducing normal expenses are the other side of the coin. The important proposals are: Medicare for All, obviously, building public housing such as Senator Sanders' plan to build 10 million permanently affordable housing units in 10 years, canceling student debt, and expanding Social Security for low income seniors. My ambitious goal is to restore the income distribution ratio of 1976, and then each household in the lower-earning 90%, all with incomes below $200,000, would receive about $30,000 more income. In 1976 the lower 90% earned 63% of income not today's 48%, according to RealTime Inequality. 

The Federal Reserve's survey called Economic Well Being of U.S. Households for 2023 shows that 48% of U.S. adults say that the "maximum emergency expense they could pay from savings" is $2,000. (See page 33) The Consumer Financial Protection Bureau reports in December, 2023, that 40.0% of U.S. adults report having less than $1,000 in savings and checking accounts (page 33). And 20.3% have less than $100. And "37.8 percent of households had difficulty paying at least one bill or expense in the previous year." And only 47% had enough liquid assets to cover expenses for a period of 3 months or more. Again, the average household income is over $180,000 per year. The average household net worth, i.e. savings, is over $1.2 million. It is time to imagine an American society where most households hold assets near the average, and their incomes orbitted near the average. Imagine.

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I should end the essay at this point. I should learn the lesson of "cognitive overload". That is, the mind can absorb only so much info at a time. More is less; and less is better. 

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But it occurs to me I've left a few items out. Here they are: 

Inequality is ruining our society. Sharing the rewards of work was normal during the late '40s, '50s, and 1960s. During those years wage income grew at the same rate as the national income, as I've shown in the most previous essay. The RAND Corporation also shows this fact. The "average weekly earnings of production and nonsupervisory workers", states the BLS web page, was higher in 1971 than in 2023. Eighty percent of all workers fall into the "nonsupervisory" category. The "Real [inflation adjusted] GDP per capita", states the Federal Reserve, grew by 161% during these 52 years, more than doubling and almost tripling. This discrepancy is the cause of our sorrows. The output grew enormously, but the weekly wage income did not grow, as I've shown often times.  

Along with the PRO Act, I'd like to see the emergence of organized BOYCOTTS. This is a populist response to the tyranny of large corporations that manipulate low wages and high prices at will. 

           Profit Inflation Is Real            

As I have shown, between 2019 and 2024 the share of national income going to nonfinancial corporations has increased from 6.0% to 11.7% (page 10, Flow of Funds). Pre-tax profits were $1.105 trillion in Q3 2019, and were $2.891 in Q3 2024 -- a five year period, a gain of 113% inflation adjusted. (Flow of Funds Q3 for both years) "Profit Inflation Is Real" states Servaas Storm. This profit increase defies the core belief of capitalism that competing enterprises would compete on low prices to obtain high market share and profits. Page 10 of the Flow of Funds report shows the national income and the profits of nonfinancial corporations; as a percentage of national income they have never been higher. I've covered this in my last few essays. 

             Three additional articles to read         

Now I'll suggest three articles to augment the readers' appreciation of the field of economics. The three  are
1) A Tale of Two Countries [France and the U.S.] -- from the Washington Center for Equitable Growth.  A comparison between low-income French and U.S. workers shows that French workers enjoy higher pre-tax income even though the per capita income in the U.S. is 35% higher. And then add on social benefits from the government, the French post-tax incomes are signifcantly higher. This article also examines the trajectory of inequality in the U.S. and explains the difficulties of measuring inequality. The authors are Thomas Piketty and Emmanuel Saez and Gabriel Zucman.  

2) The WCEG has another revealing study about worker bargaining power and income distribution among rich countries. It provides a "five-country sample, with particular attention to the incidence of poverty-pay and decent-pay jobs for young (18-34) male and female workers without a college degree."

3) "Reading Adam Smith in Denmark" by Robert Kuttner, 2008. It's a 40 minute read, probably, but worth it. Denmark is unique, we are not Denmark, but one can see the play of attitudes, political friction, social cohesion and practical survival ingenuity in the Danish model. The Danes also have a streak of libertarianism in their model, and a willingness to experiment. It's an absorbing read. Kuttner is a favorite writer of mine, I've read three of his books. 
Kuttner concludes that if American politicians mustered "the political nerve to propose an active labor-market policy on a serious scale, it could not only narrow income gaps and increase overall productivity; it might also reclaim some of the lost support for a more managed brand of capitalism, revive the idea of a role for government in promoting equality as well as efficiency, reclaim trade unions as social partners, and build more compassion among Americans for those of different social strata." 

          International Comparisons of Wealth and Income 

There are many books explaining the "future without capitalism", to summarize the central theme. Capitalism has its drawbacks, as we can clearly see. Corporations that pay the lowest wages can offer the lowest priced product, but that destroys the purchasing base needed for a thriving economy. As the U.S. tests its willingness to create brutal inequality, we have to understand the high risk of social damage. The Great Depression, 1929 to 1937 is such an example (explore this article). Capitalism was struggling for its existence in the 1930s, fascism and communism had won temporarily. 
An indicator of danger is the comparitive "intentional homicide" rates among nations. 
Japan has a homicide rate of 2 in a million. 
Europe has a rate of 10 in a million.
The U.S. has a rate of 57 in a million. 
Mexico has a rate of 249 in a million. Mexico has by far the highest inequality measure. 
I can't swear this is causative, but it looks that way. The United Nations' Inequality Adjusted Human Development Index also tends to suggest the correlation. 
     We must begin to envisage a more cooperative, less competitive, less cut-throat society. 

