Analysis - Facebook meme on Minimum Wage

A friend of mine commented on this meme posted on Facebook by the page "I Acknowledge Class Warfare Exists." I personally couldn't help but fact-check this particular meme, as it (and memes like it) have been circulating Facebook quite often recently.

I thought it sounded a bit spurious, so I decided to check it out in a few different contexts before looking at the exact context of the meme. It seemed like a good fit for matching the rate of increase of the United States's GDP since 1968.

First, one can visit the Bureau of Economic Analysis website and download an .xls spreadsheet titled "Current dollar and 'Real' GDP." Once you've done that, you can calculate the rate of increase of the current dollar GDP, create a new column and apply each year's growth rate to the base minimum wage of 1968 (non-farm minimum wage in 1968 was $1.60/hour). Once finished, your spreadsheet will inform you that the minimum wage, if it had increased at the same rate as GDP, would have been $27.57 per hour by 2012. Overshot by about 21%.

That metric is perhaps a bit unfair, however, since $1.60 in 1968 is equivalent to $10.34 in 2011 dollars (in case you were wondering how Dad afforded to pay his own way through college while working at McDonald's). So by that same measure, the minimum wage would actually be $34.45 per hour if it had kept up with percent increases in Real GDP (2011 dollars)... overshot by about 50%.

Then I thought that I'd actually heard this kind of comparison made before to CEO pay. However, CEO's in 1980 were making around 30-45 times the salary of their average worker, and by 2012 that figure had ballooned (at least in the US) to over 420 times the salary of the average worker. At that rate of increase, minimum wage would be well over $80.00 per hour... so that can't be right. Overshot again; this time by over 250%!

Then I checked out the actual claim made by the meme; I used a Google Image Search with search terms "income top 1% increase" and came up with results that looked like this*:


*I don't know where all of the information comes from, although most of these are sourced to the Congressional Budget Office.

The only one that includes data AFTER 2007 was one from the NY Magazine's website, which does not give a source for the data: http://nymag.com/daily/intelligencer/2012/05/mitt-romney-bain-capital-and-the-1-economy.html

So each of these shows pre-Financial Crisis incomes of different groups, with the one exception being the image from NYmag's article (which has un-sourced data). Most of these show Top 1% incomes to have increased somewhere between 270% - 350% since 1979/1980.

Federal minimum wage is currently $7.25/hour. In 1980, it was $3.10/hour. So if we don't adjust for inflation, then the minimum wage gain (if it were to keep up with the Top 1%) would be somewhere between 2.5 & 3.5 times $3.10 per hour. That's not even close to $22.62 (but on the high end, it still would be more than the current federal minimum wage).

If however, we were to adjust for inflation as I suspect the source data does-- then the 1980 "Real" minimum wage in 2013 dollars would have been $8.79. Comparing that to the growth of income of the Top 1% would certainly bring us in the range announced by this meme-- between $21.97/hour & $30.77/hour.

So the meme is correct, IF and ONLY IF we apply certain (undisclosed by the meme creators) metrics to the analysis.

1. Inflation-adjusted - this one always makes sense if we want dollar amounts to be meaningful in anyway across decades.
2. Start time - The Federal Minimum Wage was adjusted in 1980 from $2.90/hour to $3.10/hour
3. End time - data series is incomplete for years following 2007

However, I will point out once again that Federal Minimum Wage, adjusted for inflation, has actually decreased overall since the aforementioned inflation-adjusted 1968 rate of $10.34/hour. Since 1980, the Federal Minimum Wage has drifted significantly downward in Real terms, with only the adjustment in 2009 bringing minimum wage close to its 1980 equivalent value. Oregon State University did a study on this several years ago. Here is a graph of their findings:

Since minimum wage has never been legislated to increase with any kind of CPI adjustment, we frequently see "Real Dollar" amounts at peaks that fall for several years until a new adjustment is made at irregular intervals.

If minimum wage were designed to keep up with the Top 1%'s income growth, its growth would be wildly erratic, but it would still be growing. As it has been since 1968, federal minimum wage has shrunk, and none of the subsequent adjustments have ever come close to returning it to a wage comparable to the rate that was paid in 1968.

The analysis overall is that the meme posted by the Facebook page "I Acknowledge Class Warfare Exists" is technically correct.

Although it's only fair to point out that according to any/all of the alternate scenarios suggested, the minimum wage would be even higher than the one claimed in the meme... unless you don't adjust for inflation over the past 45 years*. But who doesn't adjust for inflation?

Oh. Right.



*According to the parameters of this meme, even the current dollars (not inflation-adjusted) amount of minimum wage would be higher than the current federal minimum wage, if it had kept pace with income growth of the top 1% at the lowest estimated growth rate... if you start counting any time before 2004.

US Default on Debt: Why Congress Must Raise the Debt Ceiling

The US government shutdown that went into effect on October 1, 2013 (day one of Fiscal Year 2014) is bad enough, with regular services and operations suspended and all non-essential personnel furloughed. What is worse, however, would be if the US Congress fails to raise the "Debt Ceiling" on (or before) October 17, 2013.

What is the Debt Ceiling? 

The New York Times and BBC both have great bullet-point articles on the Debt Ceiling. The main gist is this: 

• The Debt Ceiling is the limit on how much money the government can borrow by issuing bonds and securities.
• The President proposes a budget, Congress amends it as they see fit and they pass it back to the President to sign into law. The government routinely passes spending bills without consideration of how they are funded, and as a result the US federal government has had to borrow money to cover the budget deficit every year since FY 1940 with the exception of the 12 fiscal years (that's 12 out of 73 years, or 16% of the time) when the government actually had no deficit/ran a surplus. 
• The other 61 fiscal years between 1940 and 2013, the government ran a deficit. To finance operations the Treasury continually sells Treasury Bonds and Securities (debt) to investors. The US government is responsible for interest payments on those bonds, and repayment of the principal value of the bond when it matures. Technically, the government can keep selling bonds to cover the amount it already owes in order to cover the expense of paying interest and mature bonds. This amount aggregates over time and has become the US National Debt, which as of Oct 4, 2013 stands at $16.7 trillion.
• Raising the Debt Ceiling authorizes the government to issue more bonds to pay the money it already owes-- namely interest payments and principal on bonds and securities it has issued. The Debt Ceiling has been raised almost every year (on average) since 1940 with no problem-- until certain members of Congress were elected in 2010. 
• The US Constitution requires the government to pay its debts, so a default would be unconstitutional, on top of having horrifying consequences in the US and abroad.
• According to the Congressional Budget Office, debt management options will run out sometime between October 22 - October 31 if the debt limit is not raised on or before October 17, 2013.

Since 1940, Congress has raised the Debt Ceiling 82 times.*

*The Debt Ceiling was reduced only a handful of times out of approximately 92 adjustments since 1917.

Raising the Debt Ceiling is necessary to make the payments that the US government has already promised. It has no effect on actual budgetary concerns unless Congress fails to raise it. If that happens, the US will default on its debt within 14 days, credit agencies will downgrade the US government's rating (remember what happened in August 2011 when Congress threatened to not raise the Debt Ceiling?) and investors who buy Treasury Bonds and Securities will demand higher interest payments.

Right now interest on US Bonds is so low that an investor is practically paying the US government to hold his money for him because the yield rate on a 10-year bond can easily be outpaced by inflation (and even longer term bonds like 20 or 30-year bonds are paying pretty slim amounts). So issuing bonds right now to pay off the US government's previous debt obligations could actually be a very smart move.

Being forced to issue bonds at higher interest rates would mean that, while US Bonds may become a more attractive investment to people who actually want to make money instead of having a safe place to hold it, a larger portion of the federal budget would go toward paying off interest on the National Debt. That could lead to larger deficits and possibly additional defaults... and certainly would have as much, if not greater, impact than the Financial Crisis in 2008.

