New Data Show Increasing Income Inequality

Data on income inequality from the CBO do not extend past 2003 so we haven't been able to say too much about changes in the income distribution since then. However, new data reviewed by the Center on Budget and Policy Priorities overcomes this and allow changes in the income distribution between 2003 and 2004 to be examined. The data show that there was a large increase in income concentration between 2003 and 2004:

New Data Show Extraordinary Jump in Income Concentration in 2004, by Aviva Aron-Dine and Isaac Shapiro, CBPP: Economists Thomas Piketty and Emmanuel Saez have recently made available an updated version of their groundbreaking data series on U.S. income inequality. The data are unique because of the detailed information they provide regarding income gains at the top of the income spectrum, and also because they extend back to 1913.  ... The Piketty and Saez data offer the first real snapshot of income trends among those at the pinnacle of the income spectrum in 2004.  The data show that income gains between 2003 and 2004 were particularly large for those at the very top of the income spectrum, resulting in a nearly unprecedented one-year increase in income concentration...:

• From 2003 to 2004, the average incomes of the bottom 99 percent of households grew by less than 3 percent, after adjusting for inflation.  In contrast, the average incomes of the top one percent of households experienced a jump of almost 17 percent, after adjusting for inflation.  (Census data show that real median income fell between 2003 and 2004.  ...[T]he 3 percent rise among the bottom 99 percent seems to largely reflect gains by households in the top quintile of the income spectrum...)
• The top one percent of households garnered 36 percent of the income gains in 2004.
• This disparity produced an exceptional jump in income concentration in 2004.  The share of the pre-tax income in the nation that goes to the top one percent of households increased from 17.5 percent in 2003 to 19.5 percent in 2004.  Only five times since 1913 (the first year that this data set covers), and only twice since World War II has the top one percent’s share risen by as much in a single year (in percentage point terms).  Each percentage point of income is equivalent to $68 billion in 2004.
• The share of total U.S. income that the top one percent of households received in 2004 was greater than the share it received in any prior year since 1929, except for 1999 and 2000.

Income gains were even more pronounced among those with the very highest incomes.  The incomes of the top one-tenth of one percent of households grew more rapidly than the incomes of the top one percent of households.  The share of the national income received by the top one tenth of one percent of households increased by 1.3 percentage points from 2003 to 2004; in other words, more than half of the increased share of income going to the top one percent of households actually went to the top one-tenth of one percent of households. ...

The new data from Piketty and Saez are fully consistent with other indicators that suggest the distribution of the economic gains from the current recovery has been very uneven.  In May 2006, CBO suggested that continued growth in income inequality may be one cause of the recent rapid growth in federal revenues. Increases in income inequality boost revenue growth, in part because high-income households are subject to higher federal income tax rates than are households of lesser means...

Supply-side tax cuts consistent with trickle up economics seem to be working well, though trickle might be a bit mild as a description.

Comments

[Bruce Wilder]

I'm sure it is all a complex result of changing technology and globalization trends, not something anyone is responsible for, or could do anything about, just the free market in action. Nothing to see, here, folks, just move along. Pay no attention to the man behind the curtain.

Oh, and kids, stay in school. Education: that's the ticket.

[Winslow R.]

Income concentration due to 'optimal' ability is not a 'bad' thing.

Democrats need evidence that the current income concentration has little to do with 'optimal' ability and more to do with the 'suboptimal' ability to regulate their competitors, to push their unregulated costs onto the broader society or perhaps keeping their competitors 'untalented'.

If the current concentration of income comes from the talent to create wealth under optimal regulations, then there is little gripe as income concentration allows talented people access to increased resources in which to use their talents for the benefit of all.

[anne]

http://www.nytimes.com/2006/07/09/washington/09econ.html?ex=1310097600&en=ec2f2425a9899725&ei=5090&partner=rssuserland&emc=rss

EDMUND L. ANDREWS:

Despite almost five years of economic growth, individual tax receipts have yet to reach the levels of 2000. Even with surging payments for investment profits and business income, individual tax payments in 2005 were only $972 billion — below the $1 trillion reached in 2000, even without adjusting for inflation.

Over all, individual and corporate taxes have lagged well behind the economy's growth over the past five years. Government spending, by contrast, mushroomed far faster than the economy....

Compared with the size of the economy, tax revenues are still below historical norms and far below what the administration predicted as recently as 2003.

Tax receipts amounted to about 17.5 percent of the nation's gross domestic product in 2005, far below the level five years ago and still slightly below the average of 18 percent since World War II. Spending, by contrast, is running at about 20 percent of gross domestic product ....

[anne]

http://www.nytimes.com/2006/07/09/washington/09econ.html?ex=1310097600&en=ec2f2425a9899725&ei=5090&partner=rssuserland&emc=rss

One reason for the increased volatility [in tax revenue] may be that a large share of income taxes is now paid by the nation's wealthiest families, and their incomes are based much more on the swings of the stock market than on wages and salaries.About one-third of all income taxes are paid by households in the top 1 percent of income earners, who make more than about $300,000 a year. Because those households also earn the overwhelming share of taxable investment income and executive bonuses, both their incomes and their tax liabilities swing sharply in bull and bear markets....

[anne]

Imagine my surprise, for who could ever have guessed that income and wealth inequality would grow so over these last fruitful years? Remember though, the tax system was further skewed to the wealthiest since 2004, but who knows what that might mean :)

[anne]

Forgive me, it's talent, all talent, the rich are everywhere become so much more talented lately. No wonder I date "up" :)

[save_the_rustbelt]

"...If the current concentration of income comes from the talent to create wealth under optimal regulations,..."

You mean like the high salaries and perks for the guys who screwed up K-Mart, GM, Ford, Delphi,.......

[save_the_rustbelt]

Seriously now, this has much more to do with globalization than with Bush's screwed up tax system.

Ohio and Michigan have been losing manufacturing jobs since 1995, and the best numbers I can find suggests we have been shedding jobs worth about $47,000 a year and creating jobs worth about $28,000 a year.

Bill Clinton (and I suspect a hoard of economists) told us the manufacturing jobs would quickly be replaced by high value tech and high value service jobs. Bull fertilizer.

This problem is deeper and wider than Bush and his tax cuts.

[stunster]

High income folks became dramatically better at creating wealth in recent years.

They became much better, for example, at cutting real wages and benefits for non-supervisory employees and transferring production to countries with low wages and low health, safety, labor and environmental standards.

