Real Wages Fail to Match a Rise in Productivity

August 28, 2006 By STEVEN GREENHOUSE and DAVID LEONHARDT ...the current ... period of economic growth ... fails to offer a prolonged increase in real wages for most workers. The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity...has risen steadily over the same period. As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability.” Since last summer...the value of workers’ benefits has also failed to keep pace with inflation, according to government data. At the very top of the income spectrum, many workers have continued to receive raises that outpace inflation, and the gains have been large enough to keep average income and consumer spending rising. In a speech on Friday, Ben S. Bernanke, the Federal Reserve chairman...warned that the unequal distribution of the economy... “threaten the livelihoods of some workers and the profits of some firms,” Mr. Bernanke said, policy makers must try “to ensure that the benefits of global economic integration are sufficiently widely shared.” ...Earlier this month, the University of Michigan reported that consumer confidence had fallen sharply in recent months... Economists offer various reasons for the stagnation of wages. ...the buying power of the minimum wage is at a 50-year low...health care is far more expensive than it was a decade ago, causing companies to spend more on benefits at the expense of wages. Together, these forces have caused a growing share of the economy to go to Companies (Ed., property speculators) instead of workers’ paychecks. In the first quarter of 2006, wages and salaries represented 45 percent of gross domestic product, down from almost 50 percent in the first quarter of 2001 and a record 53.6 percent in the first quarter of 1970, according to the Commerce Department. Each percentage point now equals about $132 billion. Total employee compensation — wages plus benefits — has fared a little better. Its share was briefly lower than its current level of 56.1 percent in the mid-1990’s and otherwise has not been so low since 1966. Over the last year, the value of employee benefits has risen only 3.4 percent, while inflation has exceeded 4 percent, according to the Labor Department. In Europe and Japan, the profit (Ed., read privilege: speculation, licences, patents, copyrights) share of economic output is also at or near record levels, noted Larry Hatheway, chief economist for UBS Investment Bank, who said that this highlighted the pressures (Ed., inequality) of globalization on wages. Many Americans, be they apparel workers or software programmers, are facing more competition (Ed., more desperate) from China and India. ...economists at Goldman Sachs wrote, “The most important contributor to higher profit (Ed., speculation) margins over the past five years has been a decline in labor’s share of national income.” ...Worker productivity rose 16.6 percent from 2000 to 2005, while total compensation for the median worker rose 7.2 percent, according to Labor Department statistics analyzed by the Economic Policy Institute, a liberal research group. Benefits accounted for most of the increase. (Ed., subsequently captured by land price) “If I had to sum it up,” said Jared Bernstein, a senior economist at the institute, “it comes down to bargaining power and the lack of ability of many in the work force to claim their fair share of growth.” (rent) Nominal wages have accelerated in the last year, but the spike in oil costs (Ed., monopolised resource rents) has eaten up the gains. Now the job market appears to be weakening, after a protracted series of interest-rate increases by the Federal Reserve. ...gains are a result mainly of increases (Ed., privileges) at the top of the income spectrum that pull up (Ed., corrupt) the overall numbers...workers at the 90th percentile of earners — making about $80,000 a year — inflation has outpaced their pay increases over the last three years, according to the Labor Department. “There are two (Ed., non-) economies out there,” Mr. Cook, the political analyst, said. (Ed., monopliconomy,) “One has been just white hot, going great guns. Those are the people who have benefited from globalization, technology, greater productivity and higher corporate earnings. “And then there’s the working stiffs,’’ he added, (Ed., poviconomy) “who just don’t feel like they’re getting ahead despite the fact that they’re working very hard. And there are a lot more people in that group than the other group.” In 2004, the top 1 percent of earners — a group that includes many chief executives — received 11.2 percent of all wage income, up from 8.7 percent a decade earlier and less than 6 percent three decades ago, according to Emmanuel Saez and Thomas Piketty, economists who analyzed the tax data. Original 1650 words

