Of course, at the moment, a huge amount of the nation’s vast wealth is in the hands of a tiny percentage of Americans. Wealth disparity seems to be both a result and a cause of extreme income disparity. We don’t need to gouge the rich, but we need public policies that slowly bring more wealth into the hands of poor and middle class Americans.

We’re not going to make those public policy decisions anytime soon, but eventually — 10 years? 20? 40? — we’ll figure it out.

Thanks to a YouTube user named Politizane, we have this great video that puts wealth inequality in clear terms. It simply takes a look at data from a paper by the Harvard’s Michael Norton and Daniel Ariely about what Americans would see as the ideal distribution of wealth, what they think the nation’s wealth distribution actually is, and what the numbers actually are.

Check out the video — just six minutes:

At his talk at the Savannah Book Festival a few weeks ago, Al Gore put the issue in stark terms too, noting that the Wal-Mart heirs have more combined wealth than the least wealthy 100 million Americans.

The Wonkblog at The Washington Post has some excellent commentary on the video and the trends that it captures.

Yellen would have been and still would one day be a viable option to take over the chair from Ben Bernanke. None of the Federal Reserve members were ahead of the game in understanding the housing bust, but Yellen at least had a good sense of what was happening in real time. We know that from the recently released minutes of the Fed Open Market Committee’s minutes from 2007.

From the NYT’s Days Before Housing Bust, Fed Doubted Need to Act (with emphasis added):

More than five years later, the Fed continues to prop up the financial system, and the transcripts of the 2007 meetings, released after a standard five-year delay, provide fresh insight into the decisions made at the outset of its great intervention.

They show that Mr. Bernanke and his colleagues continued to wrestle with misgivings about the need for action, because at the time there was little evidence of a broader economic downturn. Several officials worried that the economy would instead overheat, causing inflation to rise. By December, as the Fed began to act with consistent force, the economy was already in recession.

Officials lacked clear information, relying on anecdotes like a reported conversation with a Wal-Mart executive who said Mexican immigrants were sending less money home. They were also limited by economic models that could not simulate the problems that seemed to be unfolding. […]

“Thereâ€s no guarantee whatsoever that this thing will do what weâ€re trying to do,” Donald Kohn, then the Fedâ€s vice chairman, said at a meeting later in August. As the Fed debated a strategy to encourage bank lending, he said, “I just think itâ€s worth giving it a try under the circumstances.”

But eventually, Mr. Bernanke and his colleagues concluded that they could see the future, that they did not like what they saw and that it was time to act.

“At the time of our last meeting, I held out hope that the financial turmoil would gradually ebb and the economy might escape without serious damage,” Janet L. Yellen, then president of the Federal Reserve Bank of San Francisco, said in December. “Subsequent developments have severely shaken that belief. The possibilities of a credit crunch developing and of the economy slipping into a recession seem all too real.”

That was the month later dated as the beginning of the recession.

In today’s speech, Yellen outlined the current economic woes in clear terms that began by explaining the reasons for the slow recovery. Nothing new here to regular readers, but still worth a look.

Yellen talks of the usual tailwinds that help the economy out of recession:

• fiscal policy (government spending),
• the lack of new residential investment,
• and confidence.

All of those were hampered by conditions this time. A few excerpts:

The first tailwind I’ll mention is fiscal policy. History shows that fiscal policy often helps to support an economic recovery. […]

However, discretionary fiscal policy hasn’t been much of a tailwind during this recovery. In the year following the end of the recession, discretionary fiscal policy at the federal, state, and local levels boosted growth at roughly the same pace as in past recoveries, as exhibit 3 indicates. But instead of contributing to growth thereafter, discretionary fiscal policy this time has actually acted to restrain the recovery. State and local governments were cutting spending and, in some cases, raising taxes for much of this period to deal with revenue shortfalls. At the federal level, policymakers have reduced purchases of goods and services, allowed stimulus-related spending to decline, and have put in place further policy actions to reduce deficits. I was relieved that the Congress and the Administration were able to reach agreement on avoiding the full force of the “fiscal cliff” that was due to take effect on January 1. While a long-term plan is needed to reduce deficits and slow the growth of federal debt, the tax increases and spending cuts that would have occurred last month, absent action by the Congress and the President, likely would have been a headwind strong enough to blow the United States back into recession. Negotiations continue over the extent of spending cuts now due to take effect beginning in March, and I expect that discretionary fiscal policy will continue to be a headwind for the recovery for some time, instead of the tailwind it has been in the past.

