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Spartakus
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Topic: Report: Americans getting poorer Posted: 19-Nov-2007 at 11:41 |
In a new analysis of after-tax income, the United States ranks 15th among the world's richest countries. But wage comparisons for 'average workers' are tricky.
By Christian Science Monitor
"Comparisons are odious," that is, hateful, according to a popular phrase about seven centuries old. Comparison, however, is one of the tasks assigned to the Organization for Economic Cooperation and Development, an international body of 30 of the richest countries. It tries to compare its members' economic and social data, a difficult, perhaps even odious, job.
Sometime back it broadened statistically (for comparison purposes) the definition of the average workers in its member nations while trying to examine relative tax burdens. The result was "monumental," reckons Jacob Kirkegaard, an economist at the Peterson Institute for International Economics.
The OECD ranked the after-tax income of the average worker in the United States as 15th among its member nations. The richest middle class, if measured in terms of the purchasing power of its income, was in Britain.
That ranking would surprise most Americans, who likely consider their nation the most prosperous in the world.
In one fell swoop, OECD statisticians lowered the estimated income of the average American worker by more than 10% and raised average incomes of other rich nations by as much as 30%, notes Kirkegaard.
It may well be that the comparative U.S. standard of living is slipping. The price of oil has risen more dramatically in the United States than in other nations because of the dollar's large devaluation.
The reason for the drop is also statistical. In the past, the OECD had been using a proxy for the middle class based on the "average production worker." This concept focused on full-time workers in the relatively declining manufacturing sector, which tends to be unionized in the United States and better paid on average. The OECD's new measure is based on the "average worker," which captures all sorts of private-sector jobs in mining, utilities, construction, retail, hotels, restaurants, financial services, real estate and other areas.
So this new system ought to provide a fairer comparison.
But 15th place?
Not likely, figures David Grubb, an OECD economist in Paris. He points out that the United States and Canada included in their statistics sent to Paris the wages of nonsupervisory workers -- and not those of higher paid supervisory workers and salaried professionals. When that statistical difference is corrected, the rank of the American middle class would move up from 15th. How far is uncertain.
Continued from page 1
In the newest OECD Economic Outlook, the average annual wage in the total economy of the United States was $45,563 for 2005. That's exceeded only by Luxembourg, a wealthy banking duchy, with $50,634. Britain, Ireland and Australia are not far behind the United States with incomes above $40,000.
The problem is that this is a measure of total wages, not just the middle class, and it includes the richest Americans whose incomes have risen enormously in recent years. Outside of Hungary, the United States has the most extreme income inequality in the OECD.
Kirkegaard figures middle- and lower-income Americans are being squeezed by the flood of money going to the superwealthy. Democrats in Congress have the same view, and their tax proposals would shift the tax burden up the income ladder.
Wages vs. income After the early 1990s, the incomes of "very well-off Americans increased much faster than those of both the middle class and the poor," figures Gary Burtless, an expert at the Brookings Institution in Washington.
For example, top corporate officers got pay increases of 9.5% a year in the 1990s, on top of high levels to start with.
This doesn't mean that Middle America incomes have been entirely flat. An analysis by Terry Fitzgerald, an economist at the Federal Reserve Bank of Minneapolis, concludes that a "broad swath of Middle America experienced notable hourly wage gains" since 1975. In other words, children can still assume they have a better living standard, on average, than their parents did.
To reach that conclusion, Fitzgerald had to disentangle a "confusing web of data." Two data series on individual hourly wage rates showed little, or even negative, growth over the past 30 years. But labor income for the entire national economy was shown to have grown 39% in that time span.
To square this apparent contradiction, Fitzgerald applied to the two wage series a broader price index (personal-consumption expenditures), which covers the basket of final goods and services that people consume each year.
The new result: Average hourly earnings rose 10%, rather than declining 4%, from 1975 to 2005. Median hourly wages also rose 20% rather than 12%. Then he factored fringe benefits into the wage calculation, since they have become increasingly expensive and "contribute to workers' well-being."
That combination accounted for 28% of the 39% growth of total labor income.
"This does not contradict the claim that wage inequality increased over this period -- it did," writes Fitzgerald in a bank publication. In other words, the rich are still getting proportionately richer.
This article was reported and written by David R. Francis for The Christian Science Monitor
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"There are worse crimes than burning books. One of them is not reading them. "
--- Joseph Alexandrovitch Brodsky, 1991, Russian-American poet, b. St. Petersburg and exiled 1972 (1940-1996)
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Dolphin
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Posted: 19-Nov-2007 at 14:20 |
That article is very hard to follow..I wonder will this bubble burst under new Premiership, or will the gap continue to widen..? Because it seems, trying not to generalise, that a lot of Americans need to wake up to this.
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Dolphin
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Posted: 19-Nov-2007 at 14:31 |
Things continue to look ominous.....
Dollar continues near record lows
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Dollar weakness centres on US economy concerns | The US dollar has remained weak against both the euro and the yen in Monday trading as worries about the strength of the US economy continue.
The dollar fell to $1.4666 against the euro by early afternoon in Europe, and dropped to 110.30 yen.