This made corporations more profitable. Even where it didn't, it still didn't matter because the high income folks have become much, much better at tearing down the link between compensation and performance among their own.

So, you see this increasing inequality is quite justified.

[Movie Guy]

save_the_rustbelt - "Bill Clinton (and I suspect a hoard of economists) told us the manufacturing jobs would quickly be replaced by high value tech and high value service jobs. Bull fertilizer."

I seem to recall that explanation. Plus some more bull fertilizer.

Selling out the lower to mid level Middle Class citizens has become an art.

Yes, sir, we got us a plan.

[Dirk van Dijk]

Rusty,
It is true that tech change and globalization have lead to more of a winner take all world. This is exactly the reason why we should not be reinforcing these trends with tax cuts on the wealthiest. From the straight point of view of keeping the economy humming we need a wide distribution of income. After all how may major waher/dryers can Bill Gates use, how many resturants can he go to, how many cell phones does he need etc. The trend towards more inequality has been going on for a long time, b4 even Clinton came to office. However it is an important role of government to make sure that the trend towards more inequality does not go to far. This is above and beyond any moral arguments that might be made about starving beggars outside the gates of the mansions.

[Winslow R.]

"So, you see this increasing inequality is quite justified. "

So far, given the fact the broad electorate have given Republicans more not less power, increasing inequality seems to be 'justified'.

Can Democrats accept the income distribution can be too flat as well as too concentrated? Is there a discussion about what an 'optimal' distribution would be?

""...If the current concentration of income comes from the talent to create wealth under optimal regulations,..."

You mean like the high salaries and perks for the guys who screwed up K-Mart, GM, Ford, Delphi,....... "

I'd classify the concentration in income from these sources as "the 'suboptimal' ability to regulate their competitors" as well as a general lack of power between shareholders vs. the CEO/BOD.

[save_the_rustbelt]

Dirk:

I wasn't defending Bush, his tax cuts or his bizatrro economics.

There are wider issues though and the slide really started with NAFTA.

[save_the_rustbelt]

"Income concentration due to 'optimal' ability is not a 'bad' thing."

Income concentration due to the wealthy owning the government is a bad thing, whether it is the Clinton/Rubin government or the Bush/Paulson government.

[Winslow R.]

"Income concentration due to the wealthy owning the government is a bad thing, whether it is the Clinton/Rubin government or the Bush/Paulson government."

I'd agree but what proof is there that anyone 'owns' government except the people that bother to vote?

[stunster]

"Can Democrats accept the income distribution can be too flat as well as too concentrated? Is there a discussion about what an 'optimal' distribution would be?"

How about the distribution we had during the postwar boom when the American middle class expanded enormously?

At any rate, it's a long, long, long way from being 'too flat' now.

[Winslow R.]

"How about the distribution we had during the postwar boom when the American middle class expanded enormously?

At any rate, it's a long, long, long way from being 'too flat' now."

Are you sure? Flattening America's income structure would likely lead to more Humvee's, bigger boats, more sprawl, etc. The 50's were inefficient at using many commodity resources until the 70's crunch. We have now reached the 00's crunch with potential global warming and what would flattening income do to help? Things like health care and education tend to be areas limited by labor rather than physical resources.

Just thinking.

[anne]

http://www.nytimes.com/2005/06/06/opinion/06herbert.html?ex=1275710400&en=c03b1056decb6b77&ei=5090&partner=rssuserland&emc=rss

June 6, 2005

The Mobility Myth
By BOB HERBERT

The war that nobody talks about - the overwhelmingly one-sided class war - is being waged all across America. Guess who's winning....

The gap between the rich and everybody else in this country is fast becoming an unbridgeable chasm. David Cay Johnston, in the latest installment of the New York Times series "Class Matters," wrote, "It's no secret that the gap between the rich and the poor has been growing, but the extent to which the richest are leaving everybody else behind is not widely known."

Consider, for example, two separate eras in the lifetime of the baby-boom generation. For every additional dollar earned by the bottom 90 percent of the population between 1950 and 1970, those in the top 0.01 percent earned an additional $162. That gap has since skyrocketed. For every additional dollar earned by the bottom 90 percent between 1990 and 2002, Mr. Johnston wrote, each taxpayer in that top bracket brought in an extra $18,000.

It's like chasing a speedboat with a rowboat.

Put the myth of the American Dream aside. The bottom line is that it's becoming increasingly difficult for working Americans to move up in class. The rich are freezing nearly everybody else in place, and sprinting off with the nation's bounty.

Economic mobility in the United States - the extent to which individuals and families move from one social class to another - is no higher than in Britain or France, and lower than in some Scandinavian countries. Maybe we should be studying the Scandinavian dream.

As far as the Bush administration is concerned, the gap between the rich and the rest of us is not growing fast enough. An analysis by The Times showed the following:

"Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000. Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000."

The social dislocations resulting from this war that nobody mentions have been under way for some time. But the Bush economic policies have accelerated the consequences and intensified the pain....

[anne]

http://www.nytimes.com/2005/06/05/national/class/HYPER-FINAL.html?ex=1275624000&en=f1af44c9cec8c79e&ei=5090&partner=rssuserland&emc=rss

June 5, 2005

Richest Are Leaving Even the Rich Far Behind
By DAVID CAY JOHNSTON

Draw a line under the top 0.1 percent of income earners - the top one-thousandth. Above that line are about 145,000 taxpayers, each with at least $1.6 million in income and often much more.

The average income for the top 0.1 percent was $3 million in 2002, the latest year for which averages are available. That number is two and a half times the $1.2 million, adjusted for inflation, that group reported in 1980. No other income group rose nearly as fast.

The share of the nation's income earned by those in this uppermost category has more than doubled since 1980, to 7.4 percent in 2002. The share of income earned by the rest of the top 10 percent rose far less, and the share earned by the bottom 90 percent fell.

Next, examine the net worth of American households. The group with homes, investments and other assets worth more than $10 million comprised 338,400 households in 2001, the last year for which data are available. The number has grown more than 400 percent since 1980, after adjusting for inflation, while the total number of households has grown only 27 percent.

The Bush administration tax cuts stand to widen the gap between the hyper-rich and the rest of America. The merely rich, making hundreds of thousands of dollars a year, will shoulder a disproportionate share of the tax burden.

