A recent US Census Bureau report has a number of interesting facts about income, poverty, and health insurance coverage. 2008 was not fun for most people.

Between 2007 and 2008, the real median income of non-Hispanic white households declined 2.6 percent (to $55,530); for blacks, it declined 2.8 percent (to $34,218); for Asians, it declined 4.4 percent (to $65,637); and for Hispanics, it declined 5.6 percent (to $37,913). Except for the difference between the declines for non-Hispanic white and Hispanic households, all other differences between the declines were not statistically significant.

Since whites are a shrinking portion of the US population and Asians as a percentage are not growing fast the growth of Hispanics and blacks will cause a decline in overall US per capita income. Peak Oil will also cause a decline in overall per capita income.

Working men earn bigger bucks than working women.

In 2008, the earnings of women who worked full time, year-round was 77 percent of that for corresponding men, down from 78 percent in 2007. The real median earnings of men who worked full time, year-round declined by 1.0 percent between 2007 and 2008, from $46,846 to $46,367. For women, the corresponding drop was 1.9 percent, from $36,451 to $35,745.

But the industries hardest hit in this recession (e.g. manufacturing, mining) are male-dominated. So the recession has been called a mancession. Whereas health, education, and government - all industries that employ more women - have done well in this recession. In May 2009 the male unemployment rate was 10.5% while the female unemployment rate was 8%. A 2.5% gap.

Obama's attempts to extend health insurance to more people would benefit blacks and Hispanics far more than whites.

The uninsured rate and number of uninsured for non-Hispanic whites increased in 2008 to 10.8 percent and 21.3 million, from 10.4 percent and 20.5 million in 2007. The uninsured rate and number of uninsured for blacks in 2008, meanwhile, were not statistically different from 2007, at 19.1 percent and 7.3 million. The uninsured rate for Asians in 2008, 17.6 percent, was not statistically different from 2007.

The percentage of uninsured Hispanics decreased to 30.7 percent in 2008, from 32.1 percent in 2007. The number of uninsured Hispanics was not statistically different in 2008, at 14.6 million.

Based on a three-year average (2006-2008), 31.7 percent of people who reported American Indian and Alaska Native as their race were without coverage. The three-year average uninsured rate for Native Hawaiians and Other Pacific Islanders was 18.5 percent.

By Randall Parker    2009 September 20 11:07 PM Entry Permalink | Comments (7)

2009 May 31 Sunday

US Economic Growth Shifting To Lower Long Term Rate?

Is the future potential growth rate of America lower than it has been in the last half century?

May 26 (Bloomberg) -- Americans may have to get used to unemployment greater than 8 percent for the first time since 1983 and an economy that won’t grow much beyond 2 percent as a consequence of the lost confidence in consumer credit that shattered financial markets.

By this time next year, “the market will realize that potential growth for the U.S. is no longer 3 percent, but is 2 percent or under,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in an interview with Bloomberg Radio.

I think this is the same Mohamed El-Erian who left management of Harvard's endowment just before it tanked along with the rest of the market. I wonder if he saw what was coming.

What is important about a slower growth rate: If it happens it is more disastrous than appears at first blush. America's big entitlements programs depend on rapid economic growth to make them able to pay even most of what they (unrealistically) promise to future generations of retirees. Even before factoring in a long term decrease in the rate of economic growth the big US government old age entitlements programs have seen their projections for insolvency moved up this year as has happened in other recent years.

Things have gone from bad to worse for the future of Social Security and Medicare. Social Security will begin to pay out more than the program receives in tax revenues by 2016, a year earlier than expected, according to a recent government report. Trust funds for Social Security are expected to run out completely by 2037, four years earlier than projected a year ago.

Medicare's fund that pays hospital bills for seniors, meanwhile, already is operating in the red and is expected to be exhausted by 2017, two years earlier than projected a year ago.

In the last 7 years Medicare's expected insolvency date has moved up 13 years sooner. Imagine what happens if the recovery from the current recession comes late and slowly.

The current economic downturn, which has eliminated millions of jobs and reduced workers' payments into the system, has further eroded Medicare's hospital trust fund.

