23 ms·

The Economic Expansion Is Finally Helping the Middle Class

86 points by sethbannon 10y ago

cryoshon 10y ago
enough to offset the debt economy? dubious
- topspin 10y ago
  dubious Right on cue; statist happy talk. Don't vote with the Deplorables and change anything.
  - norea-armozel 10y ago
    Yet it's the same Deplorables that want to LGBT down by any and all means (especially the T). Sorry if I don't support those folks but until they back something like ENDA then I'm not going to vote for them in any possible world.
  - WalterSear 10y ago
    Two bad choices don't make a good one.
- tostitos1979 10y ago
  I am seriously confused. Most intelligent people I meet are aware of the "debt economy" aka debt supercycle aka shop-till-you-are-maxed-out phenomenon being caused by ultra low interest rates. Surely this theory is not just held by zerohedge readers any more and by normal people. Once consumers are maxed out, how the heck will they spend in the future? Surely the fed knows this and has a viable plan. Else, they are kicking bigger problems to the future, aren't they?
  - smaddox 10y ago
    Prior to the global financial crisis, Neoclassical Economists, i.e. the ones running the US Fed, would not even consider the level of private debt as a significant macroeconomic metric. That's changed slightly, but not really. They still delusionally believe that private debt doesn't matter UNLESS there's an exogenous shock which forces interest rates to the zero lower bound. They seem unwilling to accept the reality that rising private debt drives macroeconomic demand and that stabilizing or reducing private debt triggers an endogenous crisis a la Hyman Minsky's financial instability hypothesis.
  - withdavidli 10y ago
    By normal people? I think you are greatly overestimating people's knowledge of economic theory. Most probably only know of trickle down because it's mentioned in the news. There was a recent article by NYT about the Chase Sapphire Reserve credit card. Look at the comment section, most don't know how to do cost benefit analysis. All they saw was a $450 annual fee. A good amount still talk about paying with cash only. This doesn't mean I'm much better off. When you mentioned debt super cycles I have no idea what you mean. I'm only starting to get into economic theories. I'm 27, can be considered upper middle income, and given millennial income calculators in top 1% of earnings (not saying much since most people in the valley can get that, ~$70k income for that level). These theories does not have a perceived effect on people's day to day lives. So a lot don't know about them or don't care. Example, every few weeks I see an article in the front page about negotiating salary. This isn't a gauge of knowledge, but of interest. Everyone goes through negotiation situation, value is obvious, more people learn about it.
    - afterburner 10y ago
      You must be thinking top 1% in the world. To be in the top 1% in the US, you need more like a $450,000 income. http://money.cnn.com/calculator/pf/income-rank/ http://money.cnn.com/calculator/pf/income-rank/
      - tsunamifury 10y ago
        He's trying to measure himself against the average single person his age. Of course, more realistically according to the Bay Area metric, he is below the household poverty line.
        withdavidli 10y ago
        Yes. This is what I did from a calculator by fusion http://fusion.net/story/41833/wealth-gap-calculator-are-you-in-the-millennial-one-percent/ http://fusion.net/story/41833/wealth-gap-calculator-are-you-... Mixed up my numbers, top 1% for age group ~106k. Bay Area metric I make more than median household, which is scary since that means the average single income family in the Bay Area would be barely scraping by (not hard to believe).
  - ArkyBeagle 10y ago
    But household debt peaked in 2007.
- hx87 10y ago
  What's wrong with a debt economy? It allows startups to overthrow incumbents with relative ease, and without it you get an economy like Germany's, dominated by conservative companies founded 150+ years ago. There are certainly advantages to the German system, but it has plenty of disadvantages too.
  - djschnei 10y ago