President Bush said during the third election debate last October that most of the tax cuts went to low- and middle-income Americans. In fact, most - 53 percent - will go to people with incomes in the top 10 percent over the first 15 years of the cuts, which began in 2001 and would have to be reauthorized in 2010. And more than 15 percent will go just to the top 0.1 percent, those 145,000 taxpayers.

The Times set out to create a financial portrait of the very richest Americans, how their incomes have changed over the decades and how the tax cuts will affect them. It is no secret that the gap between the rich and the poor has grown, but the extent to which the richest are leaving everyone else behind is not widely known.

The Treasury Department uses a computer model to examine the effects of tax cuts on various income groups but does not look in detail fine enough to differentiate among those within the top 1 percent. To determine those differences, The Times relied on a computer model based on the Treasury's. Experts at organizations representing a range of views, including the Heritage Foundation, the Cato Institute and Citizens for Tax Justice, reviewed the projections and said they were reasonable, and the Treasury Department said through a spokesman that the model was reliable.

The analysis also found the following:

¶Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000.

¶Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000.

¶The alternative minimum tax, created 36 years ago to make sure the very richest paid taxes, takes back a growing share of the tax cuts over time from the majority of families earning $75,000 to $1 million - thousands and even tens of thousands of dollars annually. Far fewer of the very wealthiest will be affected by this tax.

The analysis examined only income reported on tax returns. The Treasury Department says that the very wealthiest find ways, legal and illegal, to shelter a lot of income from taxes. So the gap between the very richest and everyone else is almost certainly much larger.

The hyper-rich have emerged in the last three decades as the biggest winners in a remarkable transformation of the American economy characterized by, among other things, the creation of a more global marketplace, new technology and investment spurred partly by tax cuts. The stock market soared; so did pay in the highest ranks of business.

One way to understand the growing gap is to compare earnings increases over time by the vast majority of taxpayers - say, everyone in the lower 90 percent - with those at the top, say, in the uppermost 0.01 percent (now about 14,000 households, each with $5.5 million or more in income last year).

From 1950 to 1970, for example, for every additional dollar earned by the bottom 90 percent, those in the top 0.01 percent earned an additional $162, according to the Times analysis. From 1990 to 2002, for every extra dollar earned by those in the bottom 90 percent, each taxpayer at the top brought in an extra $18,000....

[Blissex]

«Supply-side tax cuts»

I am not sure those even matter much to this discussions, because I think the numbers are pre-tax; this is not clearly said, but there is this little random statement:

«The share of the pre-tax income in the nation»

Income tax is still somewhat progressive, so probably the curve flattens a bit after tax, but putting in all taxes I suspect that it has the same shape.

«trickle up economics»

Ahhhhh This is such a beautiful concept, surely so much better than ''trickle down''. Hehehehe. :-( Yes, that's about that is happening.

[Mark Thoma]

From Brad DeLong: Is Inequality a Concommitant of Rapid Growth?Greg Mankiw writes to the New York Times:To the Editor:

Your chart about the percentage of income earned by the top 0.1 percent of taxpayers was fascinating, but Richest Are Leaving Even the Rich Far Behind failed to draw the obvious conclusions from it.

The data show that the rich take a rising share of income when the economy is booming, such as during the 1920's and 1990's. Their share declines when the economy hits hard times, such as during the Great Depression and the most recent recession.

The rich took their smallest slice of the economic pie during the 1970's - a period when productivity growth was low and unemployment and inflation were rising.

Here's the lesson: If policy makers' primary goal is to reduce income inequality, they should put the economy through the wringer. But if they want economic prosperity for all, they should avoid focusing on the politics of envy.

N. Gregory Mankiw
Cambridge, Mass., June 5, 2005

The writer, a professor of economics at Harvard University, was chairman of President Bush's Council of Economic Advisers, 2003-2005.Well, let's see. Let's take the state-of-the-art data on income inequality from Emmanuel Saez and Thomas Piketty (2003), Income Inequality in the United States, 1913-1998, Quarterly Journal of Economics 118:1 (February, pp. 1-39) (http://emlab.berkeley.edu/users/saez/pikettyqje.pdf),
and plot it against the previous ten years' growth in GDP per capita from eh.net
(http://eh.net/hmit/gdp/gdp_question.php):

Graph 1

The rich do take a rising share during the 1920s and 1990s, but growth income per capita was no faster in the 1990s as a whole than in the 1980s and 1970s--it was only the last half of the 1990s that saw rapid growth. And the fastest-growth decades of all are the 1960s--with a low share of income inequality--and the 1940s (driven by recovery from the Depression and the high-pressure economy of World War II).

The correlation between economic growth--defined as ten-year growth in GDP per capita--and income inequality that Greg Mankiw asserts exists? I certainly cannot see it in the data.

But maybe I'm wearing the wrong-colored glasses :-).

Graph 2

[dryfly]

Like this report was a surprise... kinda like reading the reports about 'celebrations' in Italy after the Cup. Imagine that.

I do side with STRB - this event is more about globalization than about taxes... though tax cuts just makes the winner feel even better - like getting two medals instead of only one.

I was at a neighborhood bbq a couple weeks ago and told a friend (very well educated person - reads Friedman religiously) that the net effect of globalization will be that the median North American family will see a fall in income of something like 80% over the next generation but that the average will hardly budge. The same amount of wealth will be here only we won't have any of it.

I told him that was my WAG of where 'the dilution rate' of American workers into China & India will stop. I said their incomes there will rise a lot - true to Friedman gospel - but the meeting point won't be ANYWHERE close to where our middle class is now - not in 'purchasing parity' terms.

My buddy got real quiet and then got us both another drink. Cheers.

[Blissex]

«Income concentration due to 'optimal' ability is not a 'bad' thing.»

Perhaps it is a bad thing politically more than economically.

«Democrats need evidence that the current income concentration has little to do with 'optimal' ability»

But there is no need of such evidence: markets are not perfectly free, and the ''second best theorem'' voids the presumption that resource allocation and factor compensation is optimal.

Even in samuelsonian economics factor prices reflect their productivity only if all assumptions are met. If any one is not met met in full, there is no guaranteed relationship between productivity and factor prices.

«If the current concentration of income comes from the talent to create wealth under optimal regulations,»

Given that theory cannot help as to this, the burden of proof shifts quite a bit to those who handwave with zeal along these lines.