The fund's fiscal health is tied, in part, to the economy's health. As recently as 2002, the trustees projected the fund could remain solvent until 2030; five years before that, they had warned of a collapse by 2001, precipitating a rescue by Congress.

Another contributing factor: Bad economic conditions drive people to retire and start collecting benefits sooner.

I expect Peak Oil and a less skilled population will make this picture far worse in the coming years. Bad economic conditions cause retirees to start collecting benefits sooner. This trend could continue for years.

The rate at which the US government is piling on unfunded obligations is not sustainable.

Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows.

The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security.

You think we've been irresponsible individually? We've been far more irresponsible collectively.

The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That's quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

Barack Obama (peace be upon him) now wants to saddle us with a huge expansion of government spending for medical care for poorer people. This is on top of all the bad news above. He's got the spendthrift nation on a spending bender. The empire is in decline.

Update: Barack Obama also favors an immigration amnesty that will undermine the welfare state by increasing the number of welfare recipients and low earners and low tax payers. The problems of the United States are becoming too large already without more new policies that make them even worse.

Update II: Medicare spending increases combined with a stagnant economy will cause a financing crisis.

The trustees predict a 30 percent increase in the number of Medicare beneficiaries in the coming decade, to 58.8 million in 2018, from 45.2 million last year.

But the projected increase in health costs and the use of medical care is a more significant factor in the growth of Medicare. The trustees predict that average Medicare spending per beneficiary will increase more than 50 percent, to $17,000 in 2018, from $11,000 last year.

The 2010s will be characterized by fighting over pie slices as the pie doesn't grow as fast the demands on it.

By Randall Parker    2009 May 31 11:36 PM Entry Permalink | Comments (5)

2009 February 13 Friday

Household Net Worth Declining

If your net worth is rising then you are successfully swimming against the tide.

According to the Fed’s survey of consumer finances, released Thursday, average net worth is estimated to have fallen 22.7% from 2007 until October 2008. The median, or midpoint, fell a more modest 17.8%, suggesting declines were centered among wealthier families.

Easy come, easy go.

Here's another sign that the declines were sharper among higher net worth people:

If the value of second homes and businesses are excluded, the Fed said in its report, average household net worth fell 12 percent, which reflects that such assets are "relatively concentrated among wealthier families."

We've given up all the gains of yet another bubble. I hope we can at least swim in place and not see even bigger declines than 2001 brought.

As of October, median net worth had fallen to $98,900, down 3.2% from the end of 2007 and 2% below the level reported in the 2001 survey that was conducted after the dot.com bubble burst. Since October, stock prices have fallen another 15%, while home prices have fallen at least 2%.

The biggest decline in 56 years.

"Americans' personal net worth declined 11% Y/Y from the end of 3Q07 to the end of 3Q08... the largest (year-to-year) decline in 56 years for which the agency has data available."

But some of this net worth decline is not as bad as it looks. Housing price declines are cutting the prices on homes which otherwise are just as usable as when they cost more.

The median price of a U.S. home declined 12 percent to $180,100 from a year earlier and sales of properties with mortgages in default accounted for 45 percent of all transactions, the Chicago-based National Association of Realtors said today. Prices declined in almost nine out of every 10 cities.

For people who want to buy a home salaries aren't going up but then the prices of homes are going down. How this balances out varies from person to person.

About 33 percent of U.S. companies may freeze pay this year, an increase from 25 percent last year, according to a Jan. 22-29 survey of 400 mid-size and large companies released Feb. 9 by Mercer, a compensation consulting company in New York. The survey did not include questions about pay reductions.

Can we unravel the accumulated mountains of private sector debt without deep deflation?

By Randall Parker    2009 February 13 11:55 PM Entry Permalink | Comments (2)

2008 November 19 Wednesday

Deflation Brings Great Deals For Rich People

Rich people who managed to hang onto their cash during the economic decline can find great deals in the sorts of products and services they buy. Luxury hotel prices are down.