The world population has not benefitted much from our advanced technology and modern economy. Just today I looked up the World Bank report stating that 44% of the world's population lives below a poverty level of $6.85 per day per human. This comes to $2,500 per year per person. A family of four with incomes below $10,000 will fall into that group of poor humans. Approximately half of Mexico's families fall below this $6.85/day income threshold. 

The average wealth per adult in the world is around $87,489 states the Global Wealth report from Credit Suisse Bank, 2023 (page 126 of Databook). But half of all adults own less than $8,654. 

In 2022 half of the adults in Africa owned less than $1,242; in India half owned less than $3,755;  in Asia-Pacific half owned less than $5,176; in Latin America half owned less than $6,341. Among all adults in the world, half own less than $8,654. But in China half own less than $27,273. The mean average in the U.S. is $551,347, while half own less than $107,739. In fact the lower 40% in the U.S. own just 0.7%, which comes to about $1,400 per adult. (See page 144). You might be asking, reasonably, "Is that true?"  

The World Inequality Database shows total world wealth at just under 580 trillion Euros, equivalent to $609 trillion dollars. A staggeringly huge amount of money. Using Credit Suisse data, I estimate that the average wealth per adult worldwide is near $106,000. Why is there enormous wealth coupled with massive poverty (44% of humanity)? Is it a faulty economy run by people with a mind-set that blinds them? 

   

Distribution of the Nation's Income, It's Out of Balance

 A dramatic shift in income distribution occurred between 1976 and 2023; the shift saw the lower-earning 90% of households losing 15.4% of the national income. They were earning 62.4% of all income in 1976, and earned 47% in 2023. The web page RealTime Inequality ( realtimeinequality.org ) produced by University of California Berkeley economists, shows this income distribution shift. Conversely, the top 10% were earning 37.7% and now earn 53.1%. It's ridiculous to think that 10% deserve so much of the national reward for work.We have in the U.S. a crisis of poverty and hardship, of people struggling to get through life without the resources they need. Approximately 42% endure hardship and/or poverty, and even 27% of the population went without some type of medical care in 2023  because they could not afford it. Some 52% of adults say the "Largest emergency expense" they could afford is $2,000. (See the ALICE report for the 42% of  U.S. households, and the Federal Reserve's report "Economic Well-Being" for the 27% and 52% numbers, pages 31 and 33.) The average income per household is $173,000 (the national income is $22.713 trillion shows the Fed's Flow of Funds, page 10, the number of households was 131 million in December, 2023), and the per capita income of every human after-paying-federal-taxes income is $62,257 (BEA.gov, Table 2.1, line 38), and the national income divided by all citizens is $67,598 ($22.713 trillion divided by 336 million). Therefore, the typical family of four should have an income of $270,392. The median 4 person household had an income of $124,600 in 2023. One would think . . . that a mere $2,000 would be in reach of every adult! But it is not. It's time to revamp our system and toss out our blind acceptance of the invisible hand, or whatever it is, and create a fairer society. That's the gist of this post and web blog. 

The 15.4% shift equals $3.556 trillion that once went to the lower 90% of households --- and that amounts to $30,393 per household for 117,000,000 households, all earning less than $200,000. (see Flow of Funds, page 10 for total national income amount).   

Imagine 117 million households with $30,000 more income each year. That would look like the U.S. economy in 1976. We did it then, we can do it now. The report from the RAND Corporation also shows such a dramatic shift, Trends in Income from 1975 to 2018. They show the median adult worker earning $26,000 in 1975 and $36,000 in 2018, but the counterfactual income would have been $57,000 had growth been shared equally. The worker at the middle income position saw his annual income grow by $10,000, from $26K to $36K, when it could have grown by $31,000, from $26K to $57K. Each middle or median worker would have $21,000 more income yearly. A two-worker family of course would have seen a gain of over $40,000, at the median income level. 

The report from the Economic Policy Institute, "The New Gilded Age" reveals some very alarming details about the unequal distribution of income. Between 1945 and 1973 income growth favored the lower 99% of earners: "The average inflation-adjusted income of the bottom 99 percent of families grew by 100.1 percent between 1945 and 1973. Over the same period, the average income of the top 1 percent of families grew by 34.3 percent. Faster income growth for the bottom 99 percent of families meant that the top 1 percent captured just 4.9 percent of all income growth over the period. (Data are shown in Appendix Table B7.)"

