The Worsening of the Income Divide: Why Peak Oil Will Hit Hard....
Posted by Prof. Goose on June 12, 2005 - 3:03pm
Bill Moyers amazes me. He does it again in this speech, entitled "Losing the American Revolution," which has very little, at least prima facie, to do with peak oil.
Well, at least not until you start thinking about it.
When you start thinking about what $4/gal gasoline does to our economy, further worsening existing problems and inequities, especially those dealing with wealth concentration, etc., that have already been getting worse over the past few decades.
Then you starting thinking about what an already disparate class structure looks like after the coming problems hit with full force. It could get quite ugly.
Here's some quotes from the article/speech:
"For years now a relatively small fraction of American households have been garnering an extreme concentration of wealth and income as large economic and financial institutions obtained unprecedented levels of power over daily life. In 1960 the gap in terms of wealth between the top 20 percent and the bottom 20 percent was 30-fold. Four decades later it is more than 75 fold. (See Joshua Holland, AlterNet, posted 4/25/05 )
Such concentrations of wealth would be far less of an issue if everyone were benefiting proportionally. But that's not the case. Statistics tell the story. Yes, I know—statistics can cause the eyes to glaze over, but as one of my mentors once reminded me, "It is the mark of a truly educated man [or woman] to be deeply moved by statistics."
Let's see if these statistics move you.
While we've witnessed several periods of immense growth in recent decades, the average real income of the bottom 90 percent of American taxpayers - that's a heap of people - fell by 7 percent between 1973 and 2000. (ibid )
During 2004 and the first couple of months this year, wages failed to keep pace with inflation for the first time since the 1990 recession. They were up somewhat in April, but it still means that "working Americans effectively took an across-the-board pay cut at a time when the economy grew by a healthy four percent and corporate profits hit record highs as companies got more productivity out of workers while keeping pay raises down." (ibid )
Believe it or not, the United States now ranks the highest among the highly developed countries in each of the seven measures of inequality tracked by the index. While we enjoy the second highest per capita GDP in the world (excluding tiny Luxembourg), we rank dead last among the 20 most developed countries in fighting poverty and we're off the chart in terms of the number of Americans living on half the median income or less. (ibid )
And the outlook is for more of the same. On the eve of George W. Bush's second inauguration The Economist - not exactly a Marxist rag - produced a sobering analysis of what is happening to the old notion that any American can get to the top. With income inequality not seen since the first Gilded Age (and this is The Economist editors speaking, not me) - with "an education system increasingly stratified with fewer resources than those of their richer contemporaries" and great universities "increasingly reinforcing rather than reducing these educational inequalities" - with corporate employees finding it "harder…to start at the bottom and rise up the company hierarchy by dint of hard work and self-improvement" - "with the yawning gap between incomes at the top and bottom" - the editors of The Economist - all friends of business and advocates of capitalism and free markets—concluded that "The United States risks calcifying into a European-style class-based society."
Let me run that by you again: "The United States risks calcifying into a European-style class-based society."
Or worse. The Wall Street Journal is no Marxist sheet, either, although its editorial page can be just as rigid and dogmatic as old Stalinists. The Journal's reporters, however, are among the best in the country. They're devoted to getting as close as possible to the verifiable truth and describing what they find with the varnish off. Two weeks ago a front-page leader in the Journal concluded that "As the gap between rich and poor has widened since 1970, the odds that a child born in poverty will climb to wealth - or that a rich child will fall into middle class - remain stuck... Despite the widespread belief that the U.S. remains a more mobile society than Europe, economists and sociologists say that in recent decades the typical child starting out in poverty in continental Europe (or in Canada) has had a better chance at prosperity." (Wall Street Journal , page one, 5/13/05)
That knocks the American Dream flat on its back. But it should put fire in our bellies. Because what's at stake is what it means to be an American."
And then you combine that with what we already know about the economics, politics, and geopolitics of the coming of the peak, and my friends, you have the recipe for a very very big fall.
