September 14, 2011

U.S. Economy: A Lost Decade Into The Great Middle Class Poverty?

By EconMatters

In yet another sign that the Great Recession cuts deep and long--the number of Americans living below the official poverty line reached 46.2 million, the highest in 52 years since the Census Bureau started tracking the figures in 1959.

The overall poverty rate also climbed to a 17-year high at 15.1%, which means 1 in 6 Americans are living below poverty line largely due to the high unemployment and underemployment rate.  The official poverty line for 2010 is defined as an annual income of $22,314 for a family of four, and $11,139 for an individual.

Chart Source: The Census Bureau
The Census Bureau's annual report released on Tuesday, Sept. 13 gives a very grim snapshot of American households in 2010.  As the U.S. economy expanded 3% in 2010, and corporations reported good profits,  the gains are not trickling down to workers.  The median household income in 2010 dropped to $49,445, which is virtually unchanged from the level in 1997.  Overall, household income has fallen by 6.4% since the recession began in December 2007.  (Ok, who was the one declared that the recession "officially" ended in June 2009?)

Chart Source: The Economic Policy Institute
Moreover, income inequality across households also increased between 2009 and 2010.  According to CNNMoney, adjusted for inflation, the middle-income family only earned 11% more in 2010 than they did in 1980, while the richest 5% in America saw their incomes surge 42%.

NYT quoted Lawrence Katz, an economics professor at Harvard University that 
“This is truly a lost decade.  We think of America as a place where every generation is doing better, but we’re looking at a period when the median family is in worse shape than it was in the late 1990s.”
But the worse news is that experts are saying this year is unlikely to get any better. There are quite a few factors and triggering events that could push even more families and individuals over the poverty edge this year. 

The Census Bureau estimated that new unemployment benefits passed in 2009, which extended payment-period up to 99 weeks for laid-off workers, helped 3.2 million stay above the poverty line. Social Security kept about 20.3 million, seniors as well as working-age adults receiving disability payments, out of poverty. 

But as the government stimulus money largely dried up, the 99-week unemployment benefit is due to run out this year if not extended.  Some in Congress have proposed cutting social programs, while state and local governments are cutting jobs and budgets at an accelerated pace.

The nation's unemployment rate has hovered around 9% for more than two years.  The total number of unemployed has grown to more than 14 million as of August 2011.  Based on the estimate by the Economic Policy Institute, the jobs gap is estimated to be 11.1 million as of July 2011, and the pace of new jobs came to a screeching halt in August, which basically suggests downward income mobility. 

All these events partly support a separate analysis by the Brookings Institution that at the current rate, the recession will have added nearly 10 million people to the poor by the middle of the decade (which is only about 4 years away).

As if the U.S. has not had enough problems of its own, the potential Euro Zone sovereign debt crisis, if not contained, could pose as a potential threat of another global Lehman-like financial crisis.  U.S. Treasury Secretary Geithner already went for an unprecedented meeting with Euro Zone finance ministers as talk of a potential Greek debt default and pressure on Italy could roil Europe's banking sector as well as its economy.

While President Obama is pressing the bloc's big countries to show leadership, the U.S. actually is in dire need of extraordinary leadership with a sharp strategic focus to turn the country around.  That, unfortunately,  is something we have witnessed neither in the current Administration, nor in the handful of future presidential candidates.    

Further Reading:
American Jobs Bill 2011: Too Late For A Do-over For President Obama
Top 10 Recession-Proof Jobs

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