But then the picture changed radically: 

". . . from 1973 to 2007 as the income of the bottom 99 percent of families grew much more slowly (by just 15.4 percent) compared with the top 1 percent, whose average income grew by 216.4 percent. As a result, over half (58.7 percent) of all income growth in this period landed in the hands of the top 1 percent of families. (Data are shown in Appendix Table B8.)" In the 34 years between 1973 and 2007, 58.7% of the nation's economic growth was captured by just 1% of the population. The web page RealTime Inequality captures this income growth inequality: This is "factor income" or market income growth since 1976 to 2023, U.S. households  -- the top 1%, the next high income 9%, the 50th to 90th percentiles, and the lowest income 50% (with the slowest growth) of U.S. households.  

                                             

Does that seem fair? Am I wrong? Maybe the author of the study slipped up. Since 2007 the pattern mostly continues. This is the finding of "The New Gilded Age", published by the Economic Policy Institute, page 12. (At the very end of this essay-post is a remarkable quote from the EPI report that bolsters this argument. See "New Gilded Age" below.) The benchmark figures for the total economy are these: during this 34 year period, 1973 to 2007, the "Real GDP per capita" grew by 93%, nearly doubling; the one percent saw their average income grow by 216%, more than tripling, the study reports. This is tremendous growth. The average full-time worker saw his or her "average weekly earnings of production and nonsupervisory employee" drop by 4% during these years -- see the BLS report and adjust the span of years. 

In contrast, during the previous 28 years, 1945 to 1973, the lower-earning 99% captured 95.1% of the growth and saw their incomes increase by 100.1%, while the 1% captured only 4.9% of growth, and increased their incomes by 34%. The Fed's graph shows during 27 years (not 28) the "Real GDP per capita" grew by 88%; and add another year it grew by 94%. In the 28 years of the earlier period, '45 to '73, the GDP/capita grew at almost the same amount as the next 34 years, but the 99% received most of the income growth, 95.1% to 4.9%. Then it switched; the 1% gained 58.7% of growth, the 99% received 41.3% of income growth. -- from the report The New Gilded Age, EPI.   
1947 to 1973, from Fed's FRED page:
                            

and 1973 to 2023, the two periods almost identical:                 

It's difficult to imagine the distribution of growth being so crazy and unfair; and after 2007 the pattern continued. This income distribution shift should be called a "market failure", something went haywire. Only government intervention can reset the error. The word socialist crops-up in my mind at this point. Am I a socialist? Economics Without Greed is a slant I believe in. Almost a majority of the nation's households and families are experiencing a crisis of economic insecurity, it's time to seek solutions.  

            Wealth Inequality section     

My writing I recognize is tiring, over-burdened with numbers and details. I advise readers skim or quit. Try to grab one or two main ideas. Stop when you begin to sink. As the author I can only warn you. 

Very unequal sharing of income leads inevitably to extreme wealth inequality. Now, take a quick look at wealth inequality using the Fed's Distributional Accounts page. The top 10% own 67% of all private wealth, the next 40%, the 50th to 90th percentiles, own 30.8%, and the lower 50% own 2.5%. The RealTime Inequality reports the 1% and the next 9% own 74,7%, the middle 40% owns 25.3%, the bottom 50% own 0%. 

              Belgium     

Wealth is also measured by the Credit Suisse Bank's Global Wealth report, Databook. The last edition of the Databook was published in 2023 for year 2022. It shows (page 140) that in Belgium the top 10% own 43.9% of all wealth (page 144). This 43.9% is the lowest percent-share among 38 major nations -- the most equal sharing of wealth. In the U.S. the top 10% own 73.5%. People at all levels own significant wealth in Belgium; the lower decile (10%) own a bigger percent-share than all other 37 nations. In the U.S. the top 10% own 75.9% (almost the same as the RealTime report); the U.S.'s wealthiest 10% owns (75.3 minus 43.9) 31.6% more than the Belgium 10%. In the U.S. that's equal to about a third of $150 trillion, or $50 trillion. Each household in the U.S. lower 90% would own about $427,000 more wealth if . . . . . . we could match the Belgium ratio. Is this a minor quibble? Maybe. What does it take to share wealth? Is it their beer, their water, their culture? Especially when billionaires can't even count the immense wealth they own, much less put it to productive use. Why not share the wealth? Answer that and you'll find yourself isolated.     

In the U.S. private household wealth has multiplied over the decades, since 1989. The above graph, Distributional Accounts, starts in 1989, the beginning year of the Fed's graphic. "Wealth" has grown from $20.88 trillion to $154 trillion in Q2 2024. It grew by a multiple of 7. How fast did the national income grow? It grew from $5.6 tr. to $25.7 tr, a multiple of 4.9. These figures are nominal, not "real" meaning "inflation adjusted". 
Therefore wealth is growing 51% faster than income. Wealth grows faster, much faster. 

Nationally, in 1989, the nominal national income was $5.6 trillion, and the total wealth was $20.88 trillion. The 1989 income to wealth ratio is 1 to 3.7 ratio. By 2024 wealth grew by 189%, nearly tripling. National income, reported by the Fed's Flow of Funds, is $23.232 trillion, and total wealth stands at $163.797 trillion (Flow of Funds, pages i and  10). The income to wealth ratio is 1 to 7.0. The income to wealth ratio of 2024 is almost double the ratio of 1989.   

