Rich-Poor Gap Widens to Most Since 1967 as Income Falls
The U.S. Census Bureau figures released yesterday underscored the struggles of American families in a sputtering economic recovery. The report also showed the income gap between rich and poor people grew to the widest in more than 40 years in 2011 as the poverty rate remained at almost a two-decade high.
Median household income dropped 1.5 percent last year while the proportion of Americans living in poverty was 15 percent, little changed from 2010. The 46.2 million people living in poverty remained at the highest level in the 53 years since the Census Bureau has been collecting that statistic.
The census data show the wealthiest Americans secured most of the benefits from the economic recovery that began in June 2009.
The top 1 percent of households experienced about a 6 percent increase in income, said David Johnson, chief of the social, economic and housing division at the Census Bureau.
What kind of an economy does phony money produce? You just saw it. One where most people get poorer, not richer. Why is that?
We'll go back to basics.
A society is made wealthy by accumulating capital. Not by spending money. Not by having a good time. Not by being nice...respecting women...following the Koran...borrowing...singing well...or bathing regularly. Capital is not wealth itself. But it's what allows a society to create wealth.
You can understand that just by comparing farmers in very poor countries to farmers in very rich countries. The poor farmer has to till the land by hand. The rich farmer uses a tractor. The poor farmer can produce, maybe, 1,000 bushels of corn. The rich farmer can produce 100,000. The rich farmer is 100 times richer. Is he smarter? Is he nicer? Is he more honest or a better story teller? Who knows...and who cares? He has a tractor!
'But don't worry,' says the poor man. 'I don't have any savings, but my central banker is going to print up some money.'
Will that work? Only insofar as the central bank can get away with its flimflam. The tractor seller may believe the money is real...for a while. He may sell the tractor to the poor farmer...take the new money that the central bank printed up...and send an order to the factory for another one, thus setting off a boom in the tractor business.
But who believes QE money is real today? It's too late. The world is hip to the central bank scam.
That doesn't mean QE will have no consequences. Speculators might make money. The rich might see their assets (and their wealth) increase. But most people will get poorer.
First, super-low interest rates will encourage people to keep their money in mattresses, rather than lend it out. Why lend it when you will earn a negative interest rate?
Second, oil and commodities - food and energy prices -- rise as soon as there is any hint of more QE. This leaves the poor and middle classes with less discretionary income. Not only are they poorer, they are also less able to push the consumer economy forward.
Third, negative real interest rates take money from savers...and reduce the amount of savings (capital) in an economy.
Fourth, eventually, the build up of phony money leads to higher rates of consumer price inflation...further reducing the real standard of living of the typical household...and reducing the real value of the nation's capital savings.
What is the real consequence of reducing the real savings in an economy? We've already see it. Mother Jones tells us:
25.3 million Americans: The true size of the unemployment crisis. This figure includes people who are out of work, forced to work part-time, or unable to find a full-time job, as well as those who want to work but have given up searching for a job in the past month, most likely out of frustration.
6.9 million jobs: How many fewer jobs there are today than in December 2007.
0.22 jobs: The number of job openings per one unemployed worker.
Twenty-eight out of 32 months: The number of months since January 2009 that job growth failed to keep up with basic population growth (roughly 150,000 jobs a month). All those headlines saying job growth has stalled are wrong; it's not even doing that.
43%: The percentage of jobless workers who haven't pulled a steady paycheck in more than six months. That's 6 million workers.
16.7%: The jobless rate for African-Americans. Black unemployment is now at its highest in 27 years.
11.3%: The Hispanic unemployment rate. This figure has held steady since February 2009.
17.7%: The unemployment rate for 16- to 24-year-olds of all races, ethnicities, and educational backgrounds. Often overlooked, youth unemployment has a long-term toll; young people who enter a weak job market are almost guaranteed to earn less over their lifetimes than those who find jobs during boom times.
280,000: The number of jobs the American economy needs to add each month to fill its 11.3 million-job deficit by the middle of 2016.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.