It would be interesting for example to look at this historical graph:
http://WWW.CBPP.org/7-10-06inc-f1.jpg

and explain why ever:

* The talent of the top 1% of income earners has been growing faster than GDP for the past 10-15 years. Note that the discussion is not that the top 1% have become better, but that they have done so at a rate faster than GDP, so that their share of GDP has increased.

* The talent of the top 1% has much more than doubled in 15 years (their share has doubled, but at the same time GDP has grown a lot too). What have the top 1% of earners been doing until 1990?

* The talent of America's management was so much lower than now in the 50s and 60s that despite a booming economy they deserved half the share of GDP they get now.

«then there is little gripe as income concentration allows talented people access to increased resources in which to use their talents for the benefit of all.»

The «benefit of all» has to be proven, not handwaved. Remember that inconvenient ''second best theorem''?

[anne]

The Piketty-Saez income divergence study is most important, extensive and complete through 2004. If I properly understand the implications the pronounced move to income inequality will continue at a rapid rate indefinitely, since the skew in taxes to the wealthiest is increasingly taking effect.

Thomas Piketty and Emmanuel Saez, "Income Inequality in the United States: 1913-1998," Quarterly Journal of Economics, February 2003, http://elsa.berkeley.edu/~saez/pikettyqje.pdf.

The updated data series is available at http://elsa.berkeley.edu/~saez/TabFig2004prel.xls.

[bakho]

What you get is what you see
It's a trickledown theory
And it's coming to me
Life's a whip round
And I've got the whip
It's a sinking ship
Drip, drip, drip

Drip, drip, drip goes the water

Take me in
Throw me out
Put me up
Let me down

Drip, drip, drip goes the water

-Chumbawamba

[Blissex]

«I'd agree but what proof is there that anyone 'owns' government except the people that bother to vote?»

Well, there is no photograph of GWB with his trousers down and a line of Chambers of Commerce presidents ready to get what they paid for :-).

But circumstantial evidence looms large in the mind of the prejudiced, and a large part of it is the considerable influence that campaign donors and lobbysts have had on policy and lawmaking. Nothing new there, but when it gets all too obvious deluded people start to see things that are obviously not there... An interesting example:

http://LawProfessors.typePad.com/laborprof_blog/2006/06/the_job_magnet_.html

«Between 1999 and 2003, work-site enforcement operations were scaled back 95 percent by the Immigration and Naturalization Service, which subsequently was merged into the Homeland Security Department.

The number of employers prosecuted for unlawfully employing immigrants dropped from 182 in 1999 to four in 2003, and fines collected declined from $3.6 million to $212,000, according to federal statistics.

In 1999, the United States initiated fines against 417 companies. In 2004, it issued fine notices to three.»

Now I am sure that nobody will produce a written directive from the Restaurant Association of America ordering the President to stop wasting government resources on such antiamerican activities, but the ill-informed may maliciously imagine something similar... :-)

[hj]

Acquaintance of mine, doesn't work of course,---lives from investments,---had an income of around $900,000 last year on which he paid a federal tax of about $70,000. Funny thing is that he hates Bush and thinks him the worst President ever.

[Blissex]

«Bill Clinton (and I suspect a hoard of economists) told us the manufacturing jobs would quickly be replaced by high value tech and high value service jobs. Bull fertilizer.»

But it happened, for a decade or so, just not in the Rustbelt, but elsewhere. During the 1995-2000 boom a lot of people were given huge salaries and options in tech and services.

Then the boom in hihg value tech and services continued unabated, but in India and in China. Just a slight change of location...

Sure, Clinton/Rubin were a bit too too good at ''triangulating'', here is my usual on target Doonesbury:

http://images.UComics.com/comics/db/1996/db961123.gif

«This problem is deeper and wider than Bush and his tax cuts.»

Certainly so, and the tax cuts I think are nowhere as important as the rest of his agenda, at least in the short term.

But a lot of things changed around 1990-1995. In part perhaps the end of the Cold War and the opening of half the world to trade with the OECD countries, in part the end of Communism and the need to keep the home front happy.

In part perhaps it was unions overreaching in the 70s and 80s and losing the trust of most of the population. I think that Reagan's handling of the ATC strikers and Thatcher's handling of the miner strikers were important moments in the political climate.

In part perhaps what Bruce Bartlett pointed out: that the Republicans got the smartest operators, who have been able to sell their message(s) a lot better.

In part perhaps that Johnson's ''betrayal'' of the southern racist vote shifted a huge and critical block of votes to the Republicans over twenty years.

In part perhaps the wealthy have read and absorbed Ayn Rand's teachings that the parasitical poor exploit them, and that fighting back is moral.

But I personally think that the biggest factors have been geopolitical, because the shift has happened in many countries just about at the same time, I'll post again this graph from the Economist that shows that the top 1% share of income started to rise fast in other countries too and roughly at the same time in the same way:

http://WWW.Economist.com/images/ga/2006w13/Buttonwood.gif

[anne]

Income concentration appears to have been reasonably constant from 1945 to 1980 and to have increased fairly steadily and rapidly from 1980 to the present. Wealth concentration will relate directly to income concentration. The 2 periods of significant stock market turmoil since 1980 appear to have slowed income concentration. My sense is that since tax law has further skewed in favor of the wealthiest since 2004, we will find increasing inequality in the coming years; inequality that will take us to 1929 levels.

[vorpal]

Do people exist to serve the economy, or does the economy exist to serve the people? Certainly, growth in productivity serves the people, but is it desirable or necessary to sacrifice a sense of equity in order to achieve growth.

There is growing instability in the US. The cause is simple, the working class has abandoned the Democratic party for the Republican party. They did this because the Democratic party has been inflexible towards the large and growing religious movement among the working class. The Republicans have wisely wooed this group into their fold by supporting their religious values in public policy. This has become the populist message of the Republican party. This has allowed them to secure power in the democracy, so they may pursue their pro-business/exploitation agenda.

Ironically, the very same people who provide the populist support to Republicans, also suffer the most from the consequences of the Republican economic agenda.

Those coal miners who died in West Virginia come to mind as an example. Those townspeople prayed their heads off that night. no doubt most voted for compassionate-conservative, George Bush. But it was the Bush administrations laissez-faire policies that led to lax mining safety enforcements, and ultimately to the death of their loved ones.

These people have nobody to turn to. The Democrats call them a bunch of religious hicks, and the Republicans stick it to them economically.

That's the way it is.