The ratio between annual income and wealth is captured in this graph: 

 The question is "Do we have too much wealth?" Apparently the historical average, 1946 to 1996, was 520%. And we stand today at 784%, after hitting a high of 835%. We have 50% more wealth than the 50 year earlier average. Is that too much? Since most of it is held by 10%, it is too much.  

Are U.S. citizens saving more income, thereby increasing total wealth? Far from it. Excess wealth simply drives up the price of financial assets. That's the dynamic for wealth growing much faster than income. Has the net savings rate increased since 1996? The BEA shows this is not the case, Table 2.1, line 35. In fact the savings rate has decreased steadily since 1980, where the lower graph begins, at 10%, to today's rate of 5%. By savings less we see total wealth balloon? How is it possible?   

It's not that strange. When so much of the nation's surplus, call it profits, is received by a minority who cannot put it into productive enterprise, the result is an inflation of paper financial assets. The same thing happened in the 1920s leading into the Great Depression. This phenomenon is driving today's stock prices. The Dow Jones Index could crumble and only 10% of society would directly lose wealth. Of all corporate equities or stocks, 87% are owned by the top 10% of households, shows the Fed's Distributional Accounts. But indirectly a huge catastrophe would befall all workers and families as serious unemployment would ensue. 
It may be too much info, but here's the Distributional Accounts breakdown of who owns stocks (going to the web page shows details more clearly. The three bars to the left are the top 10%, the next to right is the 50 to 90 percentiles, most right is the lower 50%). 

Adjust the 1989 total wealth figure of $20.88 trillion for inflation, and total wealth in 1989 is $52.48 trillion in 2024 dollars. But in 2024 total wealth is shown at $151.68 trillion (or it's $163 trillion using the Flow of Funds figure, page 2), indicating that total wealth has almost tripled in value, from $54Tr to $151 Tr. (since 1989). "Real Disposable Income per Capita" rose by 81%, 1989 to 2024. In the same 35 year period "real" wealth grew by 201%, and per capita wealth grew by 120%. As best as I can determine, it's a difficult bit of arithmetic. But it may be accurate; wealth grew 50% faster than income (120% vs. 81%). I wrote that before. 

Using the more accurate figures from the Flow of Funds, in January, 2009 total wealth hit its nadir, its low point, as a result of the Great Recession. It stood at $50.4 trillion after falling from $62 trillion. And since January, 2009, total wealth has risen by 125%, inflation adjusted. Using inflation adjusted figures,
wealth grew from $72.5 trillion to $163 trillion, from January, 2009, to September, 2024,
an increase of 125%.
And the real per capita real national disposable income grew by 43%;
and the real GDP per capita grew by 29%;
and the average weekly incomes of the 80% of workers who are nonsupervisory grew by 12%. 

What do you think? Does economic growth reach the lower-earning majority? Does an additional $90 trillion in savings distort the market for housing?  

Did weekly earnings for 80% of workers who are nonsupervisory also triple or double? Look at the graph below. The high-wage point is 1973, and the low-wage point is 1996, and now, 2024, we are a little below the December 1971 level. Over 53 years and enormous growth, wages for 80% of workers are lower! Weekly earnings, I call them wages, fell dramatically from 1973 at their peak and reached their nadir in December, 1996. Since their nadir wages adjusted for inflation have risen by 24%. But, and it's a big persistent BUT, the "real disposable personal income"since January 1993 has risen by 69%. Wages rarely keep up with the growth rate of the economy. Not since 1946 to 1976 era. Since 1973 wages for the "nonsupervisory" 80% of workers have decreased by 4%. More accurately,   since 1973 -- a 51 year period -- wages have fallen by 4%, 

while wealth increased by 200% (tripled). And the GDP per capita increased by 157%, or a multiple of 2.57.      See GDP/capita here.   

Is something  WRONG????????????  

This is to say, economic growth detoured the middle class worker. Only the induction of wives into the working population kept household incomes at their 1980s level. The Washington Center for Equitable Growth publishes on this topic. From the Conclusion: "Simply, women’s participation in the workforce has made the key difference for middle-class families and more vulnerable families on the brink."
The graph below shows the collapse of "weekly earnings for production and nonsupervisory workers", meaning "employees"; they have fallen by 4% in the past 51 years. The reader should note the difference between the 1973 level, the 1979 and 1989 levels. The RAND Corporation study shows that wage income for men has dropped by 4% during the 43 years (1975 to 2018) of its study.  

What is happening overall? The GDP per person and the total personal income per person grows much faster than the middle family's income and faster than the average workers' incomes. That's the problem! 

And did median household income triple? This time we look from 1984 to 2023. The real (inflation adjusted) 1984 median household income is $58,280, while 

the "real" 2023 median household income grew to $80,610, a gain of 38%. (go to Fed's FRED web page, and adjust for inflation at the BLS page). 

Same period, 1984 to 2023,  

"Real disposable [after tax] personal income per capita" doubles, up 102%, between 1984 and 2023, increasing from $24,851 to 50,250. I call them benchmark indicators of growth.

