Sunday, August 24, 2014

Two stories on net worth loss by the poor, and minimum wage loss from inflation

I found a couple of stories that I wanted to comment on.  The first is this story by Kevin Drum, showing a real eye-opening chart on the Great Recession's impact on the poor:

Graph showing median household net worth from 2000 -- 2011.  From Kevin Drum.

If you look at the chart, Kevin shows that the net worth of the poor has dropped in a ten-year period, from zero to around -$6,000.  In fact, the median net worth has dropped for what is essentially the poor, the working, and possibly the middle class households.  Upper middle class households made some gains in their median net worth, while the extreme rich have taken huge gains in their net worth.  According to the Census Bureau report:

Between 2000 and 2011, experiences of households varied widely depending on their net worth quintile (See Figure 1). Median household net worth decreased by $5,124 for households in the first (bottom) net worth quintile,2 $7,056 (or 49.3 percent) for the second quintile, and $5,072 (or 6.9 percent) for the third quintile. Median household net worth increased by $18,433 (or 9.8 percent) for households in the fourth quintile, and by $61,379 (or 10.8 percent) for households in the highest (top) quintile (See Tables A1-A2 and Figure 2).

The distribution of net worth became more spread out between 2000 and 2011. The ratio of median net worth of the highest quintile to the second quintile increased from 39.8 to 86.8 between 2000 and 2011, and the ratio of the highest quintile to the third quintile increased from 7.7 to 9.2. The ratio of the highest quintile to the fourth quintile was 3.0 in 2000 and showed no statistically significant change over this period (See Figure 3).

Between 2010 and 2011, the ratio of median net worth of the highest quintile to the second quintile decreased by 3.85 percentage points, and the ratio of the highest quintile to the third quintile decreased by 0.25 percentage points.The ratio of the highest quintile to the fourth quintile showed no statistically significant change over this period.
The second story that I found is through The Daily Kos, showing a couple of calculator clocks on how much minimum wage workers have lost in pay due to inflation.  These clocks were created by The Center for Economic and Policy Research:

In a sense, both stories complement each other.  If you think about it, the poor are really the minimum wage workers in this country, living on paycheck-to-paycheck.  With the minimum wage remaining in stagnation for almost 30 years, these workers have lost anywhere between $3 to $6 trillion worth of wages due to inflation--whichever way you measure that loss.  These poor workers are the ones that are going to spend much of their paycheck on the goods and services that power the U.S. economy.  But with inflation eroding the minimum wage over a long period of time, and the double whammy of the Great Recession slamming into the poor, they are no longer living from paycheck-to-paycheck, but are falling behind.  They are no longer purchasing the goods and services that make up the U.S. economic growth.  And that creeping of the loss of household net worth and loss of wages due to inflation is moving up through the working and middle class.  

What we end up having is a lack of demand in the U.S. economy.  The loss of household net worth, coupled with the wage stagnation and loss through inflation, means that nobody has any money to spend on goods and services.  Or they are only spending on the bare necessities, such as food and shelter, but no extra goods, services, or luxuries.  The only group that seems to have the money to spend are the extreme rich, where businesses are catering to their tastes.  But there is only so much goods and services that the rich can buy--the rest of the money will have to be parked into more bank accounts, and invested in the Wall Street gambling casino, to generate even more income inequality for the extreme rich.  The rich get richer, the poor get poorer, and nobody will have any more money to spend--not just on goods and services, but even the basic necessities.  It is a system that is unsustainable.

Sooner or later, that system is going to collapse.

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