A second tailwind in most recoveries is housing. Residential investment creates jobs in construction and related industries. Before the Great Recession, housing investment added an average of 1/2 percentage point to real GDP growth in the two years after each of the previous four recessions, considerably more than its contribution to growth at other times.

During this recovery, in contrast, residential investment, on net, has contributed very little to growth since the recession ended. The reasons are easy to understand, given the central role that housing played in the Great Recession. […]

Beyond the direct effects on residential investment, the extraordinary collapse in house prices resulted in a huge loss of household wealth–at last count, net home equity is still down 40 percent, or about $5 trillion, from 2005.7 […]

Another important tailwind in most economic recoveries is one that tends to be taken for granted–the faith most of us have, based on history and personal experience, that recessions are temporary and that the economy will soon get back to normal. Even during recessions, households’ expectations for income growth tend to be reasonably stable, which provides support for overall spending. In the most recent recession, however, surveys suggest that consumers sharply revised down their prospects for future income growth and have only partially adjusted up their expectations since then.

In addition to noting these weak tailwinds that usually get us out of recession, Yellen also details a few headwinds:

The fiscal and financial crisis in Europe has resulted in a euro-area recession and contributed to slower global growth. Europe’s difficulties have blunted what had been strong growth in U.S. exports earlier in the recovery by sapping demand worldwide. […]

Long-term unemployment is also a great concern because it has the potential to itself become a headwind restraining the economy. Individuals out of work for an extended period can become less employable as they lose the specific skills acquired in their previous jobs and also lose the habits needed to hold down any job. Those out of work for a long time also tend to lose touch with former co-workers in their previous industry or occupation–contacts that can often help an unemployed worker find a job. Long-term unemployment can make any worker progressively less employable, even after the economy strengthens.

Yellen believes that our current high unemployment is cyclical, not structural. In other words, she thinks that an increase in aggregate demand will allow unemployment to come back to historical norms.

She details why she thinks Fed actions have been effective — even if not nearly as powerful as necessary to drive us toward a faster recovery.

Her conclusion:

It will be a long road back to a healthy job market. It will be years before many workers feel like they have regained the ground lost since 2007. Longer-term trends, such as globalization and technological change, will continue to pose challenges to workers in many industries.

Let me close with some words of encouragement. The job market is improving. The progress has been too slow, but there is progress. My colleagues and I at the Federal Reserve are well aware of the difficulties faced by workers in this slow recovery, and we’re actively engaged in continuing efforts to promote a stronger economy, more jobs, and better conditions for all workers.

And a few of the graphs from her talk:

With the 2012 state legislative session looming, I’m going to be hitting some of these notes repeatedly.

Regrettably, the state’s public and private leaders have done little to deal with the state’s employment crisis — many don’t even want to admit how bad our problems are.

For this post, I’m citing the Georgia Budget and Policy Institute’s State of Working Georgia 2011, a 15 page document that should be required reading for all Georgia’s state and local politicians.

Take a look at this table from the GBPI document:

As you can see, we added jobs quickly in the 1990s, ranking Georgia 7th among the states (plus the District of Columbia). But so far this century, Georgia has ranked 32nd in job growth, with the worst in the nation numbers since the “recovery” began in summer 2009.

I’ve written a lot, too, about income inequality, take a look at how that has played out over the last three decades in Georgia, with the top 20% increasing their average income by more than 30%, while the median income and lower wage workers have made far more modest gains (all numbers adjusted for inflation):

Georgia workers with college degrees have seen their wages increase by 33.2% since 1980, but those without college degrees have had pretty much stagnant incomes.

While Georgia’s 10.7% average unemployment for 2010 sounds bad enough, that’s only part of the data that should worry us. A stunning 30.8% of workers (including 39.7% of male workers) reported working part-time for economic reasons — in other words, they want more hours. A total of 17.9% of workers reported being underemployed. The recession has been particularly hard on men in the state, especially those in fields like construction and manufacturing.

The GBPI document makes a number of specific suggestions, including a bond for new projects that would foster growth, tax reform, continued aid to struggling workers, and increased skills retraining.

I’d suggest taking a look at the entire document: State of Working Georgia 2011; Georgiaâ€s Stalled Recovery Requires Forward-looking Solutions.

Non-discrimination laws and political clout in cities meant that blacks were hired in large numbers for solid government jobs at the state and local level. Laws requiring minority participation in government construction projects boosted the black private sector.