    savings and accurate interest rates fuel a health economy, not debt.
    - smallnamespace 10y ago
      > savings Every debt is matched by an equal and opposite asset. Savings create debt. http://www.investopedia.com/terms/b/bank-deposits.asp http://www.investopedia.com/terms/b/bank-deposits.asp E.g. you give a bank $1, it creates a liability for $1 on its balance sheet, and it also goes out and lends that cash to someone (allowing it to create debt somewhere else). The question you should be asking is not the total level of debt, but which groups in the economy are indebted. I agree that consumers as a whole should have positive savings.
      - djschnei 10y ago
        http://www.investopedia.com/terms/f/fractionalreservebanking.asp http://www.investopedia.com/terms/f/fractionalreservebanking... Beyond that, I said "and" not "or". Interest rates and savings should be organically tied together. They should signal each other. Nowadays, they do not.
        smallnamespace 10y ago
        No doubt we all, including central banks, would be happier if rates were at 5% instead of 0%, but then we'd have much worse mass unemployment as an aftereffect of the financial crisis. The 0% bound you see today is the lesser of two evils.
Retric 10y ago
Median household income shows similar growth levels for ’92–’97 (7) and ’10–’15 (6). However, bottom 20 percent income vs. Top 20 percent income looks like 1/2 the growth at the bottom 92–’97 (10) ’10–’15 (5) vs top 92–’97 (20) ’10–’15 (10) for both periods. So, it might be broader recovery, but the bottom is still failing further behind and the middle is not keeping up with the top.
- MrTonyD 10y ago
  Agreed. I feel like this is a "can't see the forest for the trees" story. A median moving a few percent is pretty much meaningless in the context of the many millions who are struggling and suffering. The fundamental causes of inequality are not being addressed.
  - hx87 10y ago
    Those few percent mean that millions who aren't at the top are moving ahead.
  - throwaway12938 10y ago
    You mean the transition to an information based society but without author-centric notions of copyright? Most of the successful companies of the last few decades deal mainly in intellectual properties. Most of the successful companies in technology derive their profits from other people freely giving away their intellectual property.
  - tjic 10y ago
    Serious question: how do you propose to address (a) some people can't make meaningful contributions to the economy because they lack the intelligence to compete with machines (b) some people can't work because globalization means that their potential contributions can be done cheaper by someone in the middle class overseas who is happy to work for less than US minimum wage allows them to work for (c) some people refuse to work because the benefits safety net (including disability for unverifiable conditions (source: http://www.theatlantic.com/business/archive/2013/03/disability-insurance-americas-124-billion-secret-welfare-program/274302/ http://www.theatlantic.com/business/archive/2013/03/disabili... ) is more comfortable than work
maxxxxx 10y ago
Judging from the last few decades the economy is due for a blow-up soon so incomes will drop again. This is a little late in the cycle.
roymckenzie 10y ago
Could have fooled me
jazzyk 10y ago
All the while the three major expenses in real-life: 1. health care premiums -up 15%/year, 2. college tuition -up 5-7%/year, 3. real-estate/rentals -up 6-10%/year (varies depending on the market) Nice spin. Get ready for more "positive" news about the economy, only to be "adjusted" after Nov's election.
- smallnamespace 10y ago
  These figures are already inflation adjusted. From the article: > inflation-adjusted incomes for the mass of Americans have finally started to rise in a meaningful way Now, we can have a nice technical argument about whether CPI truly represents the cost of living of your average American, but I suspect that wasn't the point you were trying to make. http://www.bls.gov/cpi/cpifaq.htm http://www.bls.gov/cpi/cpifaq.htm What goods and services does the CPI cover? ... HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) ... MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services) ... EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
