Wednesday, January 04, 2006

Median Domestic Prosperity

Midwestern Progressive recently encouraged readers to submit topic suggestions to him. I asked him to blog about the true economy in his neck of the woods - Chicago - as he views it from his perspective and that of people around him. Midwestern promised to give us an accounting soon, and I'm looking forward to hearing the facts as he sees them - not as the economists or pundits describe them.

Do I sound dubious about our economy? Well, I am. I live in a small, middle-class suburb of nice homes where people have two cars, take nice vacations, and spend money on frivolous stuff like eating out, Starbucks and golf. However, within my immediate neighborhood, one young couple lost their home to foreclosure this year, another neighbor took in an elderly family member who couldn't make a go of it financially on their own, and several others were forced to sell second cars, campers and other large ticket items in order to reign in spending. The young families in our area seem to be hit the hardest. They all complain it is harder and harder to make ends meet with rising heat bills, gas prices and medical deductibles. Most of them said they received small raises in the past year, but those raises were more than eaten up by higher expenses on necessities.

The housing market is in a slump here too. There are a record number of homes on the market, and houses are taking much longer than usual to sell. In my own subdivision, we have four homes that have been on the market for more than a year - and these are nearly new, well-maintained homes.

Some of this economic uncertainty is related to the auto industry and the insecurity people feel about their jobs, but that can't explain away everything. In fact, the couple who lost their home were self-employed and found themselves swamped by unexpected medical bills.

I suspect this insecurity is being felt in neighborhoods across the country regardless of the glowing assessments we're hearing in the media. Robert Reich (Secretary of Labor under Clinton) doesn't believe the strong economy is reaching most Americans either.
But there’s another story about the American economy that’s equally remarkable, although more sobering. Although the data aren’t all in, it seems almost certain that in 2005, median incomes continued to drop.

It’s been that way for four years now, since the end of the last recession. The economy keeps growing, but median incomes keep declining. Take inflation into account and you find that half of all American workers are earning less now than they did in 2001. Rarely before in history has there been such a long period of growth in the gross domestic product without most Americans sharing in that growth.

Forget "trickle-down" economics. Even if you believe the Bush tax cuts of 2001 and 2003 helped the economy grow—and if you do, you probably believe in Santa Claus—nothing is trickling down, not even to the middle. Most is going to the top fifth. And most of that is going to the top 5 percent.

So let me end 2005 by asking what may seem an impertinent question: What’s the point of economic growth if most people aren’t any more prosperous?

That's an excellent question. If we look at the GDP or turn to the stock market for clues, we only see one side of the picture. We also need to examine how average families and individuals are doing. Reich has a good suggestion on how to measure true economic growth and I think it deserves real merit and consideration.
Maybe it’s time we stopped measuring the success of the American economy by how much larger the GDP is from one year to the next, and started using a new measure that reflects how most of us are doing from one year to the next. Instead of GDP, let’s look at what might be called the MDP—median domestic prosperity.

The American economy is strong when the MDP is rising, weak when it’s falling. When it declines for four years in a row, we’re in an MDP recession.

Look back on the past four years in your area of the country and ask yourself, how strong is the MDP? Are all boats rising in your neck of the woods? If you can answer that all is well, consider yourself lucky - you're in the top 20% of all Americans.

7 comments:

mikevotes said...

The Bush economy: "a rising tide lifts all yachts."

I live in similar circumstances down here in Houston. The real estate bubble hasn't popeed, but houses are staying on the market 2 to 3 times longer.

Pay increases are stagnant for everyone but the top few, but because of oil prices, our economy as a whole is pretty stable and unemployment is pretty good.

Mike

Kevin McKague said...

Very thoughtful comments, Kathy.

"Trickle down economics" sure seems workable on paper, but it doesn't seem to have real-world effects lately. I suspect that this is at least in part due to the fact that much of the money that is being saved by the tax cuts on wealthy Americans is being funneled overseas into investments elsewhere or to Cayman Island bank accounts.

Its like a line from my favorite TV show; "Tax cuts to the rich are good for the economy! Yeah, the Swiss economy!"

Kathy said...

Kevin, that's a good line. I have to remember that one.

Mike, I suspect that pay increases are stagnant across the country, especially when inflation is deducted. Thanks for giving me a picture of the economy in your neck of the woods.

Anonymous said...

Thanks for unearthing that Reich piece Kathy. I LOVE Reich. As you may remember, when he ran in the Dem primary for governor in Mass, I was was number two man to the WMA regional coordinator of his campaign. I got to know him pretty well, not personally but his politics and his style of management. He is a tiny little guy with a great big brain. I wish he run for president in 08, but the establishment Dems hate him for writing that book about Clinton and for being smarter than they are.

As to the economy here, I don't get out enough to speak with authority on it but it strikes me as very similar to the dynamic in WMA when I left. You have your upper 20% buying up property and driving up costs beyond the reach of regular working class folks. This little town is exploding with growth and they are selling the McMansions in my family's hood like hotcakes at 300,000 to 600,000 but the people who grew up here can't afford to live here anymore.

Kathy said...

Libby, you certainly have had some interesting jobs. I envy you.

I've always liked reading stuff by Reich too. If you check out Tom Paine from time to time you'll probably catch more of his articles.

Thanks for the update on the economy in your area. The housing market is very similar here with expensive homes being built everywhere you turn. One interesting side note about those homes though: A couple years back our milkman told us that his worst customers were those people in the expensive neighborhoods. He said it was hard to collect money they owed him, and he was surprised to see how many of them had empty rooms. They were so strapped by their huge mortgage payments that they didn't have the money to furnish the homes.

Wealth is illusory. How many people in those homes will actually pay them off and own them free and clear by the time they retire? Many of the young ones are always refinancing in order to lower their payments, but they extend the mortgage term when they do that in most cases.

By the way, our milkman retired a couple of years ago. He was forced to retire because people thought his prices were too high and preferred to shop at places like Wal-Mart for milk, etc. I liked the personal service and convenience and thought the extra 10-20 cents per item was well worth it. He was just one more casualty of America's obsession with getting the lowest price.

Unknown said...

I know I'm late to the game, but I finally got around to answering your question.

Humble apologies for the delay, Kathy. You've got a lot more insights, frankly, on local economies than I do. As opposed to the Bush-tax-cuts-for- the-wealthy as I am, I am embarassed to admit that I benefit from them. Greatly.

Kathy said...

Midwestern, I think many of us in the middle class do benefit from the Bush tax cuts, but at whose expense? Most of the people I talk to are willing to pay a little more in taxes IF the extra revenue helps those less fortunate; however, they also feel the rich should be helping the most and paying the most.