I’m generalizing here, of course, but it’s also the case that many members of the black middle class are relatively new to it — maybe the family’s status goes back a generation, maybe two. That means that many lack the inherited wealth that many members of the white middle class have — or will eventually have.

The recession, the slow recovery, and cuts in local and state government spending have thus taken a terrible toll on the black middle class.

I have followed these trends to some degree, although I’ve never written about them, and they have come up in the national media previously. But they have received particular attention in the last few days, in part because of new Census data.

From NPR and All Things Considered, Black Atlantans Struggle To Stay In The Middle Class:

The Center for Responsible Lending estimates that among recent borrowers, nearly 8 percent of both African-Americans and Latinos have lost their homes to foreclosure. (The rate for whites is 4.5 percent.) And losing a home is often a consequence of losing a job — as of Dec. 2, African-American unemployment is 15.5 percent, more than twice that of whites.

Nancy Flake Johnson, president of the Urban League of Greater Atlanta, says the bad economy has been devastating for all blacks, including college graduates.

“We’ve lost a third of the black middle class,” she says, citing a recent Urban League study.

From NPR:

From last month’s As Public Sector Sheds Jobs, Blacks Are Hit Hardest in the NYT:

Though the recession and continuing economic downturn have been devastating to the American middle class as a whole, the two and a half years since the declared end of the recession have been singularly harmful to middle-class blacks in terms of layoffs and unemployment, according to economists and recent government data. About one in five black workers have public-sector jobs, and African-American workers are one-third more likely than white ones to be employed in the public sector. [. . .]

Blacks have relied on government jobs in large numbers since at least Reconstruction, when the United States Postal Service hired freed slaves. The relationship continued through a century during which racial discrimination barred blacks from many private-sector jobs, and carried over into the 1960s when government was vastly expanded to provide more services, like bus lines to new suburbs, additional public hospitals and schools, and more.

But during the past year, while the private sector has added 1.6 million jobs, state and local governments have shed at least 142,000 positions, according to the Labor Department. Those losses are in addition to 200,000 public-sector jobs lost in 2010 and more than 500,000 since the start of the recession.

The Associated Press’ Census: Widening income gap as blacks leave cities tackles a different problem, as demographic shifts compound economic and cultural issues. The piece looks at the long-term trend of blacks moving back to the South — in some cases generations after their families left — and to suburbs:

Affluent black Americans who are leaving industrial cities for the suburbs and the South are shifting traditional lines between rich and poor, according to new census data. Their migration is widening the income gap between whites and the inner-city blacks who remain behind, while making blacks less monolithic as a group and subject to greater income disparities. [. . .]

The typical white person last year earned income roughly 1.7 times higher than that of blacks, the widest ratio since the 1990s. Census figures released Thursday show that cities such as Detroit, Chicago, Philadelphia, Cleveland and Milwaukee in particular saw increases in inequality, hurt by an exodus of middle-class minorities while lower-skilled blacks stayed in the cities.

Low-income blacks also slipped further behind. The share of black households ranking among the poorest poor — those earning less than $15,000 — climbed from 20 percent to 26 percent over the past decade; other race and ethnic groups posted smaller increases. At the same time, African-Americans making $200,000 or more a year were unchanged from 2000 at about 1.1 percent, even after a deep recession.

First off, there’s really no disputing that income inequality has been steadily increasing in America for decades. Wealth distribution inequality has increased too.

In terms of income, the highest 20% of households have increased their share of the overall income rather dramatically, as the graph below shows. That graph takes taxes into account.

From the Congressional Budget Office’s Trends in the Distribution of Household Income Between 1979 and 2007:

But the concentration of that increase in inequality has been among the top 1%. From the CBO:

For the 1 percent of the population with the highest
income, average real after-tax household income grew
by 275 percent between 1979 and 2007.

“Real” means inflation-adjusted. Those in the 81st to 99th percentile, by contrast, saw an increase of “only” 65%, but that was still far better than the next four quintiles:

Here’s what that looks like by year since 1979. It’s likely there was a big dip in the income of households in that top 1% during the 2007-2009 recession, but it has likely recovered just as it did after the recession a decade ago:

Econbrowser has a great post discussing some of these trends, including this:

Since 1995, the share of the top 1% has climbed to where the top 1% now earn significantly more than the bottom 50% combined. Despite the noticeable dips in the recessions of 2001 and 2007-2009, in 2009 the top 1% accounted for almost 17% of all the income reported.