Go to the postings for today
Technorati Tags: peak oil, oil
Well, at least not until you start thinking about it.
When you start thinking about what $4/gal gasoline does to our economy, further worsening existing problems and inequities, especially those dealing with wealth concentration, etc., that have already been getting worse over the past few decades.
Then you starting thinking about what an already disparate class structure looks like after the coming problems hit with full force. It could get quite ugly.
Here's some quotes from the article/speech:
"For years now a relatively small fraction of American households have been garnering an extreme concentration of wealth and income as large economic and financial institutions obtained unprecedented levels of power over daily life. In 1960 the gap in terms of wealth between the top 20 percent and the bottom 20 percent was 30-fold. Four decades later it is more than 75 fold. (See Joshua Holland, AlterNet, posted 4/25/05 )
Such concentrations of wealth would be far less of an issue if everyone were benefiting proportionally. But that's not the case. Statistics tell the story. Yes, I know—statistics can cause the eyes to glaze over, but as one of my mentors once reminded me, "It is the mark of a truly educated man [or woman] to be deeply moved by statistics."
Let's see if these statistics move you.
While we've witnessed several periods of immense growth in recent decades, the average real income of the bottom 90 percent of American taxpayers - that's a heap of people - fell by 7 percent between 1973 and 2000. (ibid )
During 2004 and the first couple of months this year, wages failed to keep pace with inflation for the first time since the 1990 recession. They were up somewhat in April, but it still means that "working Americans effectively took an across-the-board pay cut at a time when the economy grew by a healthy four percent and corporate profits hit record highs as companies got more productivity out of workers while keeping pay raises down." (ibid )
Believe it or not, the United States now ranks the highest among the highly developed countries in each of the seven measures of inequality tracked by the index. While we enjoy the second highest per capita GDP in the world (excluding tiny Luxembourg), we rank dead last among the 20 most developed countries in fighting poverty and we're off the chart in terms of the number of Americans living on half the median income or less. (ibid )
And the outlook is for more of the same. On the eve of George W. Bush's second inauguration The Economist - not exactly a Marxist rag - produced a sobering analysis of what is happening to the old notion that any American can get to the top. With income inequality not seen since the first Gilded Age (and this is The Economist editors speaking, not me) - with "an education system increasingly stratified with fewer resources than those of their richer contemporaries" and great universities "increasingly reinforcing rather than reducing these educational inequalities" - with corporate employees finding it "harder…to start at the bottom and rise up the company hierarchy by dint of hard work and self-improvement" - "with the yawning gap between incomes at the top and bottom" - the editors of The Economist - all friends of business and advocates of capitalism and free markets—concluded that "The United States risks calcifying into a European-style class-based society."
Let me run that by you again: "The United States risks calcifying into a European-style class-based society."
Or worse. The Wall Street Journal is no Marxist sheet, either, although its editorial page can be just as rigid and dogmatic as old Stalinists. The Journal's reporters, however, are among the best in the country. They're devoted to getting as close as possible to the verifiable truth and describing what they find with the varnish off. Two weeks ago a front-page leader in the Journal concluded that "As the gap between rich and poor has widened since 1970, the odds that a child born in poverty will climb to wealth - or that a rich child will fall into middle class - remain stuck... Despite the widespread belief that the U.S. remains a more mobile society than Europe, economists and sociologists say that in recent decades the typical child starting out in poverty in continental Europe (or in Canada) has had a better chance at prosperity." (Wall Street Journal , page one, 5/13/05)
That knocks the American Dream flat on its back. But it should put fire in our bellies. Because what's at stake is what it means to be an American."
And then you combine that with what we already know about the economics, politics, and geopolitics of the coming of the peak, and my friends, you have the recipe for a very very big fall.
Go to the postings for today
Technorati Tags: peak oil, oil
“The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place we are entering a period of consequences…”
—Winston Churchill, November 1936
Contact
- Content: editors at theoildrum dot com
- Tech support: support at theoildrum dot com
License
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.