For instance, room rates at luxury hotels fell 5.4 percent in the 28 days ending on Nov. 15 — in contrast to a 1.3 percent increase in rates at midscale hotels that do not serve food, estimated Smith Travel Research, a firm that studies the industry. Over all, hotel prices fell 1.6 percent in October, according to the Labor Department.

High end retailers are cutting prices.

High-end retailers are resorting to drastic discounting to lure customers into stores. Executives at Nordstrom, the department store chain, said on a recent conference call with analysts that the company had lowered prices on more than 800 clothing styles by an average of 22 percent.

Next time you hear someone complaining about the economy tell them they have a bad attitude. This is a new era of opportunity and fun if you have the right credentials. If you can gain entrance into the upper class what a great time to be filthy rich.

But this is a tragic time if you happen to be a new luxury automobile. Large numbers of Mercedes are becoming homeless orphans at the Long Beach Californa shipping port.

LONG BEACH, Calif. — Gleaming new Mercedes cars roll one by one out of a huge container ship here and onto a pier. Ordinarily the cars would be loaded on trucks within hours, destined for dealerships around the country. But these are not ordinary times.

For now, the port itself is the destination. Unwelcome by dealers and buyers, thousands of cars worth tens of millions of dollars are being warehoused on increasingly crowded port property.

And for the first time, Mercedes-Benz, Toyota, and Nissan have each asked to lease space from the port for these orphan vehicles. They are turning dozens of acres of the nation’s second-largest container port into a parking lot, creating a vivid picture of a paralyzed auto business and an economy in peril.

These immigrant cars come off of long cargo ship voyages to discover no one in America will love them. Sob.

By Randall Parker    2008 November 19 10:35 PM Entry Permalink | Comments (3)

2008 August 23 Saturday

UK Inflation Rate Higher For Students

Economists frequently speak of a single inflation rate for an entire nation. Other times they distinguish between inflation rates in different parts of a country. But inflation rates are really more meaningful by social class and age. In Britain inflation for students is 1.5 times that for the general population because more of a student's budget goes for goods with high inflation rates.

The first Student Price Index survey, from the Open University, found that the true inflation rate for undergraduates in England is almost 7%, compared to the Consumer Price Index which currently stands at 4.4%.

This is because, compared with other households, students spend a higher share of their total budget on items which have risen in price fastest over recent years - goods such as food and drink, clothing, tobacco, personal care products, housing and travel, plus tuition fees.

Students spend 75% of their budget on these items altogether, compared to just over 50% for the average UK household. Overall, their living costs are rising at 1.5 times the rate of that of the general population, it found.

Students are (with the exception of tuition and books) more like the permanently poor in their spending since they are, at least temporarily, poor. So this result tells that poor people are probably experiencing an inflation rate far higher than middle class and upper class people are experiencing. This isn't surprising when you think about it. Food costs are rising rapidly and food makes up a much higher percentage of the income of the poor than of the rich. Ditto for some other basics which are rising faster in costs.

You might think that this result is just due to rising tuition costs. But no. Housing, food, and travel together are going up 12.8% in Britain.

These include tobacco, housing, travel, clothing and food and drink, which the Bank of England has calculated is rising at 12.8 per cent annually.

Home computers and other electronic gadgets aren't going up much, if at all, in price. Ditto many luxury goods. New housing prices are actually declining. So if you have a lot of cash to spend on the good life your biggest inflation hits are going to be from gasoline and airplane tickets. But if you are poor you are getting hit a lot harder.

So then is effective inequality increasing? Maybe not. The downturn in stocks and corporate profits mean that many of the wealthier folks are losing ground in net worths. Also, the middle and upper classes have houses which are going down in value. But my guess is that poorer people are experiencing a bigger drop in living standards.

Update: Some things are dropping in price (this is a measure in the US).

The consumer price index for durable goods — things like furniture and cars — is down 0.8 percent over the last 12 months. That’s not an aberration either; it has been down year-over-year in every month since late 2005. What’s more, that may understate the deflation.

So if you can afford to pay for the food and gasoline it is a great time to buy furniture and cars.

But as prices in New York City demonstrate, if food is a big part of your budget then you are hurting.