[Neo]

Well said vorpal.

[bakho]

Income concentration is the norm. The more even distribution of income after WWII was in part due to concessions made to workers and unions to shut the door on communism and socialism.

There were HUGE subsidies given to the poor and middle class in the form of the GI Bill that subsidized college educations and houses for millions who otherwise would not have afforded them. Since the 60s there has been no such subsidy.

[Blissex]

«Ohio and Michigan have been losing manufacturing jobs since 1995, and the best numbers I can find suggests we have been shedding jobs worth about $47,000 a year and creating jobs worth about $28,000 a year.»

That sounds about right, and not that major a hit. Sure, it is a harsh fall, and probably means losing your home if it is not fully paid for, but at least there are some jobs and they pay quite a bit better than minimum wage; compare with Tennessee or Alabama or Virginia. Hey, I am reminded of this very nice essay that won the Shell/Economist prize in 2004:

http://www.shelleconomistprize.com/winners2004_frame.html

«I’m currently stuck living in job poor West Virginia. With the exception of the occasional social worker position advertised at $19K a year, the positions listed in my local paper pay $6 or less per hour. When I held one of the area’s top professional jobs, as a 70-hour-per-week PR director for an arts organization, I earned just $1103 each month after taxes, no health insurance, no benefits.

I understand too well the desire of unemployed and low-wage workers throughout the world who will make any sacrifice necessary, even to the point of moving some place where they are resented and vilified, in order to find work. I sympathize with the talented and skilled employees in India and Russia who are currently gobbling up my country’s offshored tech jobs. Given these nations’ past and current struggles with poverty or economic turmoil, I would do exactly as they are doing.

Unfortunately, few companies want to outsource quality jobs to West Virginia. Though I’ve spent the last two years trying to put together the $3,000 necessary to move myself and my mother, Grapes of Wrath-style, to another state with decent employment, I can’t even manage to keep our utilities and rent current.»

The real impact on the Rustbelt has been rather than the lowering of salaries, the extended periods of unemployment many have suffered; these statistics we have already seen in this blog are a lot scarier:

http://EconomistsView.typePad.com/economistsview/2006/05/the_increasing_.html
«For all age groups except those 70 and older, the odds of a temporary spell of poverty doubled in the 1990's... For example, during the 1980's, around 13 percent of Americans in their 40's spent at least one year below the poverty line; in the 1990's, 36 percent of people in their 40's did, according to the analysis.»

But this too seems to be a bit too negative:

«net effect of globalization will be that the median North American family will see a fall in income of something like 80% over the next generation»

Nooooo, this is way excessive. In the last big adjustement, when Japan and Korea and Taiwan came online, the damage was confined to a minority, however large and living near the Lakes.

Now admittedly India and China are much, much bigger, but there are huge differences with Japan and Korea at least. For example they are more open economies with a political less focused on mercantilism.

Also, chinese and indian wages and salaries are already growing in the 10-30% per year, and they are no longer, at least in India in the service sector, 10% of OECD salaries.

Also, as China and India grow, they will start importing stuff too, and not just components from Japan as they are doing now.

My overall guesstimate is that the meeting point will be around between 50-70% of current USA salaries in PPP terms for the median family, and that eventually it will start growing again.

But the impact will be far from uniformly distributed. A lot of people will gain, even if a lot more people will lose, and nobody will much give a damn about the losers, just as nobody much cares what happened around the Lakes.

«but that the average will hardly budge. The same amount of wealth will be here only we won't have any of it.»

I rather think that there will be a lot more wealth and income, and the average will go up at the same time the median will go down. Just as it is happening now, only more so.

The big variable in all these estimates is this: given that China and India are both two-countries in one, like many countries (Brazil was once described as Belgium [Sao Paulo state] glued to Sudan [the rest]), how big is the developed part of their economy?

Note: similarly the USA; the difference with Brazil is that the Belgium of the USA is much bigger than the Sudan of the USA, and not just that the differences in development are narrower.

Because the big shock of the post-Cold War period is not that the OECD is competing with the whole of India or China, but that it is now competing with their ''developed'' subsets, which were previously ''invisible'' because of geopolitical issues.

I have tried in my own little way to glimpse/guesstimate
the size of the ''developed'' sectors of India and China, and my impression is that they involve 50-100m people in India and 100-150m people in China, that is roughly two countries the size of Japan. Which to me indicates that the impact will be bigger than that of Japan in the 1980s, but still not apocalyptic.

Also, the ''developed'' sectors of India and China are both a big dragged down by the backward sectors; but they will also perhaps help them develop, even if precedents are not encouraging as to the speed with which this may happen (see southern Italy and northern Brazil).

[save_the_rustbelt]

"...But it happened, for a decade or so, just not in the Rustbelt, but elsewhere. During the 1995-2000 boom a lot of people were given huge salaries and options in tech and services...."

The implication from the Clinton gang was that the jobs would be created in the Rustbelt for the displaced manufacturing workers.

[Winslow R.]

Thanks for various comments.

Chart 1 shows little correlation between income concentration and GDP growth.

May take a few more posts like this before my brain is 'rewired' to accept.

[NinjaPlease]

"Also, as China and India grow, they will start importing stuff too, and not just components from Japan as they are doing now."

Yes, they will import stuff from other provinces within China, since THEY WILL BE MAKING EVERYTHING FOR SALE EXCEPT MODERN WEAPONS AND NUCLEAR AIRCRAFT CARRIERS.

Wake up Consumer,

Look around your house, your kitchen, your garage. how many products are made or even assembled here?

The answer is none.

Consumer products are made in China. All of them.

I don't think you're going to be able to sell China a lawn cutting service, or a Car Mechanic service until teleportation becomes a commonplace reality. Once it is, all jobs will become worthless.

[Blissex]

«The implication from the Clinton gang was that the jobs would be created in the Rustbelt for the displaced manufacturing workers.»

Uhm, buying an «implication» from a bunch of salespeople? Duh! :-)

Anyhow I don't get much of a sense that Clinton/Rubin did specifically say or hint that the jobs would be in the Rustbelt as opposed to for people from the Rustbelt too.

The USA have always been a country where to get the good jobs you got to move sooner or later, and it is full of ghost towns. Sooner or later the plains states will become ghost states too, and the Rustbelt will have to lie fallow for a while too.

The big issue when a whole regional economy collapses is not what happens to those in work at the time: most precedent says that most of those «displaced manufacturing workers» are f*cked.