It's not clear to me that higher oil prices will hurt income inequality in the U.S.
It might even have the opposite effect. Higher tranpsortation costs would make make local manufacturing more cost effective than overseas manufacturing, increasing the demand for American labor.
You will also see the stock market take a tumble. Most of the wealth is accumulated in the stock market. That tumble will even things out a bit.
I've been wondering for more than a year what it is that "the rich" were aware of that was making them collect all that money, with Board of Directors members approving each others' obscene pay levels. I suppose they're aware of peak oil and afraid of what may go down.
Its not going to get better and yes as prices rise higher and higher they are not going to raise the minimum wage. American Labor is being infiltrated by 3 million a year from the south so dont expect wages to rise there either.
more info about the Wealth Inequality
http://www.faireconomy.org/research/wealth_charts.html
the stock market tumble will effect who the most?? the average joe thats who. those who have restrictions on their retirement plans and cannot move their wealth quickly enough as the dollar continues to fall.
To say if the marktet crashed it would help the lower people is just plain silly. Their money will be worth less and the prices of goods which most are shipped from over seas will continue to go up.
If they do not get a handle on this energy thing NOW I am afraid it will be too late to help lessen the effect of the fall. As it is they are most likely 10-15 years too late to make a real difference, but if they started today they could make a cliff into steep grade.
Here are some comments on the statistics quoted by Bill Moyers.
First, doesn't it seem strange to juxtapose the statement that the bottom 90% of wage earners have seen a 7% decrease in real wages, with the claim that "During 2004 and the first couple of months this year, wages failed to keep pace with inflation for the first time since the 1990 recession"? Don't they seem a little contradictory? If real (i.e. inflation-adjusted) wages have been falling for 30 years for almost everyone, how could it be that only in the past year or so that wages are failing to keep pace with inflation?
Anyway, I decided to follow up on the claim about falling real wages over 30 years. Another weird thing is that Moyers references a random Alternet article instead of a more authoritative source? That's like referencing a blog or something...
So the Alternet essay points to a Paul Krugman article in The Nation, which attributes the 7% drop claim to economists Emmanuel Saez and Thomas Piketty. I hunted on their web pages and found that they had published only one paper together, which didn't have that statistic. However they have an updated and unpublished version which does have it, at http://emlab.berkeley.edu/users/saez/piketty-saezOUP04US.pdf. (These guys are good about putting everything online!)
So we have you, referencing Moyers, who references Joshua Holland at Alternet, who references Krugman, who has a vague reference to Saez and Piketty. It wasn't easy to track down.
But sure enough, the data is there, buried in Table A4 on page 74. Average wage for bottom 90% of wage earners in 1973 was $28,540, and by 2000 it had fallen to $26,474. That's a 7% drop.
However, there is more to the story. If you look at Figure A1 on page 61, he shows a graph of similar data, showing wages of bottom 99% of wage earners had stagnated over the same period. They fell a small amount, not as much as the 7% fall of the bottom 90%, but still not doing much. Yet there is considerable commentary and explanation that shows that this data is fundamentally misleading:
"Important points to keep in mind when interpreting this figure (in particular the fact that average real incomes for bottom 99% have stagnated from 1973 to 2000):
"1) Income is defined as market income (excluding realized capital gains) and excludes all transfers such as Social Security benefits, unemployment insurance, welfare assistance, etc. The importance of transfers has grown overtime. They represent in 2000 about 15% of personal income and around 10% in 1973, and only 1-2% before 1930.
"2) The unit is the tax unit (such as couple and dependents, or a head of household with dependents, or a single person). The number of individuals per tax unit has declined overtime from 2.5 in the 1973 to 2.1 in 2000 but the number of adults (aged 20+) per tax unit has only declined from 1.6 to 1.5
from 1973 to 2000. A tax unit is smaller than a household (a household is defined as all individuals living in the same unit such as two roommates, etc.) In 2000, there were 134.5 million tax units but only 104.7 million households in the United States. Therefore, average household income is about 28% higher than average tax unit income.