And the total household net worth, or private wealth almost triples, up 189%, increasing from an inflation adjust $48,069 to $138.498 trillion. 

 

Compare the growth of 38% for middle families' incomes with the overall benchmark gains for the economy, the Real GDP/capita, up 100%. 

and Real Personal Income/capita, up 102%.

and real private wealth, up 189%.

You needn't tell me that I'm repeating myself: Many people were left out of prosperity growth. 

 

What could that mean? It means the economy serves only the wealthiest. 

The RealTime Inequality site shows income growth between 1976 and 2023 for four groups: the top 1%, the next 9%, the middle 40% between the 50th and 90th percentiles, and the lower-earning 50%. Note the extreme difference in growth. 

The Fed's Distributional Accounts page shows the ownership of corporate stock by population percentages. The top-owning 10% own 87.1% of all stock: 

And since Febuary 2009 stocks on the S&P 500 have increased by almost a factor of 8, from 700 to 5700. A factor of EIGHT. What was worth $1 million almost 15 years ago is now worth $8 million (or billion or trillion). For greater accuracy we should adjust for inflation the 2009 $1 million. It turns out that the $1 million in 2009 buys what $1.45 million buys in December, 2023. Therefore, the $1.45 million transformed into $8 million by sitting in the S&P 500 index. That's an increase by a multiple of 5.5 times or 450%.  --- stocks quintupled in value in 15 years. The real median household income increased by 18%, not 450%. 

When income inequality gets bad, the wealthy have no productive outlet for their increasing wealth; they deposit their over-sized income money into paper assets we call financial assets. The Federal Reserve calls them "nontangible assets". As more and more income pours into the value of paper assets, the total value of "nontangible assets" rises, but does nothing to increase the amount of "tangible" assets. The quality of life does not improve for the majority. GDP growth is a myth of prosperity. The ratio of total wealth to annual national income is close to a record high in Q1 2024 (Flow of Funds report, Table B.101, line 50, page 140). The Fed's FRED page shows the graph: 

From January 2009 to December 2023 the "Real Disposable [after-tax] income per capita" grows by 28%. The "Real Median Household Income" grows by 18%. And for 80% of workers the real "average weekly earnings for production and nonsupervisory workers", increase by 11%. The "Median usual weekly real income" for this 80% of workers increased by 8%.  And "real" total household net worth grows by 90%. Or using more exact data from the Flow of Funds, real wealth surges from $86 trillion to $155 trillion, a gain of 114%, from January 2009 to December 2023. A reader can rush through these numbers and forget them. I do it often. Wealth increases about 8 to 11 times faster than weekly earnings for 80% of workers in a 15 year period. What is happening to the U.S. economy?   

We have too much wealth, it produces nothing. It gives a small minority a sense of security. It distorts markets incentivizing production for expensive purchasers at the expense of lower-earning purchasers. The housing market is a case in point. Wealth sits idle indefinitely, wasted when it could be serving society, a definition of hoarding. I think of it as sociopathology, a sickness, a source of anxiety.

 
Today's ratio of national disposable income to wealth stands at 776%, and this is 49% higher than the historical level (1946 to 1996) of around 520%. 
The historical average of this ratio indicates that out of a total $160 trillion in “household net worth” we have about $45 trillion in excess private wealth. The appreciated value of financial assets is often converted into higher housing prices, and then the housing market only serves the wealthy. 

In 1979 the median sales price of a house was 3.6 times the average income of a nonsupervisory employee; and in 2023 the price was 7.0 times the annual income of this same nonsupervisory employee. "Average weekly earnings for production and nonsupervisory workers" -- Wages --  were higher in 1971 than in 2024, as the upper graph shows.  (https://data.bls.gov/timeseries/CES0500000031)

      Financial Fragility and Insecurity     

The United Way charity publishes the ALICE report each year, Asset Limited, Income Constrained, Employed. It shows that 42% of U.S. adults live with economic hardship or poverty, only 58% are above the hardship level. Other studies show this is roughly the condition of U.S. families. For example the survey from the Consumer Financial Protection Bureau, December 2023, page 13: "In January 2023, 37.8 percent of households had difficulty paying at least one bill or expense in the previous year." I could find more such reports easily. For instance, the Credit Suisse Databook for 2022 shows the lower 40% own only 0.1% of all U.S. wealth, which amounts to about $1,500 per adult. The top 10% own 75.9%, and that leaves 24% for the 40th to 90th percentile middle 50%. (page 140, Credit Suisse Databook. This Databook has been removed from the web, probably due to the merger of C.S. with UBS Bank.) In 2017 the Consumer Financial Protection Bureau published a Financial Well-Being report which shows, on page 80, that 54% of respondents have less than $5,000 in liquid savings, 33% have less than $1,000, and 24% have less than $250. And the "average" household savings is $1.2 million. A third of U.S. adults can't find $1,000 in cash!  