  - jazzyk 10y ago
    Yeah... The BLS lists medical services/commodities inflation rate for 2015 at 4.1%/3.6% respectively [1]. Why did my premium go up 20%, then? Why did most people's premiums go up at least 10% or more? Their methodology just doesn't match reality. Just like the 4.9% "unemployment" rate. BTW, the government has vested interest in under-reporting inflation - the COLA is indexed to it. [1]http://www.bls.gov/news.release/pdf/cpi.pdf http://www.bls.gov/news.release/pdf/cpi.pdf [2]https://www.ssa.gov/news/cola/ https://www.ssa.gov/news/cola/
    - smallnamespace 10y ago
      Yes, and it looks like Medical CPI is a lot closer to other sources that I randomly looked at: * http://www.insurancejournal.com/news/national/2015/11/12/388800.htm http://www.insurancejournal.com/news/national/2015/11/12/388... - Around 4% per annum since 2010 * http://www.ncsl.org/research/health/health-insurance-premiums.aspx http://www.ncsl.org/research/health/health-insurance-premium... - Around 4.5% from last year * http://www.commonwealthfund.org/publications/blog/2016/jan/2016-health-insurance-marketplace-premiums http://www.commonwealthfund.org/publications/blog/2016/jan/2... - About 6% increase for ACA plans from last year There can be all sorts of reasons why your premium went up faster than this: 1) your plan is atypical 2) you're living somewhere or in a demographic that is atypical 3) your insurer didn't increase your premium for awhile, and then lumped all the increases at once. Just like if you live in the Bay Area, you're going to see annual housing price increases that are large multiples of what the rest of the country sees...
RandyRanderson 10y ago
Note that "inflation" and "inflation adjusted" are not what you'd expect. http://www.financialsense.com/contributors/lance-roberts/inflation-different-than-reality http://www.financialsense.com/contributors/lance-roberts/inf... This is a natural consequence of tying social security (and other benefits) to inflation and Goodhart's Law: https://en.wikipedia.org/wiki/Goodhart%27s_law https://en.wikipedia.org/wiki/Goodhart%27s_law I've been meaning to do an analysis of inflation based on hours worked. It;s hard to redefine hours but I'm sure politicians will find a way!
- greggyb 10y ago
  > I've been meaning to do an analysis of inflation based on hours worked. It;s hard to redefine hours but I'm sure politicians will find a way! The cynic in me says that they simply record fractional portions of FTE and FTE takes on different values over time and across industries.
- conistonwater 10y ago
  The financialsense link looks a bit dodgy to me. The first thing that pricks me about it is the way he complains about some change that happened in BLS's CPI calculation in 1997 (which is described here: http://www.bls.gov/cpi/cpigmrp.htm http://www.bls.gov/cpi/cpigmrp.htm). His response: But the manipulation of the data did not stop there. He seems to think that any change, no matter if it's justified on methodological grounds, is "manipulation". I imagine he highlighted this change because the shift after the change in methodology was down. He's entitled to his opinion, of course, but that doesn't make him correct. His discussion of core CPI and the remark that "average consumers who quickly point to the fact the food and energy are big part of their daily lives" is also wrong, and the reason for using core CPI is usually discussed in textbooks (e.g., http://krugman.blogs.nytimes.com/2010/02/26/core-logic/ http://krugman.blogs.nytimes.com/2010/02/26/core-logic/). It has to do with the fact that people need to predict future price levels when signing current contracts, and thus having a volatile measure of inflation would not be a good thing. For an example of how methodological issues can remain for a long time without being fixed, consider that the Dow Jones Industrial Average index is still an arithmetic average of share prices, not weighted by market capitalization like other indices. So fixing methodological issues is something worthwhile, and should be rewarded, not denounced as some kind of political manipulation.