"3) All nominal incomes are deflated using the official Consumer Price Index (CPI-U). It has been recognized that the CPI-U understates inflation and new CPI series (CPI-U-RS) have been created for the period 1967-2002 displaying 15% less inflation (and hence 15% more real income growth) for the period 1967 to 2002 and about 13% more real growth from 1973 to 2000.
"In sum, from 1973 to 2000, the average income of the bottom 99% would have grown by about 40% in real terms instead of stagnating (as displayed on the figure above) if we had included all transfers (+7% effect), used the CPI-U-RS (+13% effect), and especially defined income per capita (+20% effect)."
Re-read that last paragraph. Incorporating these other adjustments to income to produce a more realistic picture increases wages over the 1973-2000 period by 40% in real terms! This more than compensates for the 7% drop that Moyers got so tearful over, leading to a net increase per capita of 33%.
Yet how many people are willing to go to the primary sources to get this kind of data? Almost no one. So Krugman publishes some misleading factoid, it goes to Alternet, Moyers picks it up and then it's everywhere. As Twain said, a lie travels halfway around the world while Truth is still getting its boots on. And if it's the mark of the educated man to be moved by statistics, what kind of man is he if the statistics turn out to be presented in a misleading manner in order to mask the deeper truth of the situation? I would suggest that the truly educated man is not moved by statistics, he is motivated to look deeper and to see for himself what are the facts of the matter.
Go take alook at the bottom 60-70% or even the bottom 50% this 99% thing limps together alot of people making huge amounts. To use the bottom 99% isnt correct at all. about 25-30% of those inthe top of that 99% dont feel the effects and get yearly raises unlike the average joe. You can try to paint over 50-60% by averaging in alot of higher wage earners, but we and the bottom still know what the truth is. The rich/well todo/haves have been getting richer and the poor/have nots poorer for along time now.
The coming economic meltdown will be a syunergistic event feeding on personal indebtedness, the spatial absurdity of our settlement patterns, the withdrawal of our access to cheap foreign monies, militiary debacles, and increasing environmental desperation. Then there is Peak OIl. Results. The first mass based Maoist like communist party in this nations history with militancy combined with Party discipline which will freak out the elites resulting in unholy hell breaking out in many areas of the country. The state will impose war like methods to control the seething desperate masses and manufacture enemies for us all to fight. I predict totalitarian communits warring with fascists before in a number of areas of the country resulting in the disintegration of nation in the next decade. Have a nice day ! DS
Higher oil prices will definitely hurt lower income consumers more than those with higher incomes. Fuel costs are effectively a highly regressive income tax, meaning the higher your income the smaller the percentage of that income you pay.
An executive making $500K/year who just bought a Cadillac SUV won't feel much direct economic pain if gas hits $4/gallon. (If the higher price caused his company problems and he lost his job, then he'd really feel it, but that's an indirect cost.)
A family living in proximity to the poverty line and struggling to keep an old car they depend on in runnable shape and gassed up will have a much harder time dealing with $4/gasoline. And people in that income category are more likely to be seriously impacted indirectly than the executive, as they're more likely to wind up under- or unemployed because of the rise in oil prices.
This is yet another reason why I think the U.S. should be pushing hard on developing and rolling out renewable energy systems, like solar, wind, and wave. A lot of cynics point out that to make a big impact on our energy portfolio you have to build a LOT of turbines, panels, etc. Well, that's the point--if we build them here then we're spending our money at home and not shipping it abroad to pay for oil or natural gas imports. Not only do we buy ourselves energy security and reduce our trade imbalance, but we get the benefit of the multiplier effect--all the people working to build, install, and maintain those energy systems live and spend their money here, further supporting the economy.