The Fed's 2024 report "Economic Well-Being of U.S. Households" shows, page 33, that 52% of American adults cannot afford more than a $2,000 emergency expense. And 37% can't find $400 in a 30 day period to pay an emergency expense. This is a nation with an average household income of $170,000, yet half the adults can't find $2,000 in a pinch. This shows the  ridiculous imbalance of income and wealth. 

Two key stats to remember is that the total national income divided by all households is $170,000 per household; and the average household "net worth" is $1.2 million. Yet the lower-earning 50% of households all earned less than $80,610 in 2023. (I use the figures from the Flow of Funds, page 10, $170,000, and the U.S. Census, 133 million.) $170,000 is average. The lower half is not doing well, and it's a crime rarely described as a crime. The RealTime Inequality site shows some details. Households' "Average Real Factor Income" for the lower 50% is $18,900; and their "Average Real Post-tax Income" is around $39,200 – it more than doubles when social benefit transfers are added. (Those figures are from RealTime Inequality.)  

The Congressional Budget Office published in September, 2024, the report "The Distribution of Household Income in 2021". The Appendix C shows the breakdown of pre-tax income. The average income for the lowest 20% of households was $22,500 in 2021; the highest quintile average was $418,100 -- 18 times higher than the lower 20%. The top 1% average is $3,126,400. The lower 20%  income is 0.7% of the higher 1%. How do you think I feel about that? Post-tax ratios are much different, fortunately.     

     A Ratio of Income Inequality    

I find the best mental picture is a ratio from lower 50% to middle 40% to upper 10%. I show the households' ratios using the RealTime data. 

                                                                                  50%  - 40%  - 10%

The ratio for households factor (or market) income is 1 to 6.2 to 33.9. 
The ratio for households post-tax income is                1. to 3.2 to 12.8. 

In dollar amounts for factor income it is        $18,900 to $117,900 to $640,800.
For post-tax income it is                                 $39,200 to $127,000 to $503,500.

Half of households receive $40K, the next 40% $130K, the last 10% $500K.
                                               $1   --------------    $3.25    -------   $12.5                          

I maintain this is a disaster, pure and simple. 

Taxation and social benefit programs make life liveable for the lower 50%. 

           Some Solutions        

I need to write a detailed essay on "Solutions". The more I think about it the more I see the path forward involving a national charter that would apply to the 2,000 largest corporations. Each of the 2,000 employ at least 5,000 workers, and the average for all is 24,000 workers. They create a majority of the corporate profits of the nation. They should confront three necessary impediments: 1) the PRO Act that would grant unions considerable power to negotiate for higher wages. A system of "sectoral bargaining" may prove to be advantageous -- read the link. 2) the Reward Work Act which would require these mammoth corporations to seat 40% of their corporate board with members chosen from workers' selection. 3) A minimum wage of $25/hour for all employees. A full-time employee would make at least $50,000 per year. Today, September, 2024, the average yearly income of 55% of full-time workers is $36,771/year claims the Job Quality Index, (page 9). I also suggest a "workers' dividend" or a mandatory annual bonus to workers earning less than $70,000 per year. This concept is explored in the book Citizens' Share. The restoration of the income distribution of 1976 would be the goal, when the lower 90% earned 63% of income not today's 48%, according to RealTime Inequality. And each household in the lower-earning 90%, with incomes below $200,000/year, would have $30,000 more income. 

I wrote the following several months ago -- 

We need policies to raise incomes and lower costs; that would entail support for the PRO Act and the RewardWork Act to reshape the architecture of the largest corporations. Other lesser improvements would be a much higher minimum wage for the 2,000 largest national corporations, a larger Earned Income Tax Credit, and a refundable (universal) Child Tax Credit. To further raise incomes we need a public employment program along the lines proposed by Philip Harvey to maintain a tight labor market which automatically raises wage levels. As I suggest in my previous blog post, we could also implement a national corporate charter for the largest 2,000 national companies and impose a mandatory employee bonus each year. These companies employ about a third of all workers.     

To lower prices we need Medicare for All. The recent Commonwealth Fund report shows, again, the failure of our healthcare system. We need a very large public housing program along the lines proposed by Bernie Sanders. We should expand the Child Tax Credit, and include a universal child care and pre-K learning program, and provide a cancelation of student debts. The list goes on. Mostly our minds are paralyzed by the idea we have not enough money to create these benefits -- But $170,000 is the average household income, and $1.2 million is the average savings -- we have the money. 