Remember how scared everyone was of the global impact of a debt default in Greece? ...Well, Greece is not the United States.

For more information on why the National Debt isn't really a problem (unless Congress fails to raise the Debt Ceiling), see my previous blog post "The Public Debt: A Menace to Society?"

The US created the Debt Ceiling in 1917, mostly to fund WWI, but also to cover any other borrowing the government may need to do in the future. Many other countries don't even have a "debt ceiling"-- they either just borrow whatever is necessary to cover their deficits, or they  must work within budget restrictions by appropriating funds for each initiative.

Political division has been particularly contentious during the Obama administration, with many members of Congress (mostly in the House of Representatives) effectively "holding the nation hostage" in order to delay or prevent several Obama initiatives like the Affordable Care Act, and also to push their own specific agendas that would otherwise not pass.

What Can Be Done?

It's in the hands of Congress. If you are a US citizen, you can call or write to your representatives and encourage them to raise the Debt Ceiling. Congress can raise, eliminate, or enact automatic increases to the Debt Ceiling. Any of those actions would avert a debt default. Congress could also draft new legislation that provides a framework for fiscal responsibility-- although there really isn't time for that now.

President Obama could choose to ignore the debt limit and authorize the Treasury Department to issue bonds without Congressional approval, but that would be a violation of the Second Liberty Bond Act of 1917 that created the limit. Certain members of Congress may consider that an impeachable offense. On the other hand, not raising the Debt Ceiling is effectively the same as defaulting on current debt, is unconstitutional (US Constitution, 14th Amendment, Sec. 4), and could reasonably be argued to be a matter of national security and global stability.

To avoid US debt default and avert a global financial meltdown, Congress must raise the Debt Ceiling on or before October 17, 2013.  

Supplementary:

Fiscal Years Since 1940 without US Federal Budget Deficit and the Sitting US President

Clinton

FY1998-2001 

Total Surplus (2011 dollars): $726.3 billion

Johnson

FY 1969

Total Surplus (2011 dollars): $19.5 billion

Eisenhower

FY 1960,  FY 1956-1957

Total Surplus (2011 dollars): $66.8 billion

Truman

FY 1951, FY 1947-1949

Total Surplus (2011 dollars): $244.6 billion

War on Terror: Closing Gitmo? - GD 3.1

This is a note I shared on facebook.com on December 9, 2011. The bill I originally referenced in this note (S. 1867) was not the one that passed, but a virtually identical bill originating in the House of Representatives passed -- HR. 1540 -- and became Public Law 112-81. The House version of this bill had a slightly different organization, however it includes identical verbiage on all sections mentioned in this note.
I have edited the note to reference the correct bill, and I have added hyperlinks to basically every mention of the relevant bills/laws so that you can read them for yourself over & over again.


The original (but edited & updated) note:

Commentary on [HR.1540] (a draft of NDAA for FY2012) -OR- Demand Repeal of the USA PATRIOT Act and Restore The Bill of Rights


First I'd like to point out that I'm against this bill being passed and that I've already called and written to my Congressional representatives making my stance clear. But this bill is not exactly what is being portrayed in the media and on the internet [Indefinite Detention of Terrorism Suspects].

The National Defense Authorization Act is a law that must be passed each year, as a specific authorization of how the budget will be spent at the Department of Defense. It is considered a "must-pass" piece of legislation since without it there would be a big pile of cash (which amounts to between 1/3 and 1/2 of our federal discretionary spending) that no one could touch. One way or another, Congress will pass something called "The National Defense Authorization Act of 2012" before the 112th Congress is concluded. They do it every year. True, sometimes it's called "The Department of Defense Authorization Act" or something like that.

[The bill did not reach the president's desk until Dec. 31st, 2011 - over two months into Fiscal Year 2012. Whatever objections Obama had to it - if any - had to be suspended or the military would literally cease to function. So in a way, Congress intentionally held the US military hostage over this bill.]

Every year, there are several different drafts introduced in the House of Representatives (denoted by "H.R." and followed by a 3 or 4-digit number) and the Senate (represented with an "S." followed by a 3 or 4-digit number). This year, some of those drafts (I don't know if I can find them all) are called: 

• H.R. 1540 Sponsor: Rep McKeon, Howard P. "Buck" [CA-25] (by request) (introduced 4/14/2011)
• S. 981 Sponsor: Sen Levin, Carl [MI] (by request) (introduced 5/12/2011)
• S. 1253 Sponsor: Sen Levin, Carl [MI] (introduced 6/22/2011)
• S. 1254 Sponsor: Sen Levin, Carl [MI] (introduced 6/22/2011)
• S. 1867 Sponsor: Sen Levin, Carl [MI] (introduced 11/15/2011)

One thing you have to understand about bills in the House and Senate is that they get voted down for silly reasons like the way one line reads or because certain members of Congress are bent on inconveniencing the President. Because of this, whether bills originate in the House or Senate, they are often made in multiple drafts- this is especially true of the ones which are required to be passed into law each year. One Congress member, in this case Senator Carl Levin (D-MI)- Chairman of the Senate Committee on Armed Services, submits several incredibly similar drafts in the hope that one will pass. It is unclear to me whether the good Senator actually wrote this bill or if he is in fact just "sponsoring" it. That calls into question whether he (or anyone else, for that matter) has actually even read it.

If you watch C-SPAN, you may be aware that they do in fact read aloud entire bills during sessions of Congress, which is why so many of the seats are empty. None of them wants to be caught sleeping on the job.

Sometimes bills are written by lobbyists, delivered to Congressmen, and are read in session and then voted on... Yes, even passed into law. These become public law just like any other. It's a shame and a travesty of our democratic process-- but our Congress is too busy, it seems, to write- or to even read- the laws which they pass.

Another thing you have to know about these laws is that, like the lyrics of a Steve Miller song, they are endlessly self-referential. Mostly, they read like this excerpt from S. 1253 -- 

"Sec. 315. DISCHARGE OF WASTES AT SEA GENERATED BY SHIPS OF THE ARMED FORCES.: `(F) This paragraph shall not apply during time of war or a national emergency declared by the President or Congress.'.(b) Conforming Amendments- Section 3(f) of the Act to Prevent Pollution from Ships (33 U.S.C. 1902(f)) is amended-- (1) in paragraph (1), by striking `Annex V to the Convention on or before the dates referred to in subsections (b)(2)(A) and (c)(1)' and inserting `subsection (b)'; and(2) in paragraph (2), by inserting `and subsection (b)(3)(B)(i) of this section' after `Annex V to the Convention'."

...So you have to find this previous piece of legislation and find out what they require in all of these sections-- while you pray that it has actual text and doesn't reference some earlier law which is yet another endless list of "strike this- insert that". It sucks, really. I think I understand why Congress "works" the way it does. 


HR. 1540 (also known as The NDAA of 2012)

Since this piece of legislation came to national attention, I have read and re-read it. Now that The Daily Show has done a spot on it-- I really have to make some kind of official statement [Also see Stephen Colbert's piece on the Authorization for Use of Military Force], because the people commenting on this bill don't have a clear picture of the entire situation.

Here is the specific section in question:

"Subtitle D--Detainee Matters SEC. 1021 . AFFIRMATION OF AUTHORITY OF THE ARMED FORCES OF THE UNITED STATES TO DETAIN COVERED PERSONS PURSUANT TO THE AUTHORIZATION FOR USE OF MILITARY FORCE.(a) In General.--Congress affirms that the authority of the President to use all necessary and appropriate force pursuant to the Authorization for Use of Military Force (Public Law 107-40; 50 U.S.C. 1541 note) includes the authority for the Armed Forces of the United States to detain covered persons (as defined in subsection (b)) pending disposition under the law of war. 