The big issue rather is what happens to their children: will they find good jobs somewhere?

The Clinton/Rubin story was really (stripped of the politicking) that the children of the Rustbelt would be able to emulate their fathers' and grandfathers' American Dream, and move up in life, first by going to good Rustbelt Universities and then getting cool tech jobs in California or Washington or New York. Not as good as getting those jobs back in the Rustbelt, never mind for the displaced workers themselves, but good enough probably.

This did happen, but all too briefly.

BTW, the Rustbelt has been quite a more developed place than the Appalachia mostly for cultural reasons and a fair bit because of the Lakes as a highway. Otherwise there is no reason why they shouldn't be both backwaters...

As to the cultural reasons, my usual Tocqueville from the 1830s explained it very well:

«The stream named by the Indian as the Ohio, or the Beautiful River, irrigates one of the most magnificent valleys in which man has ever made his home.»

«On the left bank of the river the population is sparse; occasionally a troop of slaves can be seen loitering in half-deserted fields; the primeval forest grows back again everywhere; society seems to be asleep; man looks idle while nature looks active and alive.

On the right bank, by contrast, a confused hum announces from a long way off the presence of industrial activity; the fields are covered by abundant harvests; elegant dwellings proclaim the taste and industry of the workers; in every direction there is the evidence of comfort; men appear wealthy and content; they are at work.

The state of Kentucky was founded in 1775, Ohio just twelve years later; twelve years in America is more than half a century in Europe. Today the population of Ohio is already 250,000 greater than that of Kentucky.»

«On both banks of the Ohio, nature has endowed man with an enterprising and energetic character, but on each side od the river men use this shared quality in quite different ways.»

«The white man on the right bank, being forced to live by his own efforts, has made material prosperity his life's main aim. [ ... ] There is something wonderful in the ingenuity of his talent and a kind of heroism in his desire for profit.»

«The American on the left bank not only looks down upon work but also upon those undertakings which succeed through work.»

The fortunes of the Rustbelt will come back; but it takes time.

[NinjaPlease]

"most precedent says that most of those «displaced manufacturing workers» are f*cked."

"The big issue rather is what happens to their children: will they find good jobs somewhere?"

"The fortunes of the Rustbelt will come back; but it takes time."

How many generations of poor people need to be created before free trade in its current implementation gets the newly created poor people (formerly middle class) back to the standard of living they were used to in say 1998?

20 years?

50 years?

200 years?

Do the ends, a completely globalized free trade Earth, justify the means: pollution with no controls, global worker arbitage?

[Blissex]

«Yes, they will import stuff from other provinces within China, since THEY WILL BE MAKING EVERYTHING FOR SALE [ ... ] I don't think you're going to be able to sell China a lawn cutting service, or a Car Mechanic service until teleportation becomes a commonplace reality.»

Excessively panicky reaction, which sort of undermines the point that there is a serious problem.

I could give you the usual (largely misleading) story about the difference between competitive (better than anybody else) and comparative (least bad thing you do) advantage , but better to illustrate an example.

Look at the USA, Japan and the Europeans: they manufacture much the same stuff, much to the same standards, much in the same ways. They trade like crazy! (the Japanese of course in their own mercantilistic way)

And it is not just american movies, software and airplanes traded against european wines, machine tools and and fashion. Americans export lots of wine to Europe and europeans export lots of software to America, even if it does not balance exactly out category by category.

Same happens with states within America or countries within Europe. Things work well, and trade benefits most everybody as the theory says, but also mostly to the same degree, which is not what the theory is about (the theory just says that trade is of overall benefit, not that most benefit).

American businesses and workers have competed with European businesses and workers and overall things have balanced nicely, back and forth (with losers in the process, but not huge numbers of losers).

The difference with India and China is that America, Europe and Japan have largely the same cost bases (with an advantage to America because of far more bountiful natural resources, just consider land and oil), but for the next few decades China and India will have both a highly developed export sector, and a lower cost base because of the backwardness of the part of their economies not exposed to international trade.

America and Europe are both highly developed and compete directly, but their cost bases are largely similar; America and Indonesia have very different cost bases, but they don't compete directly (toys and garments long gone from the USA); the big news is that America and India/China compete directly because India/China have a significant highly developed sector, but India/China have a much lower cost base, because they have a very large backwards sector too, which depresses demand and thus prices for many of the inputs (land, food, unskilled labour) used in the developed sectors too.

Eventually either the developed sectors of India/China will spread and lift up the rest, or they disconnect from the rest, and then that cost base advantage disappears. In my impression signs are the second case is happening, and that India/China are going Brazilian, as their developed sectors are not much pushing forward the rest of their countries. In much the same way as development in California and New York did not connect much with Kentucky or Alabama...

But in the meantime arbitrage will drive down the cost bases in most of Europe and Japan and America too, which is and will be painful indeed.

Note: in other words, you can't arbitrage between much between America and Europe because their cost bases are similar; and you can't arbitrage much the cost bases of America and Indonesia because they don't compete directly.

But it will not be a fatal catastrophe; just the like the Rustbelt, a fall from grace, only a lot bigger. The Rustbelt was competing with Korea and Taiwan (and parts of Japan), and until the cost base (e.g. house and labour costs) in the Rustbelt has achieved the same level (can be a bit higher) than as Korea or Taiwan it is not competitive (and double whammy time too: the Rustbelt is now competing with India/China too, just like Taiwan and Korea are themselves).

Problem is, now it is California etc. who are competing with the low cost bases with which the developed sectors of China and India are ''endowed'', and that's gonna hurt a lot more.

When a lot of people in 2-3 midrange inland states fall from the prosperous middle class to the impoverished working class ('save_the_rustbelt' was mentioning figures like $42k to $28k [if you are lucky]) it is bad; when many people in 2-3 big coastal states fall from the middle class to the working class or underclass status it is much worse.

But then all those ever richer arbitrageurs will like an increased supply of new staff for their many mansions :-)

«EXCEPT MODERN WEAPONS AND NUCLEAR AIRCRAFT CARRIERS.»

You'd be surprised what China and India can do :-).

[NinjaPlease]

The J10 and Z10 the Chinese are working on are probably not a threat to our military. India hasn't developed modern military equipment in-house in many decades. They're using mostly soviet equipment, though they have a few farily modern naval ships.