I'm still not swayed by the "we'll have to build/grow everything locally or do without" arguments, however. Yes, higher transportation costs will create an incentive to localize production, but I think people are overestimating the size of that effect.
The economics of peak oil (and later, natural gas) are a bit more complicated than many people think, and there's more good news and less bad news in the picture as you dig further into the details. But it still won't be a walk in the park, or even just mildly unpleasant, not by any stretch of the imagination.
Lou - you make a great point. I think of it like a build up to war, which has historically been great for the economy. Only this time the war is against peak oil and global warming. Instead of weapons we need to build an alternative energy infrastructure.
What we're missing is the moral leadership and sense of immediacy required to call our country to action. Like Lindbergh preceding WWII, GW Bush is taking the path of least resistance, preserving the status quo while the enemy slowly takes over the world.
We can argue over Moyers numbers, but gentlemen and ladies of the Middle Class are feeling the squeeze. And the fact is that Moyers is right - wealth concentration is escalating, and actually stratifying higher.
A salary of $250,000 used to be a huge salary. Now it is chump change for many corporations. Yet the next big block of incomes drops from $250,000 to +/- $100,000, and the next plateau is at $+/- 65,000. I am fairly sure facts to support this can be found, but my CPA has broken down their returns by income, and those are his plateaus from a sample of about 10,000 in metro Houston.
What people are not getting is that the truly rich are getting obscenely rich, and the rest of us are sending our money to them via loan interest or the stock market. Period. I am talking about people whose yearly income is in the millions. The rich no longer includes paper millionaires - if anything, they send more money into the fatcats pockets than the rest of us, trying so hard to become one of them.
All this has been studied and elaborated on by those people who examine monetary systems. All this has happened before (Rome sticks out as the latest example). "Nothing is new under the sun," to quote a very old guy who was actually pretty sharp. It is the curse of a monetary system where interest is charged for loaning money. Nothing short of changing the system will ever stop it; it can only be periodically reset by calamity to start again.
We are heading for a reset point today, brought on by Peak Oil, the coming housing bubble pop and a virtually unregulated financial market. And those are just the domestic issues...
Grinzo, if we have a semi-smooth meltdown, I think you may be right about the "local or nothing" thing. But you tell me - based on the stock market, housing market, derivatives market, Federal Reserve policy, and all the rest of the issues looming in the relatively near future: do you really think we are going to have something relatively coherent in terms of system reset? Is Joe SixPack going to be ok when he is told his 401K is gone on the day he is laid off from his truck driving job due to the economy flagging at $6/gal?
I think that the measures the PTB have taken to stave this off and fatten their wallets have all but insured chaos when the fit hits the shan. And all we have to do is get a little too belligerent at the wrong time and any number of countries can set off the bomb by selling dollars en masse. Never has a country so large been perched on the edge of financial chaos as we are today. If I am wrong, then correct me and tell me why I should calmly receive the news that the Treasury Department is doctoring numbers, or that "someone" is actively tripping program trading in all the markets. I should be calm when 3 trillion dollars of "counterfeit" dollars are found in the Phillipines (that is 30 billion $100 bills)? I should be calm when the Federal Reserve prints more money in a month than it has in the previous year, and then begins to buy US debt because other countries cannot buy it fast enough to float our economy??
Help me here, people....
And while I am at it, the government has done several things to prepare for this:
1) Patriot Act
2) Bankruptcy Bill
3) Asking new recruits if they would be willing to fire on their own people if ordered to do so
Chew on those...
j: so what do we do with the money? Continue to put it in mutual funds and money markets? Is the good old savings account any better? You're making my mattress sound great.
FYI: This audience has probably read it already, but given j's comment, you may be interested in the NYTimes' article from their class series called Richest Are Leaving Even the Rich Far Behind.
ianqui -
there are already quite a few former wall streeters who have "taken to the hills" and are working remotely from rural america. These are the guys who are in their 50's to 60's and have seen everything they ever "knew" about market behavior fly out the window over the last 5 years. Some of them are even beginning to stash food long term. And I am not talking about 2 or 3 of them. My brother owns a small business in rural NE Texas, and there are 8-10 of these former wall streeters living in his little cozy town, or with a second residence there.