How high was the highest personal tax rate? The IRS has the data, and the BLS has the inflation adjustment calculator. The tax rate on the highest personal income -- 1948 incomes higher than $5.3 million in 2024 dollars, and in 1964 incomes above $4,000,000  -- the rate was 90% on income in excess of $4 or $5 million. There are 1 million tax payers with incomes above $1,000,000 shows the Joint Committee on Taxation, May, 2024. They earn 15.5% of all income; they are 0.6% of all taxpayers; their average income is $3.3 million; they pay an effective tax rate of 30.4% (on income above $600,000 they pay a rate of 37%). And their taxes equal 23% of all tax revenues. (page 38) 

That's a welter of numbers. Probably they avoid a lot of taxes through evasion and under-reporting. We could also raise the capital gains tax and the corporate tax. A wealth tax should be explored. Senator Elizabeth Warren has proposed a wealth tax on estates above $50 million. The Center for Budget and Policy also advocates for higher tax revenues. Out of 38 developed nations only 7 take in less in taxes (as a percentage of GDP) than the U.S. If the U.S. raised 42% more tax revenue we would equal the OECD average; 42% equals $1.8 trillion new tax revenues. We tax $4.3 trillion; we could tax $1.8 more bringing in a total of $6.1 trillion -- then we would be average among developed nations. In short, we can tax our way out of the national debt problem and the expanding need for social benefit programs. I wrote an essay about Trump's One Good Idea. "‘Personally this plan would cost me hundreds of millions of dollars, but in all honesty, it's worth it,’ Trump said." Personally, this plan would not cost me a penny, it's one of Trump's few good ideas. It's at my old blog. He proposed taxing wealth and paying off the national debt.   

But mostly we need higher wages for low-earning workers. The lower-earning 55% of U.S. full-time workers, 60 million workers, have an average income of $36,563/year (see the Job Quality Index). Boosting the pay of full-time nonsupervisory workers would also boost the incomes for 28 million part-time workers. Therefore, the target is to raise incomes for 88 million workers, or about 55% of all workers. 88 million workers is a majority of workers. 

          Social Security Report on Wages, 2022 and 2023    

Looking at the wage income report from the Social Security Administration for 2022, 54% of workers earned less than $45,000 in 2022, their average annual income was $20,226. (The RealTime Inequality page shows an average income of $25,200 for this 50%.) Living off just $20,226 or $25,200 per year  is very difficult, and socially it has an unhealthy effect on all of us. It may challenge the reader's comprehension but the total collective wage income earned by the lower-paid 54% of U.S. workers is $1.887 trillion, which is 18% of all wage income and 9% of the national income (see page 10). I am sure only geniuses can remember detailed facts like that -- suffice it to say, wage income for over half of all workers is very low -- the take home pay for half of all workers is just 9% of the total national income -- and should be raised. 

The SSA report for 2023 was released in late October, 2024. It shows the median worker earned $43,222, up from $40,847, an increase of $2,375 or 5.8%, or a real 2.4%. 

From Q4 2019 to Q4 2023, 4 years, the median worker's annual income increased by 1.4% per year. The real after-tax income per person increased by 2.1% per year. The GDP per person increased by 2.0% per year. The national income by 0.9% per year (Flow of Funds, Q4 2019 to Q4 2023) The weekly earnings of 80% workers (nonsupervisory) workers increased by 0.9% per year. 

The RealTime Inequality page, adjusted to the dates March 2019 to March 2023 shows for
             --- Real Growth, Factor Income, Working Age Adults age 20 to 64  --  
the lower 50% saw an income increase of $950 a year, 
the 50th to 90th percentiles saw a          $1,500 increase,
the top 90th to 99th saw an                    $11,000 increase,
and the top 1% an increase of           $230,000.     -------     very telling of our sick economy.   

A report from the Congressional Budget Office (CBO), "The Distribution of Household Income, 2021" on page 33, shows the average income for the Top 1 % over 2 years, 2019 to 2021, increased by $1,028,500, or by 49%. They had an average of about $2.1 million in 2019, and in 2021 it was $3.1 million. How to explain such a large increase? The other income groups had minuscule gains: the lower 20% gained $300, the 2nd quintile lost $2,000, the middle quintile lost $100, the 4th quintile gained $2,100, and the top quintile gained $66,600, mostly as a result of the huge gain of the top 1%. 
This is does not take into account the S&P 500 stock market, in 2021, year-on-year, it gained almost 22%. The Devil is in the details! 

         Wealth Supremacy, the book by Marjorie Kelly          

There are many, many ways to restore income balance. ----------   Marjorie Kelly latest book Wealth Supremacy takes on the imbalance of wealth. Her studies will lead to economic justice and a richer society for all. The first hyperlink above leads to an interview with Laura Flanders. 

Kelly objects to the imbalance of power that great wealth creates. As I've laid out above, we have an inordinate surplus of savings, which are resources wasted. Kelly says that in the 1950s total financial assets were approximately equal to the annual GDP, and today they are 5 times GDP -- this is excessive savings, sometimes referred to as hoarding. (Attempting to be accurate, I looked up the total value of financial assets, $122.516 trillion, and the total national income, $23.094 trillion. The financial assets' total is 5.3 times greater.) (See Fed's Flow of Funds, Tables B.101 and F.3) 

So what? Paper assets do not clothe, house or feed anyone. Financial assets simply scour the earth attempting to increase their value -- this condition activates and creates an extractive, parasitical  economy that Marjorie Kelly talks about. 

A final comparison of Ratios, Income to Wealth 
As you might suspect, I compared some ratios, this time the ratio between National Income and total private savings, years 1987 with 2024. I am trying to show that we have too much wealth today. I used the Federal Reserve graph pages here and here. 
Finding: in 1987 the ratio of income to private savings was 3.61.
               in 2024 the ratio was 5.51. 
If the national income to national savings ratio were equal to 1987's, then instead of having $151 trillion in savings we would have $99.365 trillion. About a third of savings, $51 trillion, would be converted back to income for the lower 90%. The federal budget is about $6.1 trillion in 2024. 