86 points by sethbannon 10y ago

cryoshon 10y ago

enough to offset the debt economy? dubious

topspin 10y ago
dubious Right on cue; statist happy talk. Don't vote with the Deplorables and change anything.
- norea-armozel 10y ago
  Yet it's the same Deplorables that want to LGBT down by any and all means (especially the T). Sorry if I don't support those folks but until they back something like ENDA then I'm not going to vote for them in any possible world.
- WalterSear 10y ago
  Two bad choices don't make a good one.
tostitos1979 10y ago
I am seriously confused. Most intelligent people I meet are aware of the "debt economy" aka debt supercycle aka shop-till-you-are-maxed-out phenomenon being caused by ultra low interest rates. Surely this theory is not just held by zerohedge readers any more and by normal people. Once consumers are maxed out, how the heck will they spend in the future? Surely the fed knows this and has a viable plan. Else, they are kicking bigger problems to the future, aren't they?
- smaddox 10y ago
  Prior to the global financial crisis, Neoclassical Economists, i.e. the ones running the US Fed, would not even consider the level of private debt as a significant macroeconomic metric. That's changed slightly, but not really. They still delusionally believe that private debt doesn't matter UNLESS there's an exogenous shock which forces interest rates to the zero lower bound. They seem unwilling to accept the reality that rising private debt drives macroeconomic demand and that stabilizing or reducing private debt triggers an endogenous crisis a la Hyman Minsky's financial instability hypothesis.
- withdavidli 10y ago
  By normal people? I think you are greatly overestimating people's knowledge of economic theory. Most probably only know of trickle down because it's mentioned in the news. There was a recent article by NYT about the Chase Sapphire Reserve credit card. Look at the comment section, most don't know how to do cost benefit analysis. All they saw was a $450 annual fee. A good amount still talk about paying with cash only. This doesn't mean I'm much better off. When you mentioned debt super cycles I have no idea what you mean. I'm only starting to get into economic theories. I'm 27, can be considered upper middle income, and given millennial income calculators in top 1% of earnings (not saying much since most people in the valley can get that, ~$70k income for that level). These theories does not have a perceived effect on people's day to day lives. So a lot don't know about them or don't care. Example, every few weeks I see an article in the front page about negotiating salary. This isn't a gauge of knowledge, but of interest. Everyone goes through negotiation situation, value is obvious, more people learn about it.
  - afterburner 10y ago
    You must be thinking top 1% in the world. To be in the top 1% in the US, you need more like a $450,000 income. http://money.cnn.com/calculator/pf/income-rank/ http://money.cnn.com/calculator/pf/income-rank/
    - tsunamifury 10y ago
      He's trying to measure himself against the average single person his age. Of course, more realistically according to the Bay Area metric, he is below the household poverty line.
      - withdavidli 10y ago
        Yes. This is what I did from a calculator by fusion http://fusion.net/story/41833/wealth-gap-calculator-are-you-in-the-millennial-one-percent/ http://fusion.net/story/41833/wealth-gap-calculator-are-you-... Mixed up my numbers, top 1% for age group ~106k. Bay Area metric I make more than median household, which is scary since that means the average single income family in the Bay Area would be barely scraping by (not hard to believe).
- ArkyBeagle 10y ago
  But household debt peaked in 2007.
hx87 10y ago
What's wrong with a debt economy? It allows startups to overthrow incumbents with relative ease, and without it you get an economy like Germany's, dominated by conservative companies founded 150+ years ago. There are certainly advantages to the German system, but it has plenty of disadvantages too.
- djschnei 10y ago
  savings and accurate interest rates fuel a health economy, not debt.
  - smallnamespace 10y ago
    > savings Every debt is matched by an equal and opposite asset. Savings create debt. http://www.investopedia.com/terms/b/bank-deposits.asp http://www.investopedia.com/terms/b/bank-deposits.asp E.g. you give a bank $1, it creates a liability for $1 on its balance sheet, and it also goes out and lends that cash to someone (allowing it to create debt somewhere else). The question you should be asking is not the total level of debt, but which groups in the economy are indebted. I agree that consumers as a whole should have positive savings.
    - djschnei 10y ago
      http://www.investopedia.com/terms/f/fractionalreservebanking.asp http://www.investopedia.com/terms/f/fractionalreservebanking... Beyond that, I said "and" not "or". Interest rates and savings should be organically tied together. They should signal each other. Nowadays, they do not.
      - smallnamespace 10y ago
        No doubt we all, including central banks, would be happier if rates were at 5% instead of 0%, but then we'd have much worse mass unemployment as an aftereffect of the financial crisis. The 0% bound you see today is the lesser of two evils.

Retric 10y ago

Median household income shows similar growth levels for ’92–’97 (7) and ’10–’15 (6). However, bottom 20 percent income vs. Top 20 percent income looks like 1/2 the growth at the bottom 92–’97 (10) ’10–’15 (5) vs top 92–’97 (20) ’10–’15 (10) for both periods. So, it might be broader recovery, but the bottom is still failing further behind and the middle is not keeping up with the top.

MrTonyD 10y ago
Agreed. I feel like this is a "can't see the forest for the trees" story. A median moving a few percent is pretty much meaningless in the context of the many millions who are struggling and suffering. The fundamental causes of inequality are not being addressed.
- hx87 10y ago
  Those few percent mean that millions who aren't at the top are moving ahead.
- throwaway12938 10y ago
  You mean the transition to an information based society but without author-centric notions of copyright? Most of the successful companies of the last few decades deal mainly in intellectual properties. Most of the successful companies in technology derive their profits from other people freely giving away their intellectual property.
- tjic 10y ago
  Serious question: how do you propose to address (a) some people can't make meaningful contributions to the economy because they lack the intelligence to compete with machines (b) some people can't work because globalization means that their potential contributions can be done cheaper by someone in the middle class overseas who is happy to work for less than US minimum wage allows them to work for (c) some people refuse to work because the benefits safety net (including disability for unverifiable conditions (source: http://www.theatlantic.com/business/archive/2013/03/disability-insurance-americas-124-billion-secret-welfare-program/274302/ http://www.theatlantic.com/business/archive/2013/03/disabili... ) is more comfortable than work

maxxxxx 10y ago

Judging from the last few decades the economy is due for a blow-up soon so incomes will drop again. This is a little late in the cycle.