The bottom 50% of earners accounted for only 12.8% of income in America in 2009.

The Econbrowser post discusses the progressive nature of income tax rates and the regressive nature of payroll taxes. Here’s the total federal tax burden in percentage terms for various income groups:

The federal taxes paid by that top 1% have been bouncing around some within our progressive tax structure, but right now they’re back at the level of 1990, according to James Hamilton at Econbrowser.

Given the data, Hamilton has this to say: “Trying to prevent an increase in tax rates on the richest 1% of Americans looks to me like a losing strategy for the Republicans.”

Btw, Paul Krugman makes a great point that we don’t really need to talk about the top 1% — an arbitrary number — when it’s really a much smaller cohort with the greatest gains. See: “We Are the 99.9%.” From that column:

If anything, however, the 99 percent slogan aims too low. A large fraction of the top 1 percentâ€s gains have actually gone to an even smaller group, the top 0.1 percent — the richest one-thousandth of the population.

The NYT has had several interesting pieces on this recently, as the press and the Census have struggled to come up with the best way to describe the “near poor.”

From today’s Older, Suburban and Struggling, ‘Near Poor†Startle the Census:

When the Census Bureau this month released a new measure of poverty, meant to better count disposable income, it began altering the portrait of national need. Perhaps the most startling differences between the old measure and the new involves data the government has not yet published, showing 51 million people with incomes less than 50 percent above the poverty line. That number of Americans is 76 percent higher than the official account, published in September. All told, that places 100 million people — one in three Americans — either in poverty or in the fretful zone just above it.[. . .]

Outside the bureau, skeptics of the new measure warned that the phrase “near poor” — a common term, but not one the government officially uses — may suggest more hardship than most families in this income level experience. A family of four can fall into this range, adjusted for regional living costs, with an income of up to $25,500 in rural North Dakota or $51,000 in Silicon Valley.

But most economists called the new measure better than the old, and many said the findings, while disturbing, comported with what was previously known about stagnant wages.

“Itâ€s very consistent with everything weâ€ve been hearing in the last few years about families†struggle, earnings not keeping up for the bottom half,” said Sheila Zedlewski, a researcher at the Urban Institute, a nonpartisan economic and social research group.

A few days ago, the NYT’s Middle-Class Areas Shrink as Income Gap Grows, New Report Finds detailed the “shrinking middle” — the increase in people living in either very affluent or relatively poor areas, as fewer Americans live in traditionally middle-class ones. From the piece:

In 2007, the last year captured by the data, 44 percent of families lived in neighborhoods the study defined as middle-income, down from 65 percent of families in 1970. At the same time, a third of American families lived in areas of either affluence or poverty, up from just 15 percent of families in 1970.

The study comes at a time of growing concern about inequality and an ever-louder partisan debate over whether it matters. It raises, but does not answer, the question of whether increased economic inequality, and the resulting income segregation, impedes social mobility.

Much of the shift is the result of changing income structure in the United States. Part of the countryâ€s middle class has slipped to the lower rungs of the income ladder as manufacturing and other middle-class jobs have dwindled, while the wealthy receive a bigger portion of the income pie. Put simply, there are fewer people in the middle.

A graphic from the article shows that these have been longterm trends:

We’re not just looking at an economic problem here, but at a geographical one that impacts all sorts of public services, from road building to law enforcement, from transit needs to property taxation. This study, by the way, looked at data through 2007. It’s very likely that these trends have been exacerbated since the recession began at the end of 07.

Recently, there have been a couple of Wall Street Journal blog posts by Robert Frank dealing with income and wealth disparity in relatively recent U.S. history: The Wealthiest 5% Grabbed Most of the Americaâ€s Gains and Are the Rich Grabbing More of the Income Pie?

The second of those posts includes this fascinating graph of the percent of total income that goes to the top 1% of earners:

As you can see, the percentage of income going to the top 1% was high before the Great Depression but then hovered at about 10% for many years, before the long-term trend upward in recent decades. The precipitous fall of 2008 and 2009 is directly related to the financial crisis — hedge fund managers and other top earners saw steep declines in some cases. I’d look for that line to bounce back up for both 2010 and 2011, since the stock market has recovered significantly (although it’s still well below the 2007 peak).

Frank’s post about wealth disparity includes this graph:

Note that the data is for increases in wealth, not for the overall amount of wealth. Still, it’s a striking graphic that shows clearly where gains in overall wealth are going.