"Excessively panicky reaction, which sort of undermines the point that there is a serious problem."

It is excessively panicky because I'm seeing the results now, from central NJ, not 20 years from now. I agree with everything you've said but the "let the market sort it out" attitude has me worried that 1929 is really 2019, but it will span many many more years than the last great depression.

[Blissex]

«How many generations of poor people need to be created before free trade in its current implementation gets the newly created poor people (formerly middle class) back to the standard of living they were used to in say 1998? 20 years? 50 years?
200 years?»

Well, my handwaving (hope you get a bit of cool air out of that :->) impression is that precedent says roughly this:

* if ''dislocation'' is caused by changes in terms-of-trade, that can take around 20-60 years;

* if dislocation is cultural, that can take around 200-300 years (e.g. Holland), or much, much longer (e.g. Portugal);

* if dislocation is ''ecological'', bad, bad news (think Saraswati basin).

The Rustbelt for example is mostly terms-of-trade, and some element of culture, the specific trades involved, but also a yankee attitude, in a country going dixie.

Uhm on a completely different note, thinking of Argentina, the most recent case I can see of ''cultural'' dislocation, that 200-300 years guess is going to depress them...

«Do the ends, a completely globalized free trade Earth,»

Well, that is still a means to an end; the goal is, depending on whom you ask and how sincere or hypocritical they are, either to lift a couple billion people out of dire desperation, or to reward the rich for being so deserving :-).

«justify the means: pollution with no controls»

Well, as countries develop they tend to reduce pollution, because middle classes care more than either the poor (who have more pressing problems) or the rich (who can retire to the Caribbean).

«global worker arbitage?»

Global worker arbitrage is part of the process; and look at the other side, that arbitrage also means that the wretchedly poor get better deals.

What matters is not to stop global worker (and inter-generational) arbitrage, but perhaps to slow it down a bit so adjustement is smoother, and to ensure that the benefits that do flow to OECD countries do not mostly flow to the arbitrageurs therein.

But those arbitrageurs are wily, tough cookies, and as Bruce Bartlett hinted, they are skilled at hiring the political whores who deliver the goodies.

[NinjaPlease]

So the advice for the new millenium is grin and bear it?

wasn't that the same advice we've been given since the dawn of trade?

[bakho]

Clinton on immigration:

It is a distraction from the real problems facing America.

http://www.truthout.org/docs_2006/071006H.shtml

Immigration is not the problem. Lack of investment and low wages are a problem.
Low wages create a chicken and egg problem. If the wages are too low, Americans don't want to work and it attracts illegal immigrants. Availability of illegal labor depresses wages. If we address the low wages, both in the US and Mexico, immigration will be less of a problem.

[Blissex]

«So the advice for the new millenium is grin and bear it?
wasn't that the same advice we've been given since the dawn of trade?»

Ahhhh, no! Because «grin and bear it» is what the upper class beneficiaries of trade say to their middle and working class victims when they go for the wallets of the latter.

The issue is not dislocation: that is going to happen.

The issue is how fast, and whom it affects and how much, and that is worth a lot of money. You can't prevent dislocation, but you can prevent most of the profit going to the top 1% and most of the pain to the bottom 40% (or 80%).

Nothing is fixed in the world of business, and outcomes lie in vast indeterminate areas, and which one happens depends on negotiation skills.

So far the (usually wealthy) beneficiaries of freer trade in goods and labour have demonstrated that they can walk over the victims as to negotiation skills.

If you think something else is in order, my advice would be:

#1 Donate to political campaigns. Ideally via a union or PAC. Write to your congressman/senator and say why you donated.

#2 Vote. Always vote. Tell people to vote. Write to your congressman/senator and say why you voted the way you did.

#3 Support unions. Give money to unions. Unions are the Chambers of Commerce equivalent for workers, and their campaign funds the equivalent of K street (unfortunately!). Support agency shops, hate closed shops.

In doing this, don't expect perfection. Protectionism and rigid labour markets are really bad for you too, in the long term. What matters is not to gain expensive security via protectionism and rigid labour markets, but to ensure you profit too from free trade, and to delay a bit the impact of adjustments.

Unfortunately unions are not good at doing this, they tend to go for the top, and this has led them where they are now. Good (so far) for the UAW members who retired 10 years ago, not good for their children.

[NinjaPlease]

The power of the union is that of the strike, which results in a disruption of the revenue streams which result in a dissapointment of shareholders which result in lower stock price which result in lower bonuses (sometimes) for management.

With global arbitage, how exactly does a union have ANY power whatsoever? If you strike, they'll take the jobs to china, and now they'll have a reason, just incase there's any shareholders with some us nationalistic ties.

The only unions that can have power are ones for jobs that can't yet be outsourced, like teachers, bus drivers, etc. Privatization and the active importing of illegal aliens will destroy those unions and their fairly steady jobs.

Then what?

If there is no gold standard, why are there poor people? To maintain the already wealthy?

[Blissex]

«The power of the union is that of the strike,»

Not so much! The power of the union is to aggregate many little voices and give them a big voice (just as the power of the Restaurant Association of America is to aggregate many big wallets and give them a huge wallet to aim at Congress), and that matters, not just in contract negotiations (if done realistically), especially if unions provide or organize campaign funding.

Remember right-to-work legislation: the two central aspects of it are ''cutting off the air supply'' of unions by reducing the chances of them from being paid for their services, and of being able to fund campaigns.

Businesses know how important that is, and they have been doing well out of it.

An amusing story here:

http://money.CNN.com/2006/07/05/news/economy/annie0705.fortune/
«One aspect of the new regime, as openly expressed by the company president, is that we are all expected to donate money to a political action committee. I have heard that failure to join the PAC means your name ends up on a list and you get fewer opportunities for promotions, plum assignments, etc. When the PAC representatives first held an after-hours meeting to tell us about it, my boss said attendance was "mandatory." Since this PAC is in support of candidates I would not otherwise support or vote for, I really feel compromised by having to join. The company recommended that everyone donate 1% of gross salary;»

Trust this wily boss; american politics is more straightforwardly pay-per-play than many, and if every member of a union put in 1% for candidates their bosses don't like, as opposed to doing the opposite as in the case above, things will change for the better.

BTW, I guess that the above case probably happened in a right-to-work state, and is a case of reverse closed shop (you don't work here if you don't pay dues to the company's ''union'' :->).