roymckenzie 10y ago

Could have fooled me

jazzyk 10y ago

All the while the three major expenses in real-life: 1. health care premiums -up 15%/year, 2. college tuition -up 5-7%/year, 3. real-estate/rentals -up 6-10%/year (varies depending on the market) Nice spin. Get ready for more "positive" news about the economy, only to be "adjusted" after Nov's election.

smallnamespace 10y ago
These figures are already inflation adjusted. From the article: > inflation-adjusted incomes for the mass of Americans have finally started to rise in a meaningful way Now, we can have a nice technical argument about whether CPI truly represents the cost of living of your average American, but I suspect that wasn't the point you were trying to make. http://www.bls.gov/cpi/cpifaq.htm http://www.bls.gov/cpi/cpifaq.htm What goods and services does the CPI cover? ... HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) ... MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services) ... EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
- jazzyk 10y ago
  Yeah... The BLS lists medical services/commodities inflation rate for 2015 at 4.1%/3.6% respectively [1]. Why did my premium go up 20%, then? Why did most people's premiums go up at least 10% or more? Their methodology just doesn't match reality. Just like the 4.9% "unemployment" rate. BTW, the government has vested interest in under-reporting inflation - the COLA is indexed to it. [1]http://www.bls.gov/news.release/pdf/cpi.pdf http://www.bls.gov/news.release/pdf/cpi.pdf [2]https://www.ssa.gov/news/cola/ https://www.ssa.gov/news/cola/
  - smallnamespace 10y ago
    Yes, and it looks like Medical CPI is a lot closer to other sources that I randomly looked at: * http://www.insurancejournal.com/news/national/2015/11/12/388800.htm http://www.insurancejournal.com/news/national/2015/11/12/388... - Around 4% per annum since 2010 * http://www.ncsl.org/research/health/health-insurance-premiums.aspx http://www.ncsl.org/research/health/health-insurance-premium... - Around 4.5% from last year * http://www.commonwealthfund.org/publications/blog/2016/jan/2016-health-insurance-marketplace-premiums http://www.commonwealthfund.org/publications/blog/2016/jan/2... - About 6% increase for ACA plans from last year There can be all sorts of reasons why your premium went up faster than this: 1) your plan is atypical 2) you're living somewhere or in a demographic that is atypical 3) your insurer didn't increase your premium for awhile, and then lumped all the increases at once. Just like if you live in the Bay Area, you're going to see annual housing price increases that are large multiples of what the rest of the country sees...

RandyRanderson 10y ago

Note that "inflation" and "inflation adjusted" are not what you'd expect. http://www.financialsense.com/contributors/lance-roberts/inflation-different-than-reality http://www.financialsense.com/contributors/lance-roberts/inf... This is a natural consequence of tying social security (and other benefits) to inflation and Goodhart's Law: https://en.wikipedia.org/wiki/Goodhart%27s_law https://en.wikipedia.org/wiki/Goodhart%27s_law I've been meaning to do an analysis of inflation based on hours worked. It;s hard to redefine hours but I'm sure politicians will find a way!

greggyb 10y ago
> I've been meaning to do an analysis of inflation based on hours worked. It;s hard to redefine hours but I'm sure politicians will find a way! The cynic in me says that they simply record fractional portions of FTE and FTE takes on different values over time and across industries.
conistonwater 10y ago
The financialsense link looks a bit dodgy to me. The first thing that pricks me about it is the way he complains about some change that happened in BLS's CPI calculation in 1997 (which is described here: http://www.bls.gov/cpi/cpigmrp.htm http://www.bls.gov/cpi/cpigmrp.htm). His response: But the manipulation of the data did not stop there. He seems to think that any change, no matter if it's justified on methodological grounds, is "manipulation". I imagine he highlighted this change because the shift after the change in methodology was down. He's entitled to his opinion, of course, but that doesn't make him correct. His discussion of core CPI and the remark that "average consumers who quickly point to the fact the food and energy are big part of their daily lives" is also wrong, and the reason for using core CPI is usually discussed in textbooks (e.g., http://krugman.blogs.nytimes.com/2010/02/26/core-logic/ http://krugman.blogs.nytimes.com/2010/02/26/core-logic/). It has to do with the fact that people need to predict future price levels when signing current contracts, and thus having a volatile measure of inflation would not be a good thing. For an example of how methodological issues can remain for a long time without being fixed, consider that the Dow Jones Industrial Average index is still an arithmetic average of share prices, not weighted by market capitalization like other indices. So fixing methodological issues is something worthwhile, and should be rewarded, not denounced as some kind of political manipulation.