Thursday, January 3, 2008

The Rich Get Richer

For the past four years, we've heard over and over from the Bush Administration and their supporters on how great the economy is doing. Listed among the parameters for calculating this success, are things like decent GDP[gross domestic product], increased corporate profits and jobs created. For the most part these are important indicators of a vibrant economy and they are up as is the Stock Market.

But as everyone knows, including people like me with limited knowledge of all things economic, the macro indicators, at least in current times, do not tell the whole story. After listening to professional economists, it is very unusual to have such a generally productive economy and at the same time see bleak poll numbers concerning average Americans take on things. From a recent CNN poll fully 57% of American's believe the country is in recession at present. This poll is representative of many other polls showing similar pessimism by the public on the economy. This is true for at least the last few years, when we have been in a period economic expansion. Pundits from all political stripes have offered many theories as to why this is, including, a sour public due to the Iraq war, to outsourcing of good paying jobs, to general job insecurity. There's no doubt that all of these things are contributing factors, but I suspect something more basic is causing the sense of malaise with the American public.

The two parties, in their most fundamental ideological positions on economic matters include policies that represent their individual support of the two main pillars of our free market system. Those being supply and demand. The supply side primarily involves the businesses and corporation who produce goods that are consumed by average American's. Simply put, Republicans promote policies that are helpful to business interests and Democrats promote policies that aid consumers of industry products. In order for the system to work both sides must be moderated in a kind of equilibrium and share in any successes that occur. Since the business world is focused, as it should be on making profits, it falls to the Government to make and enforce moderating laws and policies.

For the most part, our economic system has worked well for the past two hundred years plus. The times when it hasn't are when the business side has not shared the wealth with the wage earner who is also the consumer. We saw this last century with the Great Depression when our public policies favored business too much.
The short answer for our current situation is similar to the economic policies in the years leading up to the Great Depression. That being a severe imbalance of basic income distribution in the United States.

It is common when Republicans are in power for there to be a widening gap between the rich and middle and lower economic classes. In recent decades, that disparity has been relatively moderate and is balanced out when Democrats regain power, especially the Presidency.

However, under George W. Bush, that disparity has been much greater than say under Ronald Reagan or his own father George H.W. Bush. The following are excerpts from a study done by The Center On Budget and Policy Priorities on the recent imbalance of wealth distribution in the US.
Revised March 29, 2007

SHARE OF NATIONAL INCOME GOING TO WAGES AND SALARIES AT RECORD LOW IN 2006: Share of Income Going to Corporate Profits at Record High
By Aviva Aron-Dine and Isaac Shapiro

Commerce Department data released today show that the share of national income going to wages and salaries in 2006 was at its lowest level on record, with data going back to 1929.[1] The share of national income captured by corporate profits, in contrast, was at its highest level on record. [2]

These findings reflect weak overall growth in wages and salaries — and rapid growth in corporate profits — since the current economic expansion began in November 2001. Growth in wage and salary income was exceptionally weak during the first stage of the recovery, though it has picked up in the last few years and was strong in 2006. The stronger recent growth, however, has not been enough to undo the effects of weak growth in previous years.

Corporate profit growth, meanwhile, has been robust throughout nearly all of the current expansion and was especially rapid in 2006. Corporate profits have grown at a faster pace in the current recovery than in any other equivalent period since World War II.

During the current expansion as a whole:

*Wages and salaries have grown at a 1.9 percent average annual rate, after adjusting for inflation. In previous post-World War II recoveries, wages and salaries grew at an average annual rate of 3.8 percent.

*Corporate profits have grown at a 12.8 percent average annual rate, after adjusting for inflation, as compared with an average annual growth rate of 8.3 percent in the equivalent periods of past post-World War II business cycles. ( See Appendix Table 1.)

The disparity between corporate profits and wages and salaries provides a powerful and fundamental reason why the American people are so consistently pessimistic about the economy. This pessimism seems to be growing as inflation increases especially with regard to the rising price of food and gasoline. Even more than Iraq, this basic inequality in our economy is behind Bush's intractable low poll numbers. We've seen this with some improvement of the public assessment on Iraq as violence has waned in recent months with virtually no upward movement in polling Bush's job approval. The election this year may well be about the economy more than any other issue next November.
You should read the rest of the study results and charts to get a full understanding just how out of kilter Bush and congressional Republicans have left our economy.

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