The Poor and Middle Class see their Incomes Still Falling in the Obama Recovery

Posted by PITHOCRATES - March 3rd, 2013

Week in Review

If you listen to the president, his press secretary, the mainstream media and just about anyone on the political left the economy is doing super.  Sure, we can make improvements.  But over all everything is just swell.  If you’re rich, that is. People with money are doing very well in the Obama recovery.  Those who aren’t as rich aren’t.  No.  All they see is high unemployment, rising prices and falling incomes (see Americans see biggest monthly income drop in 20 years by Annalyn Kurtz posted 3/1/2013 on CNNMoney).

Personal income decreased by $505.5 billion in January, or 3.6%, compared to December (on a seasonally adjusted and annualized basis). That’s the most dramatic decline since January 1993, according to the Commerce Department.

It’s something of a combination of one-time events, though.

Monthly income was unusually high in December because companies paid out early dividends to avoid upcoming tax hikes.

Further proof that people change their behavior when the government increases taxes.  The surge in December that made January look so bad was due to one-time distributions of profits to avoid higher taxes.  So December wasn’t that good, either.  Just an aberration as people tried to avoid the higher taxes coming their way.

The payroll tax cut’s expiration also played a role in January’s drop, because most workers have to pay 2 percentage points more in taxes this year…

Meanwhile, economists are closely watching consumer spending, which accounts for about two-thirds of the U.S. economy…

Economists think that rising gas prices in February could cut into consumer spending temporarily. Gas prices rose 10% in February, according to AAA, but are expected to fall in coming weeks…

The Social Security tax break helped consumers at the 2012 election.  Allowing them more disposable income in the year before the election.  And helping them feel things weren’t that bad.  Of course this Social Security tax holiday drew down the Social Security surplus to a dangerous low.  Something they will have to make up for with even higher taxes than the 2% temporary cut used to help the president’s reelection.

Regulatory costs, environmental policies that have shut down oil drilling on public lands and inflation (the incessant quantitative easing of the Fed putting more and more dollars into circulation) are keeping gas prices high.  For you can hide inflation in some consumer goods by reducing package sizes but you can’t do that with gasoline.  Because you sell gas by the gallon.  So the full cost of the Fed’s inflationary policies hit gas prices hard.  And, of course, high gas prices increases prices for everything else that uses fuel.  A large factor in the rise in our grocery bills.  Taking a bigger bite out of family budgets.  Leaving little for other consumer spending.

All of that said, consumers are benefiting from a housing recovery and rising stock prices…

They’re not able to save much, though. On average, people saved about 2.4% of their disposable income in January, down from 6.4% in December. That marks the smallest saving rate since November 2007.

Rich people are benefitting from the housing ‘recovery’ and stock prices.  Those who have a lot of money left over after meeting the living expenses.  Who can save a lot of money.  And invest it into housing.  Or stocks.  In fact, that’s why the stock market does well on news of the Fed continuing their quantitative easing.  For the rich are taking advantage of that cheap money to borrow it.  So they can invest it.  Trading on the interest.  Borrowing at low interest rates.  And investing in something that earns a higher rate of return.  People struggling to make their paycheck buy everything it once did as prices rise everywhere aren’t enjoying any benefits from that cheap money.  As they have no money left over to even save up a down payment on a house.  So they can take advantage of those low housing prices.  No.  The poor and middle class are not reaping anything in the current economic ‘recovery’.  Only the rich are.

Under President Obama the rich are getting richer.  And the poor are getting poorer.  Because of his economic policies.  Especially the Keynesian policies.  Keynesians look at personal savings as leaks out of the economy.  For if people aren’t spending money they are wasting money.  Which is the point of low interest rates.  To get people to borrow money to buy things.  Thus stimulating economic activity.  And generating more consumer spending.  But all that quantitative easing has raised prices so much that consumers are left with less and less money to spend.  The poor and middle class aren’t borrowing money to buy new houses.  They’re just trying to get by on what little they have.  Hoping for good economic times to return when their personal incomes rise once again.

Keynesian economics don’t work.  Just as Keynesian stimulus does not stimulate.  If it did we wouldn’t still have fewer jobs in the U.S. economy than when President Obama took office.  And he spent about $8000 billion on a stimulus bill.  The American Recovery and Reinvestment Act of 2009.  Some critics said it failed as an $8000 billion stimulus wasn’t big enough.  Even though the Obama administration declared the summer of 2010 the Recovery Summer.  Proof that the American Recovery and Reinvestment Act of 2009 restored economic prosperity.  Even though it didn’t.  For things still haven’t returned to where they were under George W. Bush.  Despite 4 years of Keynesian policies.  That haven’t raised personal incomes.  The true measure of any economic recovery.  And when personal incomes are the lowest they’ve been in 20 years, there hasn’t been any economic recovery.  Despite $800 billion in stimulus.  And 4 years of President Obama’s Keynesian economic policies.