Now I'll look at the RealTime Inequality page and compare the 1987 income-to-wealth ratio with 2024 ratio. This is not rocket science, anyone can do 6th grade math on a calculator.
Conclusion: we have about $57 trillion more savings than needed. If we had the same ratio as 1987, national savings to national wealth, then instead of having $138.5 trillion savings we would have $81 trillion. RealTime reports $138 trillion total wealth, and the Fed reports $163 trillion; they do not always agree, but mostly agree. 

By chance today I went to the RAND Corporation report of 2021 about inequality of income since 1975 to 2018. From the first paragraph, this sentence: "Furthermore, over the 43-year period from 1975 to 2018, the population below the 90th percentile would have earned $47 trillion more had their incomes grown at the pace of overall per capita economic growth."

I find it interesting that the $47 trillion figure shows up, almost $51 or $57 trillion. 

Having excessive savings is a sign that the minority wealthy are super-wealthy, and a lot of resources are going to absolute waste; they will never manifest as a benefit to our citizens. "Tax waste, Tax wealth" makes a bumper sticker slogan; excess wealth is waste, tax it. ---------  I'm cutting things short, and short is confusing enough.    

__________________________________________________________

            New Gilded Age      

Here are a few factoids worth adding to one's economic data collection: 

First from "The New Gilded Age", published at Economic Policy Institute, authors Sommellier and Price, (page 12 of the pdf version):  

"The average inflation-adjusted income of the bottom 99 percent of families grew by 100.1
 percent between 1945 and 1973. Over the same period, the average income of the top 1
 percent of families grew by 34.3 percent. Faster income growth for the bottom 99 percent
 of families meant that the top 1 percent captured just 4.9 percent of all income growth over
 the period. (Data are shown in Appendix Table B7.)

 The pattern in the distribution of income growth reversed itself from 1973 to 2007 as the
 income of the bottom 99 percent of families grew much more slowly (by just 15.4 percent)
 compared with the top 1 percent, whose average income grew by 216.4 percent. As a
 result, over half (58.7 percent) of all income growth in this period landed in the hands of
 the top 1 percent of families. (Data are shown in Appendix Table B8.)

RAND Corporation report, "A New Approach to Measuring Income Inequality Over Recent Decades"          -----         Published Apr 29, 2021

"Furthermore, over the 43-year period from 1975 to 2018, the population below the 90th percentile would have earned $47 trillion more had their incomes grown at the pace of overall per capita economic growth."

"For workers at the 25th percentile of income, actual income in 1975 was $28,000 per year. Had income growth for this group matched the economic growth rate, their income would have risen to $61,000 by 2018, but it actually rose to only $33,000." Instead of rising by $33,000, doubling, it rose by $5,000. They are reporting on full-time year-round workers, at the 25th percentile. If they had included part-time workers, the 25th percentile earned around $13,000, not $33,000. (See SSA report on wage income for  year 2018.) 

Dollars and Sense Magazine, July 2024, John Miller --

"Higher stock prices especially benefit the richest 1%, who owned 49.4% of stock by value at the end of 2023, according to the Federal Reserve Board."   
And 93% of all stock is owned by 10% of households, states an article at Yahoo Finance.    

The S&P 500 average increased by 7.9 times between Feb. 2009 and July 2024 -- an index fund of $100,000 is now worth nearly $800,000 -- nearly an 8 fold increase in 15 years. Adjusting for inflation the S&P 500 "real" average increased by a multiple of 5.3 times or by 430%; $100,000 invested in 2009 is now $530,000. Have wages increased for nonsupervisory workers, 80% of all workers? Yes, by a multiple of  1.11, or by 11%. -- compare 11% with 430%. 
This is not the picture of fairness. 

Total household "real" net worth between March 2009 and June 2024, 15+ years, doubled plus, it  increased by a multiple of 2.2 or by 122%, inflation adjusted. In other words, it doubled plus. (Federal Reserve Flow of Funds, Table B.101, March 2009 and March 2024). 
The rich get richer, the not-rich watch prices for everything climb higher and higher. 

A major cause of recent inflation, out of many, is corporate price gouging. In four years the share of the national income going to corporate profits doubles; the share increases from 6.0% to 11.5%. The Fed's Flow of Funds report, page 10, shows the share of national income going to pre-tax profits for "domestic nonfinancial" corporations was 6.0% in 2019 and 11.5% in Q1 2024 (see the Flow of Funds, page 10, for both 2009 and 2014). 
One has to analyze this. How do profits double while inflation increases by 22%? During inflation a corporation has to pay more for its inputs and its labor. How then does this increase of expenses allow for a doubling of profit? Price gouging is a simple answer. The writings of Servas Storm and Isabella Weber with Evan Wasner analyze this free-market defying process. 

Do I need to say again, "The system is broken."?