In the past year, grocery prices in the metropolitan area have risen 7.3 percent, the biggest increase in any 12-month period since 1990, Mr. Dolfman said. Prices of a range of foods, including seafood, apples, potatoes and snacks, rose by 0.8 percent from June to July alone.

Electricity, natural gas, and gasoline are all rising rapidly. So the plasma TV gets cheaper as the electricity to power it goes up.

Adjusted for inflation real earnings in the US dropped 3.1% in the last year.

After adjusting for inflation, the average weekly paycheck dropped by 0.8 percent in July from June, extending an ongoing slide in real income. That left real earnings 3.1 percent lower in July than they were a year ago.

But how is that earnings drop distributed? Whose earnings are declining the most and whose the least? Which occupations are hit the hardest?

By Randall Parker    2008 August 23 09:20 PM Entry Permalink | Comments (0)

2008 April 09 Wednesday

Latest US Peak Median Income Less Than In 2000

The latest business cycle never brought median income back up to the level it peaked at in 2000.

The bigger problem is that the now-finished boom was, for most Americans, nothing of the sort. In 2000, at the end of the previous economic expansion, the median American family made about $61,000, according to the Census Bureau’s inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less — about $60,500.

This has never happened before, at least not for as long as the government has been keeping records. In every other expansion since World War II, the buying power of most American families grew while the economy did. You can think of this as the most basic test of an economy’s health: does it produce ever-rising living standards for its citizens?

In the second half of the 20th century, the United States passed the test in a way that arguably no other country ever has. It became, as the cliché goes, the richest country on earth. Now, though, most families aren’t getting any richer.

Demographics plays a large role in this outcome. The large growth in lower income Hispanics has begun to weigh down American living standards. I'd like to see these numbers broken out by race. Did whites achieve as high a median income in this business cycle as they did the last time around?

Still, other things are going on as well. Globalization is one big one. The owners of capital are using lots more foreign labor and this is holding down wages of employees. Though the decline of the dollar is cutting demand for imports and boosting domestic demand for labor.

Another biggie? The commodity price rise. The high costs of energy, food, and raw materials weigh on living standards. I expect oil prices to go much higher when global oil production starts declining. Due to the coming of Peak Oil I do not see how living standards can rise in the next 10 years.

By Randall Parker    2008 April 09 09:13 PM Entry Permalink | Comments (10)

2008 March 23 Sunday

Rising Medical Benefits Costs Depressing Wages

One of the reasons median incomes aren't rising is that more employer labor costs are going to medical insurance.

Recent history has not been kind to working-class Americans, who were down on the economy long before the word recession was uttered.

The main reason: spiraling health-care costs have been whacking away at their wages. Even though workers are producing more, inflation-adjusted median family income has dipped 2.6 percent -- or nearly $1,000 annually since 2000.

This isn't new news. But is it a good or bad trend?

Employees and employers are getting squeezed by the price of health care. The struggle to control health costs is viewed as crucial to improving wages and living standards for working Americans. Employers are paying more for health care and other benefits, leaving less money for pay increases. Benefits now devour 30.2 percent of employers' compensation costs, with the remaining money going to wages, the Labor Department reported this month. That is up from 27.4 percent in 2000.

But if total compensation was rising more rapidly then the rising cost of medical benefits would not so easily swamp the effects of rising output.

Poor people don't buy medical insurance. But even over $15 an hour the rate of getting health insurance is quite high.

While about three out of four full-time workers who earn $15 an hour or less have access to health-care coverage on the job, just over half buy it, according to a report by the Bureau of Labor Statistics. Many analysts say that the cost -- lower-wage workers pay about a third of the plan premiums with employers picking up the rest -- discourages many from having coverage. By comparison, nine out of 10 full-time workers making more than $15 an hour have health coverage available, and overall almost three in four are covered by their jobs.

The huge flood of low skilled Hispanic immigrants (both legal and illegal) is expanding the ranks of the poor and disproportionately boosting the number who do not have medical insurance.