    (b) Covered Persons.--A covered person under this section is any person as follows: 

            (1) A person who planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, or harbored those responsible for those attacks.                                

            (2) A person who was a part of or substantially supported al-Qaeda, the Taliban, or associated forces that are engaged in hostilities against the United States or its coalition partners, including any person who has committed a belligerent act or has directly supported such hostilities in aid of such enemy forces.
    (c) Disposition Under Law of War.--The disposition of a person under the law of war as described in subsection (a) may include the following:

            (1) Detention under the law of war without trial until the end of the hostilities authorized by the Authorization for Use of Military Force. 

            (2) Trial under chapter 47A of title 10, United States Code (as amended by the Military Commissions Act of 2009 (title XVIII of Public Law 111-84)). 

            (3) Transfer for trial by an alternative court or competent tribunal having lawful jurisdiction. 

            (4) Transfer to the custody or control of the person's country of origin, any other foreign country, or any other foreign entity.

    (d) Construction.--Nothing in this section is intended to limit or expand the authority of the President or the scope of the Authorization for Use of Military Force.

    (e) Authorities.--Nothing in this section shall be construed to affect existing law or authorities relating to the detention of United States citizens, lawful resident aliens of the United States, or any other persons who are captured or arrested in the United States. 

    (f) Requirement for Briefings of Congress.--The Secretary of Defense shall regularly brief Congress regarding the application of the authority described in this section, including the organizations, entities, and individuals considered to be ``covered persons'' for  purposes of subsection (b)(2)." 

(Sec. 1021 Public Law 112-81)

Yes, it does include the text, " (1) Detention under the law of war without trial until the end of the hostilities authorized by the Authorization for Use of Military Force." 
This does NOT mean that the law of war extends into the Continental United States. 
Read "(e)" - I have put this one in bold face.



Here is the entire text of the "Authorization for Use of Military Force"  
(Public Law 107-40): 

" Public Law 107-40  

Joint Resolution

     To authorize the use of United States Armed Forces against those responsible for the recent attacks launched against the United States. <<NOTE: Sept. 18, 2001 -  [S.J. Res. 23]>> 
Whereas, on September 11, 2001, acts of treacherous violence were committed against the United States and its citizens; and 

Whereas, such acts render it both necessary and appropriate that the United States exercise its rights to self-defense and to protect United States citizens both at home and abroad; andWhereas, in light of the threat to the national security and foreign policy of the United States posed by these grave acts of violence; and 

Whereas, such acts continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States; and 

Whereas, the President has authority under the Constitution to take action to deter and prevent acts of international terrorism against the United States: Now, therefore, be it 

Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, <<NOTE: Authorization for Use of Military Force. 50 USC 1541 note.>> 
SECTION 1. SHORT TITLE.
    This joint resolution may be cited as the ``Authorization for Use of Military Force''.
SEC. 2. AUTHORIZATION FOR USE OF UNITED STATES ARMED FORCES.
    (a)  <<NOTE: President.>> In General.--That the President is authorized to use all necessary and appropriate force against those nations, organizations, or persons he determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, or harbored such organizations or persons, in order to prevent any future acts of international terrorism against the United States by such nations, organizations or persons.
    (b) War Powers Resolution Requirements.-- 

            (1) Specific statutory authorization.--Consistent with section 8(a)(1) of the War Powers Resolution, the Congress declares that this section is intended to constitute specific statutory authorization within the meaning of section 5(b) of the War Powers Resolution.
[[Page 115 STAT. 225]]
            (2) Applicability of other requirements.--Nothing in this resolution supercedes any requirement of the War Powers Resolution.     Approved September 18, 2001."

So, in fact S. 1867 Sec. 1031 [HR. 1540 -- which became Public Law 112-81] "only applies" to this circumstance of the President sending troops to apprehend those responsible for 9/11. 

Nevermind that Congress basically gave the President carte blanche to make war with anyone in the world, be it "...nations, organizations, or persons he determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, or harbored such organizations or persons, in order to prevent any future acts of international terrorism against the United States by such nations, organizations or persons."

The President already had these powers of authority- this law is still on the books- this is one piece of hastily passed legislation that went through immediately following 9/11 ( none of which have been repealed) that actually rescind (or suspend) the Bill of Rights.

The most famous one of all is the USA PATRIOT Act (UNITING AND STRENGTHENING AMERICA BY PROVIDING APPROPRIATE TOOLS REQUIRED TO INTERCEPT AND OBSTRUCT TERRORISM) of 2001 (Public Law 107-56).

This is the law passed on October 26, 2001 that more or less suspends the Bill of Rights-  Amendments 4, 5, 6, 7, 8 -and possibly 1, 3, 9 & 10 depending on your interpretation of the law.
The USA PATRIOT Act allows government agents to enter and search your home without your knowledge or consent, sift through every communication you have made since- perhaps October 26, 2001- (be it email or web pages browsed or phone calls or text messages), to freeze (or seize) your assets and holdings, to apprehend you in secret and hold you without access to anyone- indefinitely- all because they "suspect" you *might* be a terrorist. No holds barred. Whether you are a US Citizen or a Legal Resident Alien or whether you are a foreign insurgent on a distant battlefield. It doesn't even necessarily include "those responsible for the attacks on 9/11".

What does the law say? It's a very long text, so I'll point out some parts and you can use the links to the document to read it for yourself.

Read "Title IV, Subtitle B, Sec. 411- Definitions Relating to Terrorism" -- that one is specifically for "Aliens" AND- for everyone else: "Title VIII - Strengthening Criminal Laws Against Terrorism", especially Sections 801-814. 
However I will summarize the definition of who is a terrorist, since it's rather lengthy and scattered throughout the lengthy text in rash-like blisters--

[paraphrase]: Terrorism/a terrorist act/a terrorist is defined as anyone who carries out, plans, has previous knowledge of, has provided funds directly or indirectly (whether they know or "SHOULD know" where their money went), or conceals any activity which threatens life, injury or property of US persons or residents with the aim of affecting the policy or actions of the United States government.

This is another law which almost all of Congress failed to read, and some people believe- with good reason- that it was actually written well before 9/11 and was waiting to be printed and rushed through Congress given the opportunity. It has been re-authorized and amended in countless ways since then. I have not read all of the new parts.

Bush's Executive Order defining what terrorism actually is:

Executive Order 13224 (September 23, 2001)

“Sec. 3. For purposes of this order:(a) the term "person" means an individual or entity;(b) the term "entity" means a partnership, association, corporation, or other organization, group, or subgroup;(c) the term "United States person" means any United States citizen, permanent resident alien, entity organized under the laws of the United States (including foreign branches), or any person in the United States; and(d) the term "terrorism" means an activity that --(i) involves a violent act or an act dangerous to human life, property, or infrastructure; and(ii) appears to be intended --(A) to intimidate or coerce a civilian population;(B) to influence the policy of a government by intimidation or coercion; or(C) to affect the conduct of a government by mass destruction, assassination, kidnapping, or hostage-taking.” 

[http://www.state.gov/j/ct/rls/other/des/122570.htm]

Hmm. It really depends on who's asking the question, "Who is a terrorist?" doesn't it?
What if Afghanistan or Iraq were to ask this question? Who would they determine the terrorist is, really? 
Perhaps the United States.

Our commitment to Bush's foreign policy and rejection of international law has set us up for increasingly contradictory and complicated lawmaking- and has made our country quite officially a hypocrisy and a contradiction in terms. Our unilateral action creates a self-perpetuation/self fulfilling prophecy of terrorist activity the world over. 

