The stock market is not the economy, though they are related. So while the market is going through a period of volatility and correction, the economy remains fairly sound, as evidenced by the near-ideal 4 percent unemployment rate.
However, the economy is not a level playing field and never has been. Current robust indicators of economic growth mask the underlying reality of how tens of millions of Americans in both the private and public sector are coping financially. That reality is clearly captured by this statement in a recent Time magazine story: “I have 20 years of experience but can’t afford to fix my car, see a doctor for headaches or save for my child’s future. I am a teacher in America.”
In an August 2018 report, the Pew Research Center stated “today’s real wage (that is the wage after accounting for inflation) has about the same purchasing power as it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers.” A separate report by the Economic Policy Institute states that over the last nine years, wage growth has been “low and flat.”
In a comprehensive study entitled “A Guide to Statistics on Historical Trends in Income Inequality,” the Center for Budget and Policy Priorities reports that from the end of World War II until the 1970s, incomes for all Americans — from the top to the bottom of the economic ladder — increased at about the same rate, doubling (adjusting for inflation) during this period. The income gap between the most and least affluent Americans remained relatively stable.
In the mid 1970s this began to change. Economic growth declined, and the income gap widened as economic gains by the lower and middle classes slowed significantly while income gains of the wealthiest households continued to grow strongly. According to the Center of Budget and Policy Priorities, the distribution of income after taxes in the U.S. is:
¯ The top 20 percent of earners have 48 percent of income.
¯ The middle 60 percent of earners have 46 percent of income.
¯ The bottom 20 percent of earners have 7 percent of income.
The distribution of wealth in the U.S. is much more skewed than the distribution of income.
While income is typically derived from one’s work (a weekly paycheck, for example), wealth is the total value of all assets one owns (home, land, autos, stocks, bonds and everything of monetary value), minus economic liabilities (chiefly loans, mortgages and credit card debt).
The Center on Budget Priorities reports that in 2017:
¯ The richest 10 percent of Americans held just under 78 percent of the country’s wealth, and half of this wealth (almost 39 percent) is held by the top 1 percent.
¯ The remaining 90 percent of Americans accounted for just over 22 percent of the country’s wealth.
¯ Among the above 90 percent are the poorest 20 percent of the population, who have no wealth or “negative” wealth as their financial liabilities are greater than their economic assets.
New York Times economic writer Patricia Cohen reports that in 2018 the wealthiest 10 percent of households owned 84 percent of all stocks, a figure that includes pension plans, 401(k)s, individual retirement accounts, trust funds, mutual funds and college savings programs.
The wealth gap will continue to accelerate as a result of the recently passed Republican tax bill. According to a Tax Policy Institute analysis, by 2017:
¯ Just over 50 percent of all Americans will see their taxes increase after the tax bill’s initial savings.
¯ 82.8 percent of the bill’s benefits will go to the wealthiest 1 percent of Americans.
It’s highly plausible that in the next one to two generations, the wealthiest 10 percent of Americans will account for between 85 and 90 percent of the nation’s wealth. While the rich are getting richer, consumer debt is predicted to reach $4 trillion by the end of 2018, up from $1 trillion in 1995.
Although the wealth gap has been increasing in Europe, it is much less pronounced than in the U.S. A 2016 study by the European Central Bank found that in the 18 Euro-currency countries examined, the wealthiest 10 percent of households accounted for 51.2 percent of total wealth (vs. 88 percent in the U.S.).
Baby boomers (born between 1946 and 1964) in the U.S. were almost assured of upward economic mobility if they graduated from college. The only financial certainty for tens of millions of recent college graduates, students currently pursuing higher education degrees, and high school students who will enter college in the next generation is education-related debt:
¯ The Federal Reserve System reports that student debt increased from $340 billion in 2001 to $1.3 trillion in 2016.
¯ Forbes Magazine reports that in 2018, 44 million loan-recipients collectively owed $1.5 trillion.
