Data released by the Commerce Department last week showed that personal income fell 3.6% in January, the biggest decline in 20 years. The drop was even bigger when taxes and inflation are taken into account. Real personal disposable income fell by 4%, the biggest monthly drop in half a century.
In part, this is a statistical blip. Companies accelerated certain payments – giving year-end bonuses in December rather than January, for example – so that employees could avoid higher taxes going into effect for 2013. But even if that blip is smoothed out, real aftertax income is lower than it was six months ago.
What this means is that the U.S. economy is not merely recovering from the recession more slowly than one might like, but is actually getting worse for many Americans. Despite three-and-a-half years of uninterrupted growth in real GDP and a decline of more than two percentage points in the unemployment rate since 2009, the standard of living is falling for as much as half the population, particularly if you look beyond monthly numbers to longer-term trends.
Commentators assessing a recovery in progress naturally tend to focus on changes from one month or quarter to another. But what really matters is not how the economy compares with where it was in earlier time periods, but how it compares with where it would now be if it were fully utilizing all of its resources. Economists call this level “full capacity,” and it rises over time as the population grows, technology improves and facilities are upgraded.
When a recession occurs, the economy’s actual output drops significantly below the full capacity level, creating what’s known as an “output gap.” Once the recession ends and a recovery begins, there’s normally a period of well-above average growth so that actual output regains the ground lost during the recession and comes back close to full capacity. But since the most recent recession ended, growth has never been fast enough to close the output gap – indeed, the gap has hardly narrowed at all.
One unfortunate consequence is that worker productivity has stalled. Productivity typically soars after a recession because many businesses have unused capacity and can handle somewhat higher sales before they have to start hiring or investing in new facilities. A travel agency, for example, could book a few more vacations before they have to hire another travel agent or move to larger offices. Following the most recent recession, productivity growth did soar, briefly reaching an annual rate of 8%. But because the output gap hasn’t closed since then, productivity has barely improved since 2011.
The lack of robust productivity gains has allowed wages to remain stagnant. There is enough growth for companies to enjoy rising profits, but not enough to make it worthwhile for them to hire more and pay more. In a normal recovery, sales gains are normally split between profits and labor compensation. But in the current recovery, profit growth has outpaced sales, while labor compensation has actually lost ground.
Taxes also affect the amount that people take home. With GDP in the past quarter barely keeping up with inflation and productivity gains averaging around 1% a year, you’d expect middle-class incomes to show less than 2% real annual growth. So the expiration of the payroll tax cut – which effectively raised taxes by two percentage points on incomes up to $113,700 a year – is by itself enough to depress real disposable incomes for many American households. And other taxes and social charges have risen as well.
What’s clear in all this is that a true recovery requires closing the output gap and restoring income growth for middle-class households. That can’t be done with short-term budget cuts that cause layoffs and reduce GDP growth further. And it can’t be done with tax increases, which also discourage growth and can hit less-affluent households hard even if they are aimed at the rich.
It’s true that the U.S. is accumulating a disturbingly large amount of debt. But the cause is mostly the soaring cost of Social Security, Medicare, and other entitlements. And it will be some years before that debt load becomes truly dangerous. The conventional wisdom is that the economy will suffer seriously when publicly held U.S. debt (not including the Social Security Trust Fund) reaches 90% of annual GDP. The Congressional Budget Office projects that debt will not reach that level for more than a decade.
Government policy seems backwards, in fact, whichever party’s views end up prevailing. What’s needed instead is a pro-growth agenda that will close the output gap. It’s certainly reasonable to trim discretionary spending where it is wasteful and to make tax law fairer. But what’s far more important over the long term is to slow entitlement growth without reducing current benefits. In addition, broad tax reform that closes loopholes so that marginal tax rates can be reduced would be helpful. And regulation needs to be streamlined where it creates unnecessary burdens for investment and job creation.
There’s little point in policies that will keep the U.S. economy mired in its current stagnation. And it would be nice to address the long-term problems before a crisis forces drastic action.
Pretty soon we’ll have Dad off on his golf weekends, Moochelle on the slopes in Aspen and the Obama kids partying it up wherever.
Good thing the Obama Sequester hasn’t affected the White House social budget yet.
The sight of First Daughter Malia Obama at a dinner this weekend with her friends prompted one spy to describe the meal as a “young girl’s social power club gathering.” On Saturday night, President Obama’s elder daughter, 14, was spotted at giant Chelsea restaurant Buddakan with eight of her friends, including a daughter of New York Giants chairman Steve Tisch. According to witnesses, the girls were chaperoned by four parents and five security guards who dined at the table directly next to them. “She was in the middle of a gaggle of young girls,” one source told us, while Secret Service remained a comfortable distance behind them — and deterred other customers from bothering them.
Well, we at least hope she’s proud that her country does so much for her. Clearly she’s enjoying the high life like her parents.
Malia and her friends were overheard saying, “This place is so hip” while they dined on rock shrimp, edamame dumplings, short ribs, lobster fried rice and noodles. An Obama rep didn’t get back to us.
How many poor children won’t have medicine so Malia Obama could eat her rock shrimp and edamame dumplings?
PREMIER LEAGUE (1): After fatal Ferrari crash, careers are stalled, group loses power
Editor’s note: This is our fourth series on the inner workings of the Chinese Communist Party. Previously, we described the downfall of rising star Bo Xilai, profiled the powerful children of high-ranking party members, and explained the leadership shift in 2012.The latest series, “Premier League,” focuses on the Communist Youth League and the high-ranking officials who have risen–and fallen–through its ranks. The series will appear on Tuesdays, Thursdays and Saturdays.