Terrorist activity in other countries is treated as a crime: Bush over-reacted to the events of 9/11 and upended international order. The only reason his actions have been allowed in the international community (with a considerable amount of grimacing) is that it is we- the United States- are the single greatest military power of our time. No one can enforce international law against us but ourselves. 

So, back to HR. 1540. This bill actually limits the scope of persons who can be detained. It attempts to define who are to be considered "enemy combatants" and where those combatants can be held, by informing us that they are required to be handled just like any POW- held "... under the law of war without trial until the end of the hostilities authorized by the Authorization for Use of Military Force." Also, it implies that US Citizens must still be charged and tried in the civilian criminal court system.
I think Senator John McCain, a former POW and torture victim, supports this bill because it requires persons detained under suspicion of being terrorists to be handled under the law of war like any other POW-- not to be swept off to some secret CIA black-ops prison to be tortured (which has happened dozens of times since 2001). Moreover, this bill also tells us that these persons are not to be tried in criminal courts, as they are Prisoners of War.
Then, as if directly referencing those American Citizens who were held by the Bush administration under suspicion of being terrorists or as enemy combatants, the bill HR. 1540 states this:

"SEC. 1022. <<NOTE: 10 USC 801 note.>> MILITARY CUSTODY FOR FOREIGN                           AL-QAEDA TERRORISTS.
    (a) Custody Pending Disposition Under Law of War.--            (1) In general.--Except as provided in paragraph (4), the Armed Forces of the United States shall hold a person described in paragraph (2) who is captured in the course of hostilities authorized by the Authorization for Use of Military Force (Public Law 107-40) in military custody pending disposition under the law of war 

            (2) Covered persons.--The <<NOTE: Applicability.>>  requirement in paragraph (1) shall apply to any person whose detention is authorized under section 1021 who is determined-- 

                    (A) to be a member of, or part of, al-Qaeda or an associated force that acts in coordination with or pursuant to the direction of al-Qaeda; and 

                    (B) to have participated in the course of planning or carrying out an attack or attempted attack against the United States or its coalition partners. 

            (3) Disposition under law of war.--For purposes of this subsection, the disposition of a person under the law of war has the meaning given in section 1021(c), except that no transfer otherwise described in paragraph (4) of that section shall be made unless consistent with the requirements of section 1028. 

            (4) Waiver for national security.--The President may waive the requirement of paragraph (1) if the President submits to Congress a certification in writing that such a waiver is in the national security interests of the United States.
    (b) Applicability to United States Citizens and Lawful Resident Aliens.-- 

            (1) United states citizens.--The requirement to detain a person in military custody under this section does not extend to citizens of the United States. 

            (2) Lawful resident aliens.--The requirement to detain a person in military custody under this section does not extend to a lawful resident alien of the United States on the basis of conduct taking place within the United States, except to the extent permitted by the Constitution of the United States."

(Public Law 112-81 Sec. 1022.)

So US Citizens and Legal Resident Aliens are not required to be held by the military-- meaning that they can be held in civilian prisons and tried in civilian criminal courts [or, they can be held in military prisons-- they are not required to be held by the military, but if deemed "necessary" they can be, if they are dubbed "Enemy Combatants"]. The Senate Committee on Armed Services is trying to make sure that "terrorists or enemy combatants" captured on the battlefields of Iraq and Afghanistan or in other foreign countries are held as Prisoners of War and are NOT allowed to be processed under the civilian legal system of the US.
It is only based on these unconstitutional laws (the USA PATRIOT Act and the Authorization for Use of Military Force of 2001) that the offending sections of HR. 1540 and similar bills have any relevance or validity at all, but their relevance is in terms of defining (limiting) the "special" powers granted to our President in the year 2001.


Tailored Specifically to Inconvenience Pres. Obama

Why this bill is specifically designed to prevent President Obama (whose campaign promises included closing Gitmo) from moving detainees currently held at the facility in Guantanamo Bay (with added emphasis):

 "SEC. 1026. PROHIBITION ON USE OF FUNDS TO CONSTRUCT OR MODIFY FACILITIES IN THE UNITED STATES TO HOUSE DETAINEES TRANSFERRED FROM UNITED STATES NAVAL STATION, GUANTANAMO BAY, CUBA.
    (a) In General.--No amounts authorized to be appropriated or otherwise made available to the Department of Defense for fiscal year 2012 may be used to construct or modify any facility in the United States, its territories, or possessions to house any individual detained at Guantanamo for the purposes of detention or imprisonment in the custody or under the control of the Department of Defense unless authorized by Congress. 

    (b) Exception.--The prohibition in subsection (a) shall not apply to any modification of facilities at United States Naval Station, Guantanamo Bay, Cuba. 

    (c) Individual Detained at Guantanamo Defined.--In this section, the term ``individual detained at Guantanamo'' has the meaning given that term in section 1028(e)(2). 

    (d) Repeal of Superseded Authority.--Section 1034 of the Ike Skelton National Defense Authorization Act for Fiscal Year 2011 (Public Law 111-383; 124 Stat. 4353) is amended by striking subsections (a), (b), and (c)."  

(Sec. 1026 of Public Law 112-81)

and:

 "SEC. 1027. PROHIBITION ON THE USE OF FUNDS FOR THE TRANSFER OR                           RELEASE OF INDIVIDUALS DETAINED AT                           UNITED STATES NAVAL STATION, GUANTANAMO                           BAY, CUBA.
    None <<NOTE: Khalid Sheikh Mohammed.>>  of the funds authorized to be appropriated by this Act for fiscal year 2012 may be used to transfer, release, or assist
[[Page 125 STAT. 1567]]
in the transfer or release to or within the United States, its territories, or possessions of Khalid Sheikh Mohammed or any other detainee who-- 

            (1) is not a United States citizen or a member of the Armed Forces of the United States; and 

            (2) is or was held on or after January 20, 2009, at United States Naval Station, Guantanamo Bay, Cuba, by the Department of  Defense."  

(Sec. 1027 of Public Law 112-81)

Similar sections have been added to the NDAA of 2013 (read Title X, Subtitle D). 

A reassuring addition to the NDAA of 2013 is this:

"SEC. 1029. <<NOTE: 10 USC 801 note.>> RIGHTS UNAFFECTED. Nothing in the Authorization for Use of Military Force (Public Law 107-40; 50 U.S.C. 1541 note) or the National Defense Authorization Act for Fiscal Year 2012 (Public Law 112-81) shall be construed to deny the availability of the writ of habeas corpus or to deny any Constitutional rights in a court ordained or established by or under Article III of the Constitution to any person inside the United States who would be entitled to the availability of such writ or to such rights in the absence of such laws."

[a dissenting opinion to my analysis of this law can be found here]

So my personal objections to this bill LAW are simple and fundamental: 

• I do not believe that terrorism is an act of war. It is a crime.
• I believe that a terrorist act is nothing more than a politically or religiously motivated criminal act of murder (or mass murder, or attempted murder, or kidnapping, or hostage-taking) and sometimes may include conspiracy to commit those crimes.
• I believe that if a terrorist act occurs in a war zone- it is a War Crime and the perpetrators must be held as Prisoners of War and tried before a military tribunal, as well as charged with War Crimes under International Law.
• I do not believe that an "Authorization for Use of Military Force" counts as war, as only Congress can declare war (and Congress has not declared war since WWII). 
• The "War on Terror" is not really a war at all, and the legislation surrounding this crime enforcement is excessive and draconian.
• All provisions of the USA PATRIOT Act (Public Law 107-56) and all subsequent and related provisions and amendments must be repealed as they are unconstitutional.
• The Authorization for Use of Military Force of 2001 (Public Law 107-40) must be repealed, as it grants the President unbelievable power and breadth of action in a way that is also unconstitutional. The AUMF of 2001 broadly and vaguely expands the president's authority to use military force with little or no oversight and with no expiration date.
• Specific portions of this bill are intentionally designed, quite spitefully, to prevent the president from making simple policy decisions that would otherwise be well within his power and jurisdiction to make unilaterally.
• I also object to the bill on many other points, most broadly the total amount of money we're spending on defense, when some very specific no-strings-attached foreign aid programs and corporate regulations could work just as well in deterring terrorism for about 1/100th of the price and without all of the unnecessary death and dismemberment.

