Thursday, November 13, 2014

Where Did All the Money Go in the Recovery? To the Rich.

I quote from the source:
For a long time, most of the gains from economic growth went to the bottom 90 percent of the income distribution. And, after all, the bottom 90 percent includes the vast majority of people. Since 1980, that hasn't been the case. And for the first several years of the current expansion, the bottom 90 percent saw inflation-adjusted incomes continue to fall. 
The data series ends in 2012 and we don't know how long the expansion will last, so that negative income trend may evaporate before all is said and done. But unless there's a massive break with the previous three expansions we will continue to have an economy where the typical family's living standards grow much more slowly than GDP growth per se would allow.
The chart was first posted by Pavlina Tcherneva. an economist working a Bard College and the Levy Economics Institute.

Note that the chart only deals with periods of expansion.

I repeat a point I made in an earlier post. To fully understand the situation you have to look not only at income but also at changes in wealth. The people with the highest incomes tend to be also the people with the greatest wealth. The stock market has boomed since the depth of the Great Recession, and the value of the investments in stocks have greatly increased. For the stocks that the rich simply held, the increase in value is not counted as income; only when they sold a stock and took a profit was that profit counted as income. Indeed, rich people who at the bottom of the market traded a stock that had lost value since it was purchased and bought a comparable stock with the proceeds of the sale may have seen both a big increase in wealth and obtained a write off against income.

On the other hand, for many of the 90%, their wealth has gone down with the Great Recession and not recovered. These are people who lost jobs and had to live on savings, who had mortgages foreclosed and lost their homes, and people who are paying mortgages on homes that are still under water. Not only have they on average not benefited from the recovery, but they are still suffering from the losses that they took as a result of the Great Recession.

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