Frank writes:

According to the Federal Reserveâ€s Surveys of Consumer Finance, the top 5% controlled 60% of the nationâ€s wealth as of 2007 (the latest period available), up from 54.2% in 1987. So their total share of wealth only went up by 6 percentage points , or a little over 10% in relative terms.

The share of the bottom 50% declined from 3% to 2.5%.

That’s right: 50% of Americans hold just 2.5% of our wealth, while the top 5% have 60%. That last number probably slipped a little with the collapse in stocks, but is likely going to continue on the long-term upward trend.

Again, from Frank:

This is dismal news, of course, and highlights once again the rise in inequality and the increasingly top-heavy nature of the global economy. Itâ€s also hard to label it as a “Republican” phenomena, since the time frame includes Clinton administrations.

As long as we have such a “top-heavy” economy, we’re going to be fighting uphill battles in terms of education, quality of life, neighborhood revitalization, infrastructure spending, and on and on and on. Frank uses the word “global” here, but there are allies of ours who do not have such radical disparities.

Looking at this hard data, it seems very difficult to argue that ordinary workers’ wages are too high or that we need lower taxes on wealthier Americans. A consumer-based economy seems like it will be facing a tough future if so many Americans have so little of the nation’s wealth to spend, save, and invest.

My post is here: Some numbers regarding job growth in Texas.

Over the last couple of days, there have been interesting analyses of the data in the Washington Post. Perry criticizes government while Texas job growth benefits from it includes this key info:

Between December 2007 and last June, private-sector employment in Texas declined by 0.6 percent, while public-sector jobs increased by 6.4 percent, according to the federal Bureau of Labor Statistics. Overall, government employees account for about one-sixth of the workers in Texas.

And:

Analysts call the growth in government employment in Texas a natural consequence of the stateâ€s surging population, which has grown by more than 20 percent in the past decade to 25.1 million. That increase has caused local governments and school systems to hire more teachers, budget analysts, compliance officers and police officers.

“A lot of growth has been happening in the public sector to respond to a growing population,” said Don Baylor Jr., a senior policy analyst with the Center for Public Policy Priorities, a research and advocacy group in Austin. “That has been an ongoing driver of our job growth.”

And:

The Texas economy also has benefited from the huge sums spent by the federal government. The state is home to several large military installations as well as NASA, which helped Texas reap more than $227 billion in federal spending in 2009 — more than double its 2001 total, according to the Census Bureau.

The piece also notes the generally poor rankings that Texas has in basic quality-of-life measures:

More than a quarter of the stateâ€s population lacks health-care coverage. Texas is last in the country when it comes to the number of adults with high school diplomas. It also 44th in the country in school spending per pupil, and its rate of income inequality is the ninth- highest in the country.

The Census Bureau says that 9.5 percent of the Texas workforce is paid at or below the federal minimum wage of $7.25 an hour, tying it with Mississippi for the largest share of minimum-wage workers in the country.

The piece also explores the tight regulations at the state level that prevented Texas from inflating as a housing bubble as many other states did.

Suzy Khimm in the WashPo asks: How much did illegal immigrants contribute to Texas’ economic boom? I have long argued that illegal immigration provides all sorts of intangible economic benefits that cannot easily be quantified and that are generally missed in estimates of the amount of strain those immigrants place on state services.

From the piece:

Illegal and legal immigrants make up about 20 percent of the stateâ€s total workforce, according to the U.S. Census Bureau. And the Pew Hispanic Center estimates that 8 percent of Texas†total workforce was made up of illegal immigrants as of 2008. [. . .]

In 2006, the Texas state comptroller, a Republican, released a study showing that illegal immigrants produced more in state revenues than they received in state services in the previous year: “Undocumented immigrants produced $1.58 billion in state revenues, which exceeded the $1.16 billion in state services they received.” (The study also notes that “local governments bore the burden of $1.44 billion in uncompensated health care costs and local law enforcement costs not paid for by the state,” without providing figures about local revenues that these immigrants generated.) The comptroller estimated, moreover, that the Texas workforce would decline by 6.3 percent without the illegal immigrant population, even accounting for new arrivals that would most likely come to replace them.

There seems to be a growing sense that the unwinding of federal stimulus spending and recent state government revenue shortfalls — and the attendant cuts in jobs — will put considerable strain on the Texas jobs picture. Texas is one of only three states that reached its post-recession maximum in July.

Both these pieces are highly recommended.