Go to thomas.loc.gov to search for public documents... or for current legislation with links to sending letters to your Congressional reps: www.opencongress.org - this also has a lobbyist activity tracker so you can see who is getting money in support of (or against) each bill currently being considered in Congress.

Private Finances in the US: GD Part 4.21

US Households are in trouble. Almost 40% of Americans have either zero or negative net worth, and most manufacturing jobs have left the country. College graduates are underemployed and stuck with considerable student debt. Unemployment stubbornly hovers near 8%, while the Financial Crisis has decimated the scant financial assets and home equity possessed by the middle class. The Federal Reserve has kept interest rates low but has failed to stimulate vigorous economic activity, prompting some economists to claim we are experiencing a Liquidity Trap.

Yet, something very curious is occurring at the same time: the Dow Jones Industrial Average is reaching record highs almost every week, and large corporations are reporting larger than ever profits quarter after quarter. Annual GDP growth rates above 2% indicate the economy should be back in good shape... CEO pay is at an all-time high, and big banks are bigger than ever.

Isn't this all supposed to "trickle down" somehow? Or is this another kind of "liquidity trap?"


GDP and National Income

GDP is an expression in US dollars of the total value of goods and services produced and is frequently cited by economists as an indicator of a country's economic condition. We've talked before about GDP, which is for the purposes of this article what you can think of as the total revenue of the United States each year (this isn't totally accurate, view a proper definition here). 

Of course, revenue is just a raw amount of funds incoming. In almost every business, the largest percent of revenue goes to paying worker wages/salaries. 

National Income (in the sense that the Federal Reserve uses it) is an accounting of earnings paid out. There are several categories; worker wages, proprietor's income, interest paid and corporate profits -- among others.

In 2012, for example, the GDP of the United States was roughly $15.7 trillion, while the National Income totaled $13.8 trillion (88% of GDP). This is normal. Since 1945, National Income has ranged between 87% and 90.6% of GDP. After all, the entire point of business is to get paid, right?

But a closer examination reveals precisely whom is being paid.

The above graph depicts worker wages as a percent of National Income 1946-2012, where 1946 is on the far right and time progresses from right to left until 2012. Worker wages were highest as a percent of National Income from the late 1960's through 1983.

As we can see, worker wages as a percent of National Income are currently at their lowest point since 1951. The best period in terms of worker wages seems to be from 1969-1983. Afterward, we see rather large changes from decade to decade, never quite recovering from a sudden drop in 1984. For the last sixteen years worker wages as a percent of National Income never equaled even the lowest measure of wages from the period of 1969-1983.

Proprietors' Income is a raw amount of income paid to the owners of businesses that are not corporations. These are plumbers, electricians, corner groceries, boutiques, law offices, medical practices-- small businesses and other business endeavors that are not incorporated. Some of these may be LLC's (Limited Liability Companies) or LLP's (Limited Liability Partnerships) these may also include individual owners of popular corporate endeavors, such as a McDonald's Restaurants franchise. Proprietors' businesses are usually taxed through the individual, which means that their business revenues are viewed as income, usually regardless of most other factors. This can mean a proprietor can be subject to a much higher tax rate than is necessary.

When politicians talk about "job creators," they really should try to be more careful about who they really mean-- Proprietors employ the majority of Americans in the Private Sector (even though the largest single employers are large corporations like Wal-Mart), and they generally pay them better than their corporate counterparts. This is the most common type of business structure in the US.

Let's look at a graph of Proprietors' Income over the same time period as the previous graph (1946-2012):

Proprietors' Income as a percent of National Income peaked in or before 1946, reaching an all-time low in 1982. The recovery has been tepid at best.

So if workers' wages and proprietors' income have fallen as a percent of National Income- yet National Income keeps rising-  whose income payments have increased?

Corporate profits (after taxes) in 2012 are the highest they've ever been-- both in numerical amount and as a percent of National Income. Workers are being paid less and small businesses are being crowded out of the marketplace. Meanwhile, the tax burden on individuals (mostly through payroll taxes) has increased as a percent of Federal tax revenue, with corporations supplying a smaller and smaller portion of tax revenue since the 1950's.

How can this be? Aren't they making more money than ever? Didn't we just show that? Yes. Yes, they are making more money than ever. But they are also paying a lower effective tax rate. 

Quick explanation: When you pay your individual income taxes, you are taxed not on your total amount of income, but on a portion that is left over after you claim certain deductions from your gross earnings. The amount you pay after all deductions and other tax credits compared to your total gross income is your effective tax rate. For example, if you qualify for a bunch of standard tax deductions and tax credits, your total gross income may be $52,000, but you're actually taxed on a significantly smaller amount. While your tax bracket may require you to pay a 25% tax rate, your effective tax rate may be as low as 18% or 19% (or lower, depending on how tricky your accountant is).

Corporations have a much sweeter deal to begin with than individuals: they are only taxed on their profits. They can deduct almost all expenses of business operations and maintenance -- including employee wages, building rents, energy costs and R&D (Research and Development). They can also write off losses as deductions on future tax returns going forward seven years. Through lobbying and other forms of influence upon the legislature, corporations have been able to secure many additional tax credits and deductions, along with only being taxed on their domestic profits to begin with. Profits made overseas are not taxable and can be held off-shore indefinitely.

Imagine if you could deduct the full cost of feeding, clothing, sheltering and otherwise maintaining yourself and your family-- and still had more deductions and tax credits you could take! Fantastic, right? I mean, how much would you ultimately pay in taxes? I can tell you that if I could deduct all my living expenses from my total gross income, my taxable income would be like $3.50. Here you go, Federal government-- here's my thirty-five cents.

Just to fully illustrate the point, here's a graph depicting Corporate Profits (before tax) as a percent of National Income:

It doesn't look much different than the after tax figures, does it?

Corporate profits as a % of National Income (AFTER taxes)

Income and Assets of US Households/Individuals

Now here's something that does not seem to get counted in the Federal Reserve's accounting of National Income: full employee compensation. As a quick example, I can tell you that the current chairman and CEO of JP Morgan Chase, Jamie Dimon, is paid a yearly salary of $1 million, with bonuses of up to $5 million (imagine getting a bonus that was 500% of your salary)... but his total yearly compensation through stock options and other payments in 2012 was closer to $42 million-- his total yearly compensation last year was almost forty-two times his salary! 

This puts Mr. Dimon in a situation unique from most Americans. 90% of his compensation is made of liquid assets. This translates most of his total compensation directly to wealth. He does not pay a dime in taxes on stock options until he decides to sell them. Then, he is only taxed on the amount that he gained from the point that he acquired them (Capital Gains). It's a tricky tax avoidance that is perfectly legal, but it really punctuates the difference in how the Top 1% amasses wealth versus the strategy of the "average" American.

The point of this section is not to create divisions between classes. I'm pointing out income and wealth disparity as a means to bringing the majority in this country together. A "popular" criticism of the Occupy Wall Street movement was that it was a bunch of unemployed dirty hippie communists who were jealous of "successful" people and wanted to rob them of the fruits of their labor. This critique is not only patently incorrect, it is myopic and willfully ignorant. Still, in a supposed "meritocracy" such as the US, presenting the idea that some people are taking more than they truly deserve is actually pretty insulting for those who feel they've really worked hard at being financially successful.

