Boris Johnson, the mayor of London, caused a flap where he pronounced that some people are too stupid to get ahead. But unless people are getting more stupid over time, it is likely that bad government policies are to blame for preventing people from getting ahead.
Government policies including the Fed monetary expansion have seemingly made matters worse for the average American family. Particularly since 2007.
The GINI coefficent is a measure of income distribution in country. And it has been skyrocketing since 2007 when Democrats took control of Congress and 2009 when they achieved a majority in both the House and Senate AND the Presidency. But for all the talk of income redistribution and “leveling the playing field,” things have only gotten worse for the average American household.
Here is the GINI coefficent for the USA since 2005. Note the decline from 2006 to 2007, and then the rapid increase from 2007 through 2012 (2013 is not available yet).
By race, the GINI coefficient for whites only has flattened, but WORSENED for black and Hispanics.
Let’s look at the GINI coefficient and real median household income (also available only through 2012). Of course, real median household income falls after each recession and the GINI coefficient worsens after each recession. But the Great Recession created the largest spread between income distribution and real income. In other words, the rich got richer and everyone else lost ground.
Of course, the Federal Reserve stepped in during late 2008 to save the banking system from failure and attempt to stimulate growth by lowering interest rates (and increase employment). Well, it looks like The Fed did help the GINI coefficient (that is, make income even more unbalanced).
And as of 2012, real median household income continues to plunge as the Fed Balance Sheet continues to expand.
The good news is that real income is slowly increasing in 2013. And the rise in the GINI coefficient seems to be slowing.
The housing bubble and crash clearly decimated the income and wealth of the middle class in the US. And government policies and Fed monetary easing seem to be making the problem worse. In fact, the government policies of encourage low down payment and homeownership as a means of wealth building have failed abysmally. Notice the decline in real median household income after the peak in house prices.
Can we put the GINI back in the bottle and have lower and middle class growth again? Massive government intervention to “save” the economy has resulted in even greater distortions in income and wealth.
Let’s try something else … like LESS government. Here is an interesting piece on Cyniconomics about the Larry Summers/Paul Krugman versus John Taylor debate on the stagnation. Even Jeffrey Sachs disagrees (somewhat) with Summers/Krugman.
Cheers on this Thanksgiving weekend!