Luxury retailers are smiling. So are the owners of high-end restaurants, sellers of upscale cars, holiday planners, financial advisers and personal coaches. For them and their customers and clients, the recession is over. The recovery is now full speed.
But the rest of America isn’t enjoying a recovery. It’s still quite sick. The finances of many Americans remain in critical condition.
The Commerce Department reported last Thursday that the economy grew at a 3 per cent annual rate last quarter (far better than the measly 1.8 per cent in the third quarter of last year). Personal income also jumped. Americans raked in over $13tn, $3.3bn more than previously thought.
Yet all the gains went to the top 10 per cent and the lion’s share to the top 1 per cent. More than a third of the gains went to 15,600 super-rich households in the top one-tenth of one per cent.
We don’t know this for sure because all the data aren’t in for 2011. But this is what happened in 2010, the most recent year for which we have reliable figures (courtesy of my colleague Emmanuel Saez and Thomas Piketty, who analysed tax returns) and nothing about the direction of this recovery has changed since then.
In 2010, 93 per cent of the gains went to the richest 1 per cent. Some 37 per cent gains went to the top one-tenth of one per cent. No one below the richest 10 per cent saw any gain at all.
In fact, most of the bottom 90 per cent lost ground. Their average adjusted gross income was $29,840 in 2010. That’s down $127 from 2009 and down $4,843 from 2000 (all adjusted for inflation).
Meanwhile, employer-provided benefits continue to decline among the bottom 90 per cent. The share of people with health insurance from their employers dropped from 59.8 per cent in 2007 to 55.3 per cent in 2010, according to the Commerce Department. And the share of private-sector workers with retirement plans dropped from 42 per cent in 2007 to 39.5 per cent in 2010. Yet the so-called “talent” in executive suites is getting gold-plated healthcare coverage for themselves and their families, along with deferred compensation and fat pensions subject to few, if any, taxes.
If you’re among the richest 10 per cent, a big chunk of your savings are in the stock market where you’ve had nice gains over the past two years. The value of financial assets held by American households increased by $1.46tn in the fourth quarter of 2011. And since 90 per cent of those financial assets are owned by the richest 10 per cent and 38 per cent by the top 1 per cent, the richest 10 per cent became $1.3tn richer and the top 1 per cent gained $554.8bn.
But if you’re in the bottom 90 per cent, you probably own few, if any, shares of stock. Your biggest asset is your home. And that’s a big problem. Home prices are down over a third from their 2006 peak and they’re still dropping. The median house price in February was 6.2 per cent lower than a year ago.
Which means if you’re in the bottom 90 per cent you’re likely to be even deeper underwater – owing more on your home than it’s worth. An estimated one in three homeowners with a mortgage are now holding their breath.
This is the most lopsided recovery in US history.
When the American economy began recovering from the depths of the Great Depression, the gains were widespread. From 1933 to 1934 the bottom 90 per cent gained 8.8 per cent in average income.
Yet recent recoveries have become more and more lopsided. The top 1 per cent got 45 per cent of Clinton-era economic growth and 65 per cent of the economic growth during the Bush era. So far in the Obama recovery, the top 1 per cent has pocketed 93 per cent of the gains.
But Washington doesn’t want to talk about this lopsided recovery. The Obama administration would rather focus on the recovery without mentioning whose it is. Perhaps it’s because almost all Democratic and independent voters are in the bottom 90 per cent.
Republicans would rather not talk about the lopsidedness of this recovery either because they’d rather not bring up the subject of inequality to begin with. Their reverse-Robin Hood budget plans cut taxes on the rich and slash public services everyone else depends on.
Fed chairman Ben Bernanke – who doesn’t have to face voters on election day – says the US economy needs to grow faster if it’s to produce enough jobs to bring down unemployment. Well, yes. But he leaves out the critical point.
We can’t possibly grow faster if the vast majority of Americans, who are still losing ground, don’t have the money to buy more of the things American workers produce. There’s no way spending by the richest 10 per cent will be enough to get the economy out of first gear.
The writer is the chancellor’s professor of public policy at the University of California at Berkeley and former US secretary of labour under President Bill Clinton. He is author of ‘Aftershock: The next economy and America’s future’