The reality of the situation is that in the fullest, truest evaluation of the economy in the United States it is the consumer-- the workers, the common folk-- who drive the economy. We buy all of the goods and services, we provide the labor, we pay the majority of taxes to the government, we fund the entire nation and all the corporations and small businesses, we create and sustain the national economy. Well, ninety-eight or ninety-nine percent of us do it, anyway.

In terms of being "job creators," the consumer majority of the US takes the cake as well. The bottom 90% of income earners spends between 70% and 100% (sometimes through the magic of credit, they spend more than 100%) of their income directly back into the economy, while the top income earners spend progressively smaller and smaller percentages of theirs back into the economy. Even when observed as an important part of the investment structure, top income earners rarely make investments that aren't profitable for themselves in the short or medium term. Why would they? Isn't the whole point of investing to turn a profit?

The bottom 90% of workers take home an estimated 53.5% of all wages, while the "Next 9%" take home about 24% of all wages. Together, 99% of Americans are taking home around 78% of wage earnings and most if not all of it gets put directly into the consumer economy creating more jobs and more demand.

Income Class Demographics:

How large is the disparity between average rates of pay in these categories? Well, the most significant divisions occur in the upper percentiles. In other words, the difference between the income and wealth of the Working Poor and the Upper Middle Class is actually much narrower than the differences between the Upper Middle Class and the Top 1% of income earners-- and the differences between incomes of persons in the Top 1% are especially marked.

Average yearly income of Americans, 2011, by specified brackets. The inset portion is represented in a different scale so that the average income of the bottom 90% is visible.

It's a good idea to make the distinction between wealth and income at this point. Income, in the sense that I am speaking about it here (it's different for tax purposes), is total compensation (either monetary or through liquid assets like stock options, etc.) for employment or services rendered. Wealth (or we can talk of Net Worth) is the total amount of assets owned by an individual or business minus their liabilities/debts.

US Households & Non-Profits "collectively" own over $76 trillion in assets. Households have approximately $13 trillion in debts/liabilities ... so we can say the Net Worth of US Households is about $63 trillion. That sounds like a very stable economy, right?

...Except that those assets are mostly owned by the top income earners and the debts/liabilities are mostly owed by the bottom 80%-90%.

Go to "Who Rules America?" For more information.

Here are some graphs created by Prof. G. William Domhoff at his website "Who Rules America?" depicting wealth and debt by specific types of assets (2010). 
First, by Investment (Financial) Assets:

Source: http://www2.ucsc.edu/whorulesamerica/power/wealth.html

...and then by other types of assets:

Source: http://www2.ucsc.edu/whorulesamerica/power/wealth.html

As we can see, the bottom 90% owns a scant amount of investment assets and chiefly holds "other types" of assets-- home, life insurance, pension accounts, etc. The bottom 90% also holds 73% of the debt.

For additional demographic breakdown, we can refer to these G. William Domhoff pie charts:

Source: http://www2.ucsc.edu/whorulesamerica/power/wealth.html

When there is a significant economic crisis, the wealthy may have major losses, but it is usually the poor who are hardest hit. Here are more graphs from G. William Domhoff depicting median income, net worth and financial wealth from before and after the Financial Crisis:

Source: http://www2.ucsc.edu/whorulesamerica/power/wealth.html

Source: http://www2.ucsc.edu/whorulesamerica/power/wealth.html ,Wolff (2012).

The median household net worth of White families was reduced by around 40%. Losses were much greater for Black and Hispanic households.


Household Debt, Income and Net Worth

The Federal Reserve lumps Households and Non-Profits into one big bundle. I suppose this makes sense, since Non-Profits don't fit into any of the usual business categories and Non-Profits do not make a significant percentage of assets or liabilities in the grand scheme. Henceforth, I will mostly drop the term "Non-Profits" and refer to the entire group only as "US Households."

One way we can evaluate the fiscal situation of US Households is by applying a simple equation or two to the data available to us.

Liquidity Ratio - The total dollar amount of assets divided by the total amount of debts/liabilities.

Debt Ratio - The total dollar amount of debt/liabilities divided by the dollar amount in assets.

Here is a chart of the Liquidity Ratio of US Households & Non-Profits, 1945-2012:

We can see that the Liquidity Ratio generally fell over this time period, losing most ground during the 1950's. I don't have information that would break this down into more useful bits-- for example, determining who exactly was "leaking" liquidity. A general clue, however, is that beginning in the 1950's there were massive amounts of new homes being built and it became a more "normal" expectation of Americans to own their own home. Currently, national home ownership rates are close to 66%. However, the full value of these homes do not count as assets until the mortgage is completely paid off, so especially in the first decade of a 30-year mortgage, you may see a large reduction in your own Liquidity Ratio.

I do have more information for 2010, however, and have created a snapshot of Liquidity Ratios for three different income groups:

Here also are graphical depictions of US Households & Non-Profits Debt Ratio.

...here is the Income Class snapshot of 2010 Debt Ratios:

On its own, these aren't damning pieces of evidence- after all, a high liquidity ratio? Isn't that what it means to be rich in the first place?
...And a Debt Ratio below 0.5 (50%) is not that bad, anyway (bottom 90%).

Actually, when banks look at debt ratios while considering making a loan to a business or individual, they use a different metric: Debt-to-Income Ratio (debt divided by pre-tax income). So let's look at median household income in the US.

The Median Income is not the average income, it is the numerical center of a list of all incomes. It is usually presented as a measure of the overall state of personal finances because as the center rises, it is assumed that the average condition has improved. 


Median Income is as defined here: 

The actual "Median Income Per Individual" in the US is currently around $36,000. However, Median Income often refers to a "Household Income" which may represent more than one income earner, as long as these two earners share residence. Many, if not most, US households include more than one income earner. The household Median Income (as of 2011) is $50,054.

We will look at the household rates, because the rest of the data from the US Census and the Federal Reserve is by household, not by individuals.

Here is a graph I created using data from the Federal Reserve which depicts Median Income vs. Average Household Debt 1967-2012:

In the above graph, we can see that the fluctuation in median income (the blue line) has been minimal- about 19% since 1967- while the amount of debt held per household (the red line) has increased to 386% of Median Income during the same period.

As we can see, the average debt per household in the US was closely correlated to the Median Income until around 1983 or 1984. Afterward, the Median Income failed to grow in step with the amount of home loan financing and other credit extended to the general public.

We have already discussed the fact that most households do not own assets that are easily liquidated such as stocks, bonds and other fund accounts. Their main asset (and usually also their main liability) is their home.

By using a Debt-to-Income Ratio (total debt divided by income) instead of looking at debt divided by total assets, we can see that the average debt-to-income ratio is 2.13 (or 213%). Banks consider a consumer over-extended if this ratio is above 0.3 (30%).



GDP growth compared to growth of Median Income from 1967-2011:

The above graph shows that while GDP per Household has increased, Median Income has barely seen any increase at all. As noted above, the median income of Americans is an indicator of overall wages-- which according to the National Income figures, are depressed. We have seen that corporations continue to make record profits while paying less and less in taxes. What about the bottom ranks of income earners? What is their financial situation? After all, they are the ones who will require the most government support through Medicare, Medicaid and Food Stamps.