I will not offer you investment advice, but I can tell you that if the market takes a dump, 401K accounts will be worth less than toilet paper. But if you already know that GM has been downgraded to junk status and several major airlines are looking at bankruptcy, then you have probably taken yourself out of the market.
Where do you go? Well, you buy rural land or you buy AND TAKE POSSESSION OF silver or gold. Those are long term, crap proof investments. The chances of the government trying to take your rural land by eminent domain are small. In cities, it is something that happens every day.
Most long term investors are predicting a run on gold and silver when the housing bubble pops, as that money looks for somewhere to go outside the controlled stock market and away from housing. They will also be fearful of buying dollars due to the huge debts we are running. So they will go to overseas currencies for higher yield/risk and gold/silver for holding values.
Obviously the rural land thing is a go, or the former wall streeters wouldn't have gotten in at all. But they are getting choice stuff - 20-40 acres with springs and creeks or river frontage. Even rural, that is premium price. But land, if you buy carefully, should hold value relative to the economy. Long term, it will work out, and give you somewhere you can always call home.
There is a finite amount of gold, and while it will increase if the price doubles due to intensive mining, there will always be a finite and rare amount. It cannot be made by man like diamonds can. Thus it will always be worth quite a lot relative to anything else. But owning it on paper simply means some corporation owes it to you. Who knows which will survive when the market does a heave-ho.
People looking for the usual big or fast profit will get killed. Those looking for a safe haven should be ok with these two.
Those are my thoughts, since you asked...
Ack. This is when I reaffirm my plan to buy my sister's portion of my parents' (rural-esque) house when they go so that I have a place with some land. (The only problem with it is that it's at the top of a pretty formidable hill, and I'm not going to be happy about it when I have to walk or bike up it just to get out of the house.)
ianqui -
Here's something to think about for your hilltop. While in New Zealand, I saw a farmer who had built his home on a very steep hill. About 2 weeks after I noticed the place, I was driving home from work and saw him on a bicycle at his mailbox. Then I saw him reach for something, and poof! he was being pulled up the hill on his bicycle!
I was really intrigued by this, because in New Zealand they have some very steep hills from all the volcanic ash, and this one was easily about 50 degrees inclination. I drove over to this place, and up the very steep driveway.
We talked, and he showed me his "contraption". When he went down to get the mail, he turned on the water spigot, which poured onto ground well next to his home. He placed a big washtub next to the outfall of the spigot, but not under the running water. The washtub had a 3-point chain attached to a rope, with a pair of steel rails and wheels, which ran down the back side of the hill. He then went down the hill pulling the rope. When he got to the bottom, he pulled hard until the rope bottomed out on a pulley, which pulled the washtub under the spigot at the end of the tracks. Then he hooked this to the gooseneck of his bike.
When there was enough water to pull him up the hill, the washtub started down the back side of the hill full of water, pulling him up. When he got to the top, a tripping mechanism emptied the water and he was good for the next day.
It was very Rube Goldberg, but also very cool and funky. This guy (he is almost 70 by now) had all kinds of stuff powered by levers and pulleys all over his farm. He was about to try and tap into some geyser heat on a neighbors farm. I spent 2 hours just talking to him, and we still email back and forth today.
I guess where there's a will, there's a way... LOL!
j: sounds like the Senatorial class of Rome is leaving the messy, crime ridden and collapsing cities of the Empire to retire to their latifundia (country estates), complete with their armies of slaves and guards...
With the collapse of Imperial Rome those estates and the scions of the old families that ran them became the new warlords of the early Middle Ages...
Hmm.
floop -
You might want to count how often I have referenced Rome...
And I do happen to own a "hobby farm"...
*WEG*