[NinjaPlease]

The union does pretty much guarantee retirement benefits that would otherwise not exist.

how many companies offer their employees retirement pay of anykind?

most that i've heard of offer a 401k with matching some percentage of your contribution up to 6%. It ain't much, and it ain't guaranteed.

[Blissex]

«With global arbitrage, how exactly does a union have ANY power whatsoever?»

By buying politicians, just like businesses do. It is politicians that make it easier or harder to do international arbitrage. Chamber of Commerce follow very closely trade treaty and similar negotiations. Guess why? It matters to their bottom line. Every little (and not so little) helps.

Even politicians can't control globalization 100%, but something is better than nothing. The details can be worth a lot in your pocket.

«If you strike, they'll take the jobs to china, and now they'll have a reason, just in case there's any shareholders with some us nationalistic ties.»

Oh I love such innocence and hopeful starry eyed hopefulness! :-)

Reality is a bit different (my emphasis added to the quote):

http://WWW.Economist.com/business/PrinterFriendly.cfm?Story_ID=4135319
«A study published this week by LogicaCMG, an Anglo-Dutch outsourcing firm, says that the shares of British quoted firms, after announcing outsourcing deals, outperformed comparable firms without such a deal by an average of 1.7% in the month after the announcement. Studies in America report even bigger gains. LogicaCMG says that, if British firms increase their outsourcing by half by the end of the decade, an extra £10 billion ($18 billion) will be added to their stockmarket value.»

This delightful story tells all: offshoring makes free money for executives with options. "Free money" is a very powerful argument indeed. Management can write themselves checks by doing offshoring deals, thanks to enthusiastic (and gullible) shareholders.

Any offshoring deal boosting the share price will be done, no matter whether workers strike or not, or even whether keeping the work onshore is actually cheaper or not.

And anyhow there is some negotiating room, because neither India nor China have an unlimited labour supply, because as I have argued at length the developed sectors of their economies are not that big. From the same article above:

«Then again, says the McKinsey Global Institute, if current demand continues, the supply of suitable labour in the popular cities of Prague and Hyderabad will run short by 2006 and 2008 respectively. The demand for engineers from Britain and America alone, it claims, will use up the suitable supply in all of China, India and the Philippines by 2011. The institute advises firms to choose their locations carefully. It is hard to switch later “because of sunk costs in physical and human capital”.»

Salaries in IT and call centers in India are growing fast. The offshoring lesson that businesses have wanted to teach their OECD employees is getting weaker. Having the politicians on your side can make a very large difference between not so good and bad.

[Blissex]

«most that i've heard of offer a 401k with matching some percentage of your contribution up to 6%.»

As an aside, there is an interesting little secret about pensions: as such, final salary pensions don't cost a cent more to companies than defined contribution ones that result in the same level of pension.

The only difference for the company is that contributions in a final salary scheme are more volatile than those for a defined contribution one; in good time they can pay less, in bad times more (but would be wise to do the opposite), but the average required is exactly the same, if the pension paid at the end is the same.

The primary reason why companies have switched from final salary to define contribution is not because they prefer less volatility (rather the opposite), but to mask a cutting of the average level of contributions by a factor of three, because the pension promised under a final salary contribution usually required around 15% (on average across time) contributions, and now they are paying only around 5% (15% and 5% are somewhat ''typical'' numbers for ''good'' employers).

(Note: in the UK most/all government employees had until recently a pension entitlement so generous that it was worth about a 30% tax free contribution, as if they were all CEOs. Ah yes, the typical CEO package includes pensions benefits more or less equivalent to a 30% level of contributions on their already immense salaries. Also, many USA state and city government workers still have equivalently generous contribution levels, and some retire on more than 100% of their final salary.)

What matters to companies is not so much the type of pension basis, but the average contribution needed to support it. The pension promised employees, if any, has in fact cut to one third.

In other words, the change has been done to mask a 10% cut in the compensation of many if not most employees.

A cut that most employees don't realize, because they don't know that the switch has not been from a 5% final salary contribution to a 5% defined contribution one, but from 15% (variable, on average) to 5% (fixed).

The other reason for the switch is that companies sense that the long bull stock market has ended, so now is the part of the cycle in which they would have to pay the more than average contributions, while so far they have paid the less than average ones. Fat chance...

[Blissex]

«#1 Donate to political campaigns. Ideally via a union or PAC. Write to your congressman/senator and say why you donated.»

On the power of donations, a very nice illustration on how they may help persuade the recalcitrant:

«Chronic complaints from taxpayers and workers aside, companies that hire or sell to the undocumented simply have too much at stake to allow a backlash to get out of hand. Even politicians who thunder about illegals have trouble sticking to their convictions.

Such was the case with Republican Congressman Tom Tancredo of Colorado, who says he may run for President in 2008 on a largely anti-immigration platform.

One suggestion he made last year: a tax on the remittances foreigners send home as a way to recoup the education and health-care costs Tancredo chalks up to freeloading.

But he quickly dropped the idea after an outcry from Denver-based First Data, whose Western Union unit took in $1.1 billion last year from such money transfers.

First Data Corp.'s political action committee and its chief executive, Charles T. Fote, each wrote $2,000 checks in support of Tancredo's opponent.

Tancredo won reelection but has revised his plan: Rather than tax the individual transaction, he proposes reducing foreign aid by the amount of remittances that countries like Mexico receive from their citizens in the U.S.»

[Blissex]

«[Tancredo] proposes reducing foreign aid by the amount of remittances that countries like Mexico receive from their citizens in the U.S.»

Apart from the context, please consider how breathtankingly revolting and counterproductive this is...

[Nelson]

If corporations are doing so well, then why shouldn't ordinary workers be allowed to invest in them though their social security accounts?

[Blissex]

«If corporations are doing so well, then why shouldn't ordinary workers be allowed to invest in them though their social security accounts?»

Because they can voluntarily do so via their 401k or whatever?

Or perhaps because the very word «accounts» applied to SS is inappropriate; in effect SS is not a mandatory savings program, it is mostly a ''social'' insurance program against extreme poverty in old age. As such it is guaranteed by the government. The stockmarket is guaranteed a bit less.

SS ''contributions'' are in effect a tax that gives some tenuous psychological link between workers and their old age poverty insurance.

And SS in the USA is not the issue, it is broadly OK (because the pensions it gives are so small). The big problem is Medicare, and in particular the enormous gift to pharma this administration has enacted through it.