Table 1: Income, net worth, and financial worth in the U.S. by percentile,in 2010 dollars

Wealth or income class	Mean household income	Mean household net worth	Mean household financial (non-home) wealth
Top 1 percent	$1,318,200	$16,439,400	$15,171,600
Top 20 percent	$226,200	$2,061,600	$1,719,800
60th-80th percentile	$72,000	$216,900	$100,700
40th-60th percentile	$41,700	$61,000	$12,200
Bottom 40 percent	$17,300	-$10,600	-$14,800

From Wolff (2012); only mean figures are available, not medians.  Note that income and wealth are separate measures; so, for example, the top 1% of income-earners is not exactly the same group of people as the top 1% of wealth-holders, although there is considerable overlap. SOURCE: http://www2.ucsc.edu/whorulesamerica/power/wealth.html

Where are the income gains going? If productivity per household is at an all-time high, and National Income keeps rising, who is making all the gains? Not the average American. 

All of the individual income gains have been going to the Top 1% of wage earners. This is a long-term trend, as shown by the above graphic by The New York Times.

Once again, the poorest are hit the hardest in this wage stagnation-- here is a chart by the University of Oregon on Minimum Wage since 1938, adjusted for inflation. The blue line shows the nominal amount, and the Red points are the inflation adjusted amounts:

If Minimum Wage had kept up with inflation since 1968, it would be over $10 per hour in today's dollars: $21,000/year (before taxes) for a person working full-time. Currently, a person working full-time at minimum wage would make about $15,000/year before taxes.

More and more Americans are under-employed: working part-time or for (near) minimum wage. As some of my "favorite" Republican pundits say, "In this 'Obama Economy' [sic] the only new jobs are minimum wage!"

We can hardly blame this on Obama, or even Bush for that matter-- After a close examination of this data, it is clear that fundamental changes to our economy occurred in the early 1980's and have accelerated over time.

1. There was an unwieldy abundance of increasingly cheap credit following the high interest rates of the late 70's and early 80's. This trend has continued to the current year, allowing the vast majority of Americans to become over-extended with debt.

2. Labor unions were dismantled and/or circumvented.

3. The tax structure was completely rewritten. The idea was that if the wealthy can keep more of their money, they will use it to invest in the Private Sector and improve the economy ("Trickle-Down Economics").

There is no correlation between the Top-Marginal tax rate
and economic growth, despite what some politicians tell us.

4. Corporations took a massive power-grab in state and federal governments through increased lobbying. This led to more favorable tax conditions for corporations; loop-holes and other tax credits. Corporate enterprises like The Home Depot, Jiffy Lube and Wal-Mart expanded rapidly and began to crowd out (and shut down) small businesses in related markets all across the country, offering low-paying jobs to the recently unemployed.

5. A brand of economic thought dubbed "Neo-Liberal Economics" helped carry "Supply-side" economics (also referred to as Reaganomics) into the political arena. This also happened to some extent at the same time in the United Kingdom. It has largely been a failure for everyone except the very rich, as jobs that used to be filled by skilled workers in manufacturing have been shipped overseas to be done much more cheaply in developing nations. Businesses that manufacture products domestically generally can't compete, and workers who once had well-paying jobs in manufacturing were laid-off and left to find lower-paying jobs in unrelated fields.

6. Corporate executives began receiving salaries that are much higher than the historical average. Many CEO's of top corporate enterprises now make over 350 times the salary of their average employee-- not the janitor or the mail-boy-- the average employee. Compare that to the 1980 figure-- when CEO's made only 42 times the pay of the average worker.

Golden Years?

All of this was good for economic growth, right? Isn't the GDP larger than ever? 

Yes, the GDP grows every year unless there is a recession. So barring recessions, the GDP will rise to record numbers practically every year, and each year the same percent increase in GDP is a slightly larger nominal increase (for example, 3% of $12 trillion is $360 billion, but 3% of $15 trillion is $450 billion). It's mostly relevant to look at GDP in terms of percent increases/decreases, since the raw dollar amounts become less significant over longer time periods.

I'm going to ask you to look at GDP over the last 90 or so years in a rather un-traditional way. Normally, we talk about GDP as a dollar amount based on data collected by quarters and then averaged together by year-- so that we can ignore seasonal disruptions in the market and concentrate on year-to-year comparisons. How about we apply that same method to decades? What does GDP growth look like when we view average GDP growth rates by decade?

This graph interprets GDP in Nominal amounts (or the current year's dollar amount-- what it was actually recorded as in that year). The graph is read from right to left, with 1921-1930 on the far right, and the most recent data on the far left. We can see the unparalleled government spending of WWII reflected in the large spike on the right, and an accelerated post-war economy heading into an impressive economic expansion during the 1970's.

It is clear that since peaking at growth rates averaging over 10% (which is really an unsustainable growth rate in any economy) we have seen steady declines in growth until reaching the 2000's. Still, in nominal amounts, the growth rate continues to look healthy. Most economists agree that a GDP growth rate of 2% to 3% is a "healthy" state for an economy. But this view completely ignores inflation.

Inflation isn't merely the injection of physical currency into the economy-- nobody counts how many dollar bills there are in the world before pricing their goods and services (that would be pretty mean, anyway)-- it is actually an index of rising prices that leads to a weakening of the buying power of the dollar (deflation would be the opposite: falling prices that lead to a strengthening of a dollar's buying power). See: CPI.

Here is the same analysis applied to GDP which is inflation adjusted to 2011 dollars:

It now looks like the Great Depression had better GDP growth than this last decade! Well, that's not really true. The Great Depression had many wide swings of GDP growth and contraction that just averages out to a deceptively healthy-looking rate, and when you couple that with Depression-era deflation (increased buying power of the dollar), you get this distortion. World War II GDP still looks extreme, and now the biggest post-war expansion looks like it occurred from 1961-1970. The 1970's look rather weak... and that's because of the extremely high inflation rates of the 1970's. The 70's were doubly bad because of very high interest rates (see the back-story on the Financial Crisis). However, when inflation rates and interest rates sharply fell in the 1980's, it led to a rebound in the economy, fueled by consumer borrowing. "Supply-siders" and neo-liberal economists loved it.

Prime Interest Rate, a bank lending rate, is shown above in red. Prime Rate is not the interest rate a consumer gets for a loan, but is generally used as a basis for determining the higher consumer rates. Annual Inflation Rates (the blue line)  have been between 1.5% and 3% since 1992 (that's "ideal" according to most economists).

Banking institutions came up with lots of new loans, people who always wanted to own a home suddenly could afford to do it, and paying by credit card quickly became popular and widely accepted. More and more people were heading to college and today over $1 trillion of consumer credit debt comes from student loan debt.

When the Cold War ended, there were teams of computer scientists and mathematicians- formerly developing missile programs for the Pentagon- who needed some new jobs and this happened to coincide with a fantastic idea that Wall Street was having just at that moment: fancy new financial instruments. Please see my previous post on the Economic Collapse for more information on what Wall Street did.

Another particular concern is the shifting of asset ownership over the last 50 or 60 years. In the following pie charts, "Corporate Non-Financial Business" represents companies like Disney, McDonald's, IBM, and Johnson & Johnson- corporations that produce things but whose primary function is not financial instruments; "Non-Corporate Non-Financial Business" represents the non-incorporated businesses aforementioned while discussing proprietors' income; "Households and Non-Profits" represent (by-and-large) private individuals of ALL income classes (and an insignificant amount of assets held by non-profit companies & charities); "Financial Business" represents banking institutions, investment operations, all of "Wall Street," and most insurance brokers/providers.

In 1945, Households owned almost half of all assets, and the remaining assets were almost evenly split between the three remaining categories.

By 2012, the share of assets held by the Financial Sector had ballooned from less than 20% to over 36%, while the share of assets held by Non-Corporate Non-Financial Businesses were cut in half. Households now hold a significantly smaller share of total assets (a 16% reduction of the previous value) and the share of assets held by Corporate Non-Financial business seems to have remained mostly unaffected.