Among people under age 65, minorities were substantially more likely than whites to lack health insurance. For all Hispanics under 65, 37.7 percent were uninsured, compared to 20.2 percent of black non-Hispanics and 14.9 percent of white non-Hispanics (Figure 2). Although 68.4 percent of non-elderly Americans were white non-Hispanics, they accounted for only 54.3 percent of uninsured persons (Figure 3). Among males under age 65 (Figure 4), being uninsured was more likely among Hispanics (39.9 percent) than among black non-Hispanics (21.3 percent) or white non-Hispanics (15.7 percent). Similarly, among females under 65, being uninsured was more likely among Hispanics (35.5 percent) than among black non-Hispanics (19.2 percent) or white non-Hispanics (14.2 percent).

This results in more government spending on medical care. Immigration expands the welfare state. Immigrants who have low productivity make society as a whole worse off.

By Randall Parker    2008 March 23 09:59 PM Entry Permalink | Comments (3)

2008 March 08 Saturday

US Wages Never Returned To Late 1990s Peak

The US economy is entering a recession. So how did we do during the period of economic gowth since the last recession that started in 2000? Most American households have yet to regain the level of income they achieved before the last recession.

And if the good times have really ended, they were never that good to begin with. Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account. Since the Census Bureau began keeping records in the 1960s, a prolonged expansion has never ended without household income having set a new record.

David Leonhardt of the NY Times thinks a whole decade will go by before most Americans receive a raise. I think he's being optimistic.

The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise.

The 1999 high point might persist for a long time. We are in a period of a bumpy oil production plateau while Asian oil demand is rising and internal demand by oil exporters is preventing increased production from translating into increased oil exports. At the end of the production plateau comes the fall. To put it mildly, I expect that to be most unpleasant.

We can no longer afford to party like its 1999.

Median family income in the United States has decreased about $1,000 since peaking in 2000. The income decline came after more than a quarter-century of slow growth. Between 1973 and 2000, incomes increased at just a third the rate of worker productivity, a sharp break from the previous generation when family incomes and productivity both doubled, fueling an unprecedented expansion of the middle class.

The wage stagnation experienced by many Americans has been accompanied by a sharp growth in income inequality. After-tax family income for the nation's middle tier of wage earners increased 21 percent between 1979 and 2005, to $50,200. Incomes of the top 1 percent of wage earners, meanwhile, tripled, to just over $1 million, even as the after-tax income of the bottom fifth of income earners grew just 6.3 percent, to $15,300.

Rose says that if total compensation -- which includes the increasing cost of health and other benefits -- is included, American workers have done better than census numbers would indicate.

Yes, costs of non-wage benefits have gone up faster than salaries. Rising medical insurance costs are the major reason why. How much of that rise in medical costs is due to newer and better yet more costly treatments?

But some economists think we really are doing better since people own more gadgets and live in bigger houses.

Items once considered luxuries -- dishwashers, central air conditioning, video cameras -- are now common. The average size of new homes has increased 40 percent in the past generation. And as many consumer items cost less, Americans are shopping more. In 1991 the average American bought 33.7 pieces of apparel; by 2002 he or she bought 48 items, according to Boston College sociologist Juliet Schor. In 2005, she said, Americans were projected to discard more than 63 million computers.

I wonder how much of that improvement came before 2000.

The big China export engine drove down costs of lots of products as factories closed in the US and opened in China. But that way to lower product costs came with drops in wages of those who used to get paid to make things in the United States. Now that the US dollar is dropping and inflation is heating up in the US and China the foreign sourcing of products isn't going to be a source of lower prices any more.

I see a few things coming together to cause at best a stagnation of US living standards. First off, we live in what Warren Buffett calls Squanderville where we run up debts to the world and our government destroys wealth in a pointless war while signing itself up for more unfunded liabilities for old folks. Plus, our demographic picture looks grim between the retirement of the more skilled Baby Boomers and the swelling ranks of low skilled Hispanics. On top of all that comes Peak Oil. We aren't going to build new capital equipment to generate energy from non-oil sources fast enough to make up for the decline in oil production.

By Randall Parker    2008 March 08 05:35 PM Entry Permalink | Comments (12)

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