¯ Borrowers in the college graduating class of 2016 have an average debt of $37,172.
¯ After housing, student debt is now the second largest form of debt in the U.S.
A recent Harvard University study found that individuals under 30 year of age with student loans have an average monthly loan payment of $351. This debt makes it difficult to obtain credit for purchasing vehicles and near impossible to secure a loan to buy a house.
As for upward mobility, with the outsourcing of jobs, robotics, advances in artificial intelligence, the near demise of labor unions, corporate-driven economic policy and the ever-shrinking slice of economic wealth for all but the top 10 percent, these higher education cost borrowers will have an uphill financial battle for much, if not all, of their working lives.
A recent study by the Center for American Progress found that 30 percent of loan borrowers are struggling to make payments five years after graduating with almost half of the individuals in this group in default.
A major consequence of the ongoing concentration of wealth by the top 10 percent is the spiraling, debt-producing cost of a college education and a significant decrease in the upward mobility of the middle and lower classes. (A 2012 study by the Economic Policy Institute found “there is considerably more mobility in most other developed countries” than in the U.S.)
Professor Raj Chetty, lead researcher of the Stanford University Equality of Opportunity Project, found that just over 90 percent of Americans born in 1940 ended up financially better off than their parents. For those born in 1980, the percentage declined to 50 percent. What percentage of wage earners born after 2000 will exceed their parents’ economic status?
We are moving ever further into a new stage of Robber Barron capitalism.
George J. Bryjak lives in Bloomingdale, retired after 24 years of teaching sociology at the University of San Diego.
Cohen, P. (Feb. 8, 2018) “We All Have a Stake in the Stock Market, Right? Guess Again,” New York Times, www.nytimes.com
Desilver, D. (Aug. 7, 2018) “For most U.S. workers, real wages have barely budged in decades,” Pew Research Center, www.pewresearch.org
Felvesons, L. (Feb. 21, 2018) “Student Loan and Aggregate Consumption Growth,” FEDS Notes, www.federalreserve.gov
Friedman, Z. (July 13, 2018) “Student Loan Debt Statistics In 2018: A $15 Trillion Crisis,” Forbes, www.forbes.com
Gould, E. (Oct. 10, 2012) “U.S. lags behind peer countries in mobility,” Economic Policy Institute, www.epi.org
Konish, L. (May 21, 2018) “Consumer debt is set to reach $4 trillion by the end of 2018,” CNBC. www.cnbc.com
Levitz, E. (2017) “The Trump Tax Cuts Just Got Even More Skewed to the Rich,” New York Magazine, http://nymag.com
Matthews, D. (Dec. 18, 2017) “The Republican tax bill just got worse: now the top 1 percent gets 83 percent of the gains,” Vox, www.vox.com
Nova, A. (April 10, 2018) “Why buying a home can be almost impossible with massive student loan debt,” CNBC, www.cnbc.com
Picchi, A. (July 31, 2018) “How Trump’s next tax cut would boost America’s richest,” CBS News, www.cbsnews.com
Pringle, B. (Sept. 5, 2018) “Student debt crisis is worse than you think,” Washington Examiner, www.washingtonexaminer.com
Reily, K. (Sept. 24, 2018) “The Life of The American Teacher,” Time, pp. 27-33
Reeves, R. (Jan. 11, 2018) “Raj Chetty in 14 charts: Big findings on opportunity and mobility we should all know,” Brookings, www.brookings.edu
“Slow wage growth is a key sign of how far the U.S. economy remains from full recovery” (Sept. 7, 2018) Economic Policy Institute, www.epi.org
Stone, C. (Aug. 29, 2018) “A Guide to Statistics of Historical Trends in Income Inequality,” Center on Budget and Policy Priorities, www.cbpp.org
“The Household Finance and Consumption Survey: results from the second wave” (2016) European Central Bank, www.ecb.europa.eu