In the Post-Reagan era (1989-Present), the Federal Reserve has had the same monetary policy- keep interest rates low and encourage borrowing. It seemed to have revitalized the economy and led to a stable growth pattern. But did it really?

I have spent a lot of time talking about the policy decisions that have supported this change, and the trends in economic thought and business tactics of large/powerful corporate interests-- but much of this change was facilitated also by consumer behavior. While I'm likely to return to this subject in the future, I'd like to recommend this lengthy documentary on the subject-- "The Century of the Self". Please watch it when you have a great deal of time. It is actually about four hours long.

If it turns out the video has been removed after you follow the link, here is an embedded video of the introduction to the piece, so you get a gist of what it's about at least:

Meritocracy or Plutocracy?

It is thoroughly rational for all businesses to seek maximum profits and minimum taxation. It is equally rational to offer generous compensation packages to CEO's and to underpay most other workers, as this will maximize profitability. Take any advantage you can get-- it's a tough world. Lobbying, off-shore accounts in tax shelters, outsourcing entire departments to "third-world" nations: it all makes perfect sense in a profit-driven economy. It all may be rational and legal, but is it ethical?

Growing up in the 1980's as the youngest child of a pair of Baby Boomers, I was taught that if I went to college and worked hard enough, I was guaranteed to have a modicum of financial success. I would grow up, get a well-paying job, get married and buy a house. The American Dream, as it were, is to go through this progression. The sky is the limit. Our free market capitalism would ensure that if I was intelligent, hard working and had some ingenuity, I could even become very wealthy. 

The reality of this situation is that I was born 30 years too late. We no longer live in that kind of economy. Sure, I can still have all of those things; a college diploma, a wife and family, a car, a house-- but only if my wife works full-time as well, and if we're willing to go into debt up to 200% of our combined income. 

If I wish to have the same level of success that my father did, it doesn't really matter how hard I work or whether or not I'm intelligent-- all that seems to matter is if I can get hired as a top executive in a Fortune 500 company or come up with the newest internet sensation. Otherwise, the best I can hope for is to be in the shrinking middle class where I will be taxed to silly proportions, while my boss makes 350 times my salary and pays a lower effective tax rate than my kid who works part-time at Sbarro's. 

If I find work with the right company at the right time, and they happen to offer full health and dental benefits I can be relatively sure that no surprise health problem will catapult my family to homelessness and/or poverty... as long as they don't suddenly outsource my department to some emerging market in Indonesia. In that case, I'll be lucky to come out of the bankruptcy proceedings with even the shirt on my back.

Finding a job as an older person is tough. It's likely you will never find one again that has as good a package as your last job. Your years of experience don't make you more qualified; instead, they make you less likely to be employed. There are millions of fresh college grads every year who will gladly do the same job for 1/2 the pay rate and without being guaranteed a benefits package or 401(k). 

Opening your own business is very risky and tricky-- you'd be lucky if you can compete with the larger corporate conglomerates and keep your doors open for more than a year-- even in a small town.

Is the "American Dream" really only about possession of whatever trendy electronic gizmo, fashion accessory or McMansion we can acquire? Is it totally necessary for each of us to own a house and two cars? What are we sacrificing for that? 

Worse, what kind of an economic system are we perpetuating by participating in this kind of circus? What effect does this have on the rest of the world?

...And what message does this send to our children? 


Afterthoughts:

When I wrote this post, I sent a copy to my sister to review. I asked if the ending sounded "whiny" or entitled, if it came off as being incendiary and divisive. My sister told me she liked the personal touch and that it was valid to have these thoughts and feelings about the "new economy."

But the above section isn't exactly how I feel. I don't really care that I will never be as "successful" as my parents' generation (what does that even mean?). I'm not a materialistic person who needs possessions to demarcate my self-worth. What I really need is to feel freedom-- freedom from hunger, freedom from sickness, freedom from debt. 

Psychological studies have shown that once the basic needs of an individual are met - food, shelter, healthcare - no additional amount of material goods will provide more sustainable happiness... and they're right. 

Maslow's Hierarchy of Needs: It is necessary to fill our basic needs before we can achieve sustainable happiness and self-actualization. The lower order of needs are the most basic and most important in achieving what an individual feels is "success." Without them, we can never feel truly satisfied. 

I feel fulfilled when I get to express my creativity and work for (sometimes hard-won) goals that exercise both my intellect and my values. I need to have time to spend with my loved ones and the ability to set my own goals and achieve them. I don't feel that the economy we have created in the last 30 years allows us all to do that. I don't think that we will live in a truly "free" society until it does. 

What I resent about our current economy is the constant threat to our more basic needs, and the way that we are increasingly limited from providing for our own basic needs without participating in a specific way with the economy. 

Let's face it-- we are the luckiest population of people who ever lived in the history of the planet in terms of abundance. We Americans all have access to all the food, material comfort, toys and entertainment that we could ever need or desire. We have unparalleled luxury and automated systems to do much of the unpleasant work. Our grandparents (or great-grandparents) lived through the Great Depression. Our trivial worries mean nothing to them. 

But society tells us we always need more. We need a bigger house, a fancier car, a fast boat... we need vacations in tropical destinations and designer clothes with prominent labels so everyone knows how much money we spent to look that nice. 

We need an advanced degree in a specialized field that affords us a high salary and medical benefits (otherwise we don't truly deserve either) and in order to attain all of these things we must participate in the credit system.

If we fail in the credit system, it affects every aspect of our basic survival needs. We could lose our home and our transportation, which could lead to us losing our jobs, which could lead to us losing our healthcare insurance and/or retirement benefits, which could cause us to be further indebted. The biggest fear is that we'll wind up friendless, homeless and hungry like the people we all try to ignore while we're on our way to work. 

In order to avoid this potential cataclysm, we give up certain things-- time with our loved ones, we give up some sleep (not that important, is it?), we skip meals or put off going to the toilet in the interest of being "more productive," we often sacrifice our health-- we even sometimes sacrifice our self-respect or our need to be creative and spontaneous. It's all to keep ourselves plugged in to a system that will always demand more.

The worst part is that this economic system is fundamentally unstable. We could lose everything (as individuals and as a society) even if we do it all "by the book."

I think we should change that, and while I have mentioned certain things that can be done in previous posts, I will write more about this in the near future. 

However, there is a maddeningly simple solution: Stop wanting things. Stop being a consumer and start being a person. We don't need big houses, fancy cars, slick mobile smartphones, impressive job titles or any other of the silly status symbols that "society" tells us we must have to prove that we're somebody. Just reject it. Ignore the big corporate box stores and shop at the locally-owned businesses in your area. Get involved in local government and keep your community safe from Wal-Mart and their ilk (by voting against zoning changes or vote for large tax increases on those businesses)-- make it unprofitable for them to stay in your area. Bank at a local cooperative bank. Join a farm-share. Support local everything.

We can build our own economy. We can build our own future.

We can do so much better.




Notes on the data:

I went to many different sources to get the preceding information, but mostly all the data came from the Federal Reserve, US Census, IRS, the Bureau of Economic Analysis and the Bureau of Labor Statistics. Much of the data doesn't seem coherent until it's plugged into a spreadsheet and some graphs are made. 

Limitations of the data:
I don't have access to all the information I would need to give a completely precise accounting of the financial situation of American citizens. I can give a fairly accurate portrayal of the current standings for the general population, but without information on specific persons or detailed info on groups in different income classes, I cannot be as precise as I had hoped at the beginning. The source information is intentionally aggregated in such a way as to protect individuals' privacy and as a result some numbers are skewed, mostly because there is no demographic breakdown; a few billionaires can sway the information in a big way. However, an overview of fiscal position is still possible, and for one particular year-- 2010-- I have additional information that was helpful in this way.