Do you have that sinking feeling? As in the Royal Bank of Scotland’s commercial where a fellow goes down in quicksand while his colleagues stand by, listening to their team leader’s corpo-babble about the need to remain calm and develop a strategic multi-phase plan to extricate the fellow who is rapidly disappearing into the muck? Well, it may be because you are sinking. Last week the Federal Reserve reported that family incomes fell between 2001 and 2004.
At first I hesitated to say anything about this, because a month ago New York Times columnist David Brooks chided me personally for taking “an overly negative view of reality.” As he wrote: “Barbara Ehrenreich’s books are well and good, but if you think they represent the broader society, you’ll get America wrong.”
Leaving aside the mystery of how my books could be both “good” and false, I began to worry that perhaps I have been exiled from the prosperous “broader society” and living in my own little miserable subculture where people struggle to make rent, sweat about threatened lay-offs, and agonize over health insurance. Note to “broader society:” Please let me back in!
But here it is – a bunch of bad news that even I couldn’t have seen coming. According to the Fed, average inflation-adjusted family incomes fell 2.3 percent between 2001 and 2004, to $70,700. The median family income (the point which half the families are above) rose only slightly, to $43,200, and the big difference between the median and average reflects how skewed the income distribution is.
Between 2001 and 2004 it became even more skewed, with – if you will pardon this bit of dog-bites-man news – the rich getting richer and poor getting poorer. To quote the Associated Press’s report on the Fed’s study:
The top 10 percent of households saw their net worth rise by 6.1 percent to an average of $3.11 million while the bottom 25 percent suffered a decline from a net worth in which their assets equaled their liabilities in 2001 to owing $1,400 more than their total assets in 2004.
Now if you can recall that distant period of 01 to 04, this was a time of “recovery” from the bottoming out in 01, with rising economic growth and productivity. So why did family incomes fall while other economic indicators rose? According to Jared Bernstein, senior economist at the Economic Policy Institute (visit them at www.epinet.org), the problem is that wages are not growing. Now I’m no economist, but if the economy is growing and wages are not, the money must be going somewhere, and the obvious place to look is up.
Way up. In fact, if you want to follow the money you’re going to have to strain your neck. Another New York Times columnist, economist Paul Krugman, has just reported (2/27) on a study showing that those in the top 10 percent of the income distribution have been seeing income gains of only about 1 percent a year, or a total of 34 percent between between 1972 and 2001. In that same period, those in the top 1 percent of the income distribution saw a gain of 87 percent, and those in the top .01 percent registered a gain of 497 percent. That’s right: four hundred and ninety seven percent.
Reading Krugman’s column, I see I have been guilty of the opposite sin from that which Brooks accused me of –what Krugman calls “the 80-20 fallacy.” I’d been bright-siding the economy by assuming, as you may have as well, that the top 20 percent of the income distribution, which includes most college-educated workers, was doing fairly well. But the 2006 Economic Report of the President – yes, this president – reveals that the real earning of college graduates actually fell more than 5 percent between 2000 and 2004.
Could you New York Times guys please get together? I’m beginning to suffer from a little whiplash here.
But when you read Brooks’ January column carefully, with a calculator in hand, you see there may be no inconsistency at all. Brooks cheerily reports that “only” 19 percent of American males and 27 percent of females are in poverty – a percentage that (and here he’s quoting economist Stephen Rose) is “probably much smaller than most progressive commentators would estimate.” Now if you average 19 and 27 percent, weighting for a 51 female population, you get an overall poverty rate of 23 percent. The poverty estimate I always give, based on numerous studies, is 25 percent. So, yeah, if Brooks’s numbers are right, I have been taking “an overly negative view” – by 2 percentage points.
Let’s not quibble. A 23 percent poverty rate is totally outrageous, especially when compared to the federal government’s faux poverty rate of about 13 percent. So are falling incomes for the college-educated middle class and mounting plunder for the plutocrats at the top. Maybe I’ve been living in the “broader society” after all.