* * *
BEIJING–In a private room of an expensive restaurant in Beijing, a woman exuding sophistication, power and wealth leaned toward her dinner companion who worked at a government-affiliated think tank.
“If you join our business project, you will be able to dine together with my husband,” the woman, Gu Liping, said.
That was in autumn 2007, when Gu’s husband, Ling Jihua, was chief of the General Office of the Communist Party Central Committee, a post comparable to that of Japan’s chief Cabinet secretary.
It was a time when people would jump at any opportunity just to ride Ling’s coattails or cozy up to the Communist Youth League, which was fostering the next generation of party leaders.
But within a few years, rising politicians from the Communist Youth League would see their careers falter. Ling, 56, would be demoted and humiliated—and become the subject of corruption rumors–following the death of his son in a Ferrari accident.
In rosier times, Ling served as an aide to Hu Jintao, general secretary of the Communist Party of China, and was long considered Hu’s closest associate. Others who have served in that post include Wen Jiabao, 70, the current premier.
Ling and Hu both came up through the ranks of the Communist Youth League.
Gu’s aura of confidence was fueled in part by her husband’s rise up the party hierarchy.
In 2010, Gu became a deputy director of the Ying public interest foundation set up under the Communist Youth League. Those who donated to the foundation received special rewards depending on the level of their generosity, according to sources.
For example, a donation of 1 million yuan (about 15 million yen or $160,000) gained the donor an autograph from Ling. For 10 million yuan, the donor had the honor of dining with Ling. A 100-million-yuan donation allowed the donor to have his or her photo taken with Ling at Zhongnanhai, the inner sanctum of the Communist Party and Chinese government that lies west of the Forbidden City in central Beijing.
According to sources, the foundation amassed about 500 million yuan in donations in a little over two years.
Under the Hu administration, high-ranking Communist Youth League individuals like Ling were almost guaranteed promotion to important party posts. They had become so powerful that they formed a faction that rivaled the “princelings,” the offspring of senior party officials, and the Shanghai faction, centered around Jiang Zemin, 86, Hu’s predecessor as general secretary.
Under these conditions, the rising fortunes of Gu’s foundation came as no surprise.
New York Courts May Kill Cuomo Assault on Gun Rights
In a move widely celebrated by activists, New York Supreme Court justices last week ordered Democrat Gov. Andrew Cuomo’s administration to prove by the end of next month that its recent assault on gun rights is actually constitutional — critics and experts say it clearly violates both the U.S. and state constitutions. The extraordinary speed used to adopt the controversial legislation, which appears to have violated a separate provision in the state constitution, is also facing scrutiny from the judicial branch.
If the state government fails to prove its case on both counts in the time frame provided, the unprecedented attack on gun rights may be struck down entirely, or at least temporarily rendered void. Gun rights activists have been pursuing multiple strategies to defeat the controversial infringements on the right to keep and bear arms adopted in New York. However, attacking them in the courts is seen by activists as among the most viable, at least at this point.
The statute in question, the so-called “NY SAFE Act,” purports to limit firearms to seven rounds and ban most semi-automatic weapons and standard-capacity magazines. Other unconstitutional and highly controversial provisions aim to, for example, mandate gun-owner registration with authorities while demanding government approval for virtually every firearm transfer.
Activists have already promised to defy the unconstitutional restrictions, and thousands of protesters recently converged on Albany calling on “King” Cuomo to resign or even be tried for treason owing to his blatant disregard for his oath of office and the lawless assault on the Constitution. The protests are getting bigger and louder even as the state faces an avalanche of lawsuits to overturn its lawless assault on the rights of law-abiding New Yorkers.
Amid the anti-gun rights hysteria whipped up by the increasingly discredited establishment media after the massacre of children in a Connecticut “gun-free zone,” the controversial “NY SAFE Act” was rammed through the legislature with arm-twisting from Gov. Cuomo on January 15. It passed just hours after being introduced — an apparent violation of the state Constitution, which generally requires three days before legislation can be passed unless there is an emergency.
In fact, the legislation’s approval was so rushed that lawmakers, most of whom apparently did not even read the bill, failed to exempt police officers from the draconian restrictions, sparking a mad dash to amend the statute before law-enforcement officials also become criminals. Across the state, sheriffs and other top law-enforcement officials have expressed serious concerns about the legislation, too — especially because of the brazen infringements on God-given rights of citizens and the violation of the U.S. and state constitutions they all took an oath to uphold.
Mayor Bloomberg’s shock troops, the group of lawyers and agitators that have invaded and occupied Colorado, have opened a front and begun the attack in Florida.
H/T and kudos to Miguel at Gunfree Zone, first the Assault Weapons Ban, SB1670. At first glance, it looks like the New York bill (what a surprise!) with a single feature test, but a 10 round magazine limit (Colorado is currently at 15, New York at 8). It also outlaws any semiautomatic shotgun that can easily accommodate more than five rounds. No mention of revolvers at all. Full text of the bill here in html. It considers semiautomatic pistols as assault weapons if the magazine is not in the hand grip, making things like your 1896 “Broom Handle” Mauser an assault weapon.
Whether you are a returning visitor or a new visitor to my blog, I want to welcome you!
My blog is really what I like to blog about, what I find on the internets that strike my fancy.
One thing I would like you to check out is the above navigation bar. It is on top of every post. Has great products you may be interested in purchasing. Plus the 10 Rules of this Blog, a must read.
Right below are sites you should check out.
And hey, do follow me on twitter: Follow IowaDawg on Twitter