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The Obama Recovery is no Reagan Recovery

Posted by PITHOCRATES - February 4th, 2011

No New Jobs but the Unemployment Rate Falls.  Strange.

Unemployment fell a huge 0.4 percent.  All by adding 36,000 jobs (see Santelli Slams CNBC Panelists for Spinning Jobs Report by Julia A. Seymour posted 2/4/2011 on Business & Media Institute).

Jobs are heading up and down at the same time. The Bureau of Labor Statistics announced the morning of Feb. 4 that only 36,000 jobs were added in the month of January, but the unemployment rate dropped from 9.4 percent to 9.0 percent.

To be frank, there is no way 36,000 new jobs could move the unemployment rate 0.4 percent.  So this official unemployment rate (U3) is not giving the full picture.  It only measures the number of people without jobs who’ve looked for work within the past four weeks.  U6 would give a better measure of the economy.  This unemployment rate includes U3 plus those underemployed (i.e., working somewhere where they are overqualified) and those who have quit looking.  Because the economy is just in the toilet.  This number (U6) also went down.  But only from 16.7% to 16.1%.  Which means that the real unemployment out there is almost twice the actual number the government is reporting.

Cooking the Books on Unemployment

So how can they report the ‘official’ unemployment rate so much lower than actual unemployment?  Easy.  You just don’t count as many unemployed people (see Missing Workers: 4.9 Million Out Of Work And Forgotten by Lila Shapiro posted 2/4/2011 on The Huffington Post).

Over the last three years, nearly 5 million U.S. workers have effectively gone missing.

You won’t find their photos on the backs of milk cartons. The Coast Guard isn’t out looking for them. No missing-persons reports have been filed. These are jobless Americans who have grown so discouraged by their unsuccessful searches for work that they have simply given up the hunt. They are no longer counted among the 14.5 million Americans officially considered unemployed as of the end of last year, according to the Department of Labor.

You see, if you want to have a lower unemployment number, all you have to do is exclude a lot of the unemployed from the equation.  Of course, the question everyone must be asking is why?  Why would the government do this?  Well, there is a presidential election in less than 2 years.  And presidents find it very difficult to win reelection if you have an unemployment rate greater than 8%.  Especially when you spent a lot of money on bailouts and stimulus spending to keep the unemployment rate under 8%.  And the unemployment rate goes up instead of down.

The Ronald Reagan way was the Better Way

The Obama administration took a shellacking at the 2010 midterm elections.  Everything they’ve done to fix the economy has failed.  So Obama has been trying to go Ronald Reagan.  To make that connection to the American people.  So he can win reelection and keep pushing the same failing policies.

The urge to become a Ronald Reagan is understandable.  He was great.  And when you’re not it’s natural to aspire to be someone who is.  The problem is, President Obama is no Ronald Reagan (see Morning Bell: The Reagan Recovery vs The Obama Recovery by Conn Carroll posted 2/4/2011 on Heritage’s The Foundry).

According to the National Bureau of Economic Research, our most recent recession began in December 2007, lasted 18 months, and ended in June 2009. The last recession that lasted this long began in July 1981, lasted 16 months, and ended in November 1982. In his 1983 State of the Union Address, President Reagan described an economic situation that mirrored our own today: “The problems we inherited were far worse than most inside and out of government had expected; the recession was deeper than most inside and out of government had predicted. Curing those problems has taken more time and a higher toll than any of us wanted. Unemployment is far too high.” But where President Obama responded to an economic recession with a bigger than $2 trillion expansion of government (more than $1 trillion on health care and almost $1 trillion in economic stimulus), President Reagan passed the Economic Recovery Tax Act of 1981, which cut marginal income tax rates across the board permanently. And the differences don’t end there.

Where President Obama promised government action that was “bold and swift,” President Reagan said: “The permanent recovery in employment, production, and investment we seek won’t come in a sharp, short spurt.” Where President Obama used tax credits, subsidies, and bailouts to perpetuate industries in need of adjustment, President Reagan said: “Quick fixes and artificial stimulants repeatedly applied over decades are what brought us the inflationary disorders that we’ve now paid such a heavy price to cure.”

Reagan cut taxes.  Obama spent money.  And how do these actions compare?

According to the National Bureau of Economic Research, our most recent recession ended in June 2009, which means we are now in month 19 of the Obama Recovery. Today’s 9 percent unemployment rate marks the 21st consecutive month of unemployment at or above 9 percent, a post–World War II record. Unemployment is only 0.4 percentage points lower today than when the Obama Recovery began. Contrast those results with the Reagan recovery: 19 months into the Reagan recovery, in June 1984, unemployment stood at 7.2 percent. That is a full 3.6 points lower than when the Reagan Recovery began.

Well, the solution to our economic woes is simple.  Stop being Barack Obama.  And start being Ronald Reagan.  Because Reagan knew that government wasn’t the solution.  It was the problem.  And the sooner Obama learns this the better our economy will be.  And this isn’t theory.  It’s just history.

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