Steven Rattner December 31, 2012, 7:43 pm3 Comments
America in 2012, as Told in Charts
By STEVEN RATTNER
Steven Rattner on economic policy, finance and business.
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In
2012, the slow recovery dominated both the economic news and the
worries of most Americans, but the underlying components of the weak job
market were not always fully dissected. In fact, job growth was so
paltry in large part because it was so unbalanced. Since the recession
ended in June 2009, three key sectors – government, construction and
information – that together account for 22 percent of all employment
lost more than 1 million jobs. Equally significantly, two of them,
government and construction, generally add a disproportionately large
share of jobs during a recovery. With government contracting and
construction stalled, that did not occur.
The
economic boom that peaked in 2007 represented the first time that
median real (that is, inflation-adjusted) incomes did not recover to
their previous peak before declining into the next recession. More
ominously, family incomes have yet to recover, even though the recession
ended three and a half years ago. That has brought the total decline in
real incomes to nearly 9 percent since 2000. So where has the economic
growth from the recovery gone? Much of it has gone to corporate profits,
as companies took advantage of the high unemployment rate and the
ability to shift production globally to hold down wages in the United
States.
The
rise in income inequality has exacerbated the decline in median
incomes. In 2010, a stunning 93 percent of all income gains went to the
top 1 percent of Americans. Also astonishing: just 15,000 households
received 37 percent of all of those income gains. In no other period in
recent American history have economic gains been concentrated so
disproportionately in an elite sliver. (The red bars indicate
recessions.)
The
explosion of the federal budget deficit since the turn of the century
stems from multiple causes, including huge tax cuts in 2001 and 2003 and
rapid spending growth in many areas like defense, and later, the
stimulus to combat the recession. But no budget-busting factor looms
larger than the soaring cost of government-financed health care,
particularly Medicare and Medicaid. In addition to driving current and
projected deficits, the rise in spending has squeezed the resources
available for other domestic programs. Often dismissed as wasteful
government spending, these “discretionary” programs include important
areas of investment, such as infrastructure, research and development
and education. In reducing such investments, we are eating our seed
corn.
Large
deficits have driven a key ratio — government debt to gross domestic
product — to 72.8 percent, from 36.2 percent in 2007. But without new
policies, that’s just the beginning. Under realistic assumptions, the
debt-to-G.D.P. ratio will rise to more than 80 percent over the next
decade. The recommendations of the Simpson-Bowles Commission, if adopted
by President Obama and Congress, would have brought this ratio down to
65 percent by 2022. But that plan never was adopted. Even if one of the
proposals being debated by the White House and Congressional
Republicans, very similar in the impact on the deficit, were put in
place, it would only manage to drive down this ratio to 72 percent and
stabilize it there — a minimally acceptable goal.
The
debate over budget-cutting has touched off fierce emotions on all
sides, sometimes at the expense of facts. Take, for example, the
proposal to change the cost-of-living adjustment used to calculate
Social Security benefits. Rarely discussed in that context is the fact
that the current adjustment formula has delivered benefit increases to
Social Security recipients that are larger than the wage increases of
average Americans – a difference of more than $2,500 over the past 12
years.
Another
article of faith is that Congress has become far more polarized. That
general perception is well supported by a number of academic studies.
For example, one researcher, Keith T. Poole, assigned a score to each
member of Congress based on his or her voting record. He then calculated
an average for Democrats’ and Republicans’ scores and used the
difference to create an index. His conclusion was that the House has
become more polarized than at any time since at least 1879, and the
Senate nearly so.
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