Senate says tax cheating by super rich out of control

August 1, 2006 Tax Cheats Called Out of Control By DAVID CAY JOHNSTON So many superrich Americans evade taxes using offshore accounts that lawenforcement cannot control the growing misconduct, according to a (US) Senate report that provides the most detailed look ever at high-level tax schemes. Cheating now equals about 7 cents out of each dollar paid by honesttaxpayers, as much as $70 billion a year, the report estimated. “The universe of offshore tax cheating has become so large that no one, not even the United States government, could go after all of it,” said Senator Carl Levin, the Michigan Democrat whose staff ran the investigation. ...The report details how, ...a tax shelter” using $9.6 billion “worth of fake securities transactions that were used to generate billions of dollars of fake capital losses.” ...Senator Levin said that when investigators asked for trading records they were first told the trades were private, over-the-counter transactions. He said investigators asked for trading tickets or other evidence of who owned the $9.6 billion worth of stock and were told the stocks were never owned by the parties involved. ...“They just wrote down numbers on paper and claimed losses,” he said. “It was just like fantasy baseball, except the taxes not paid were for real.” ...The investigation, which took 18 months, involved 74 subpoenas, 80 interviews and the collection of more than two million documents, and yet Senator Levin said “the six cases we present are just examples, just apinhole look.” The 400-page report recommends eight changes, some of them aimed at going after the law and accounting firms, banks and investment advisers that the report says enable tax schemes that rely on complexity, secrecy and compartmentalizing information so that advisers can claim they had no idea that the overall transaction was a fraud. “We need to significantly strengthen the aiding and abetting statutes to get at the lawyers and accountants and other advisers who enable this cheating,”Senator Levin said, adding that “we need major changes in law to stop the use of tax havens” by tax cheats. It also recommends new rules that strip away the underlying legal presumptions that make offshore tax havens like the Cayman Islands, Nevis, the Isle of Man and Panama attractive places for Americans to hide assets and income from the Internal Revenue Service. ...Senator Levin said the law “should assume that any transaction in a tax haven is a sham.” He said that during the investigation he grew angry as he learned how common cheating had become and how existing government rules aided tax cheats. He said that complex schemes were broken into discrete pieces, allowing professional advisers working on each piece to assert that they had no idea that, taken as a whole, a scheme was improper. “I get incensed by people who use tax havens to not pay their taxes while the average guy has to pay his taxes because they are taken out of his pay before he gets it,” he said. ...The technique involved a complex set of circular transactions using what the Senate report characterized as sham corporations in the Isle of Man with shell corporations given names like Jackstones. Their ownership was kept secret. “Ain’t capitalism great!” ... an e-mail message extolling the tax benefits of the deal. The report says that Credit Suisse First Boston, Lehman Brothers and Bank of America “all knew that the offshore entities” for which they made trades were associated ... but ignored rules requiring disclosure of these transactions and helped them hide the true ownership of the assets. ...(They)“ were counseled by an armada of lawyers, brokers, financial professionals and offshore service providers. 1392 word version

Catchup Economy

Jared Bernstein senior economist Economic Policy Institute August 22, 2006 Reminders.

...corporate profits as a share of the economy are at their highest level

on record...it has climbed to 12.7 percent in 2004, adding 5.4 million persons, including 1.4 million children to the ranks of the poor. ...an economic recovery that has produced an alarmingly large gap between growth and the living standards of most families. -- economic pollution ranking: Car backfire economic relevancy ranking: None 860 words version

US housing slump fuels crash fears

Floundering American property market could spark global slowdown worse than dotcom collapse The downturn will force businesses to slash 73,000 jobs a month in the new year. New homes sold in July was 22 per cent lower... prices...flat, fears are mounting.. will become a full-blown crash. 'Freefall' said Paul Ashworth, chief US economist at Capital Economics...The number of unsold new homes is now at a 10-year high....Capital calculates that 73,000 jobs a month will be lost. ...the long-expected housing market crunch. Stephen Roach, chief economist at Morgan Stanley...the slowdown will shave at least 2 percentage points off GDP growth next year, taking the US perilously close to recession, as construction spending plummets and homeowners lose. 'For a wealth-dependent US economy,...A bursting of the property bubble...for...an increasingly integrated global economy,' he added. Fionnuala Earley, group economist at Nationwide, said ...immigration suggests there's going to be tenant demand... people are going to think again about whether they should move and whether they should stretch themselves.' Heather Stewart, economics correspondent Sunday August 27, 2006 The Observer Monopoliconomy economists prefer not to use the terms, rent, site value & land values instead: "the cushion of extra wealth that comes from rapid price rises.' housing market, homeowners lose, another asset bubble, fragile housing sector, property supply constraints.'

MaxedOut

IN THEIR OWN WORDS: Quotes from the Film's Talking Heads "There's a lot of shame and a lot of guilt attached to the issue of money mismanagement...Everybody feels like the other couple has a perfect marriage and a perfect everything...Turns out, I've met Ken and Barbie and they're broke." -Dave Ramsey "Basically it's food, rent, and a bit of entertainment. Just survival. They're having a hell of a time." -Brian Lurie "The real point is the basics are driving families right to the edge. What it costs to have a house, to have health insurance, to have child care, to have two cars so that you can both get to work." -Liz Warren "Nobody would watch Lifestyles of the Poor and the Unknown." -Robin Leach "There's not as much money in Washington as they're used to be!" -George W. Bush "I guess if you look like you make money eventually you will." -Beth Naef "If you go to a vocational school or if you have a job, they [the credit card companies] don't want you. Maybe it's because they think you know the value of a dollar. It's the college students who get the cards. So we're setting up a two-tiered system here and I believe they're exploiting the college students. An easy market." -Janne O'Donnell "They [Bank One] wanted us to be the FirstUSA spokesguys...I guess how Bill Cosby is to Jell-O, that would be us to credit cards." -Luke McCabe "I know for a fact that [the banks] aren't looking for people with experience. They want people who have jobs at the mall. Their whole approach is they want someone who is retail-driven. They want people who can sell, sell, sell." -John Ballew "The bottom line is, the deck is stacked against you from day one. If you're smart enough to understand that and know that, God bless you; if not, boy are they going to make a lot of money off of you." -Bud Hibbs "I like to think of myself as a pirate and you're just walking that person out on the plank. And then you pull them back when you get what you want. Of course, sometimes, in the beginning, you're going to push a little too far." -Bob Johnson "Basically I was just a real big typographical error." -Doris Gohman "The size of our problem out there is very large. I regret to say that the word billion does not encompass the nature of the problem." -Alan Greenspan "Consumers think they have a right to privacy...The Constitution protects you from the government, but where is your right to privacy from an individual or a private company? Where is your right to privacy from me? And the truth is, there is no right to privacy." -David Szwack http://www.maxedoutmovie.com/about/index.html