At the start of November, the dollar hit a record low of $1.4752 against the single European currency.
The strength of the dollar had been undermined further by weak US economic data released on Friday.
Interest rate cuts
As a growing number of US banks reveal their exposure to bad US mortgage debt, data on Friday showed the biggest drop in American industrial production since January.
Taken together, analysts say this suggests further cuts in US interest rates.
"There are no fundamental reasons to buy the dollar," said Tsutomu Soma, senior manager of foreign securities at Okasan Securities.
The US Federal Reserve last cut interest rates in October to 4.5%, in an effort to kick-start the faltering housing and credit markets, as well as making borrowing cheaper to encourage consumer spending in the run-up to the key Christmas shopping period.
Despite signalling that it will adopt a wait-and-see approach to the future direction of interest rates, most economists expect a further cut in rates when Fed officials next meet in December.
"Are there inflation fears in the United states? Yes," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.
"But as long as housing remains a downside risk, people will think the Fed is biased to cut rates in the near term."
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hugoestr
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Posted: 19-Nov-2007 at 15:21 |
And we Americans caught in the middle are surprisingly silent about these news ...
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JanusRook
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Posted: 20-Nov-2007 at 06:18 |
It's reasons like this that I reject capitalism led societies....
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Brian J Checco
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Posted: 20-Nov-2007 at 06:34 |
I'm not worried. For one thing, I subscribe to the neo-stoic philosophy, so I take things in stride (good old Marcus Aurelius!), but for another... the US economy bestrides the world like a collossus; sure, the titans fall at some point- but a fellow will know when the time comes. Rome wasn't built in a day and it didn't collapse in one either.
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pikeshot1600
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Posted: 21-Nov-2007 at 15:50 |
Yeah, we are all in the bread lines over here.
These statistical studies are narrow in focus and rarely tell a complete story.
And the rich always get richer. They tend to always work from a bigger base that grows with the inevitable effect of compounding.
Economies tend to work that way also. This can't be news to anyone.
Edited by pikeshot1600 - 21-Nov-2007 at 15:52
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xi_tujue
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Posted: 21-Nov-2007 at 17:23 |
My economics teacher said the basic problem is that the Americans spend all there money. They don't save at all (In general)
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I rather be a nomadic barbarian than a sedentary savage
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Dolphin
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Posted: 21-Nov-2007 at 17:28 |
Your economics teacher has a penchant for over-simplification!!!
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pikeshot1600
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Posted: 21-Nov-2007 at 18:01 |
Originally posted by xi_tujue
My economics teacher said the basic problem is that the Americans spend all there money. They don't save at all (In general) |
I must agree with Dolphin. Professors are often fond of entertaining their classes since it is easier than teaching.
However, he is right in that not ENOUGH is saved.
According to the Treasury Dept. (FDIC statistics), as at 30 June, 2007, domestic cash deposits in US institutions were $6,691,673,572,000. Someone has saved something after all.
Previous generations made a better job of it than the current one or two.
Edited by pikeshot1600 - 21-Nov-2007 at 18:04
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longshanks31
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Posted: 22-Nov-2007 at 00:09 |
if americas richest are getting poorer then you would have cause to worry, as it is the rich keep getting richer
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long live the king of bhutan
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Zagros
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Posted: 22-Nov-2007 at 00:20 |
An economy collapse will not necessarily equate to the US ceasing to be a world power, with allusion to 1929. But such a collapse could possibly lead to the rise of another power or alliance, before the US can fully recover, to replace or buck its imperial hegemony. I believe China is building the resources for such a move - though more limited than the US in scope. Perhaps a collpase may be a good thing in the long run for the US economy which has suffered, in recent years, the afflictions of deluded politics.
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Paul
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Posted: 22-Nov-2007 at 00:30 |
The US collapse has been written on the wall (by every economic and finacial mag in the world) since the advent of the Euro. However I don't think what we are experiencing is it. Just a minor pre-quake.
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pikeshot1600
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Posted: 22-Nov-2007 at 01:01 |
Paul,
Why does the euro have anything major to do with it?
Europe is the collective society with the aging population; the crippling legacy costs of entitlements; the problem of non-integrated and non-integratable immigrants, and the refusal to acknowledge the necessity for her own defense.
Europe is a tired old nag (Britain is not; and is not really a part of Europe) that may have to eventually coalesce around a resurgent Russia to remain relevant.
I understand it is not fashionable to say so, and that it is heresy on AE, but all this garbage about the impending "collapse" of the US is absurd. Let me know when it happpens. I suspect we will all be mouldering in our graves by then.
Edited by pikeshot1600 - 22-Nov-2007 at 01:01
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pikeshot1600
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Posted: 22-Nov-2007 at 01:06 |
Another observation:
A collapse of the US economy would result in the collapse of all other economies as well, probably with far more drastic effects.
If any of you think that the mythical Chinese superpower could (or would) step up to the plate and save the day, think again. They would take care of themselves; the US would survive, and the rest will starve, broken and alone in the street.
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malizai_
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Posted: 22-Nov-2007 at 03:04 |
In response to the original question:
IF wages don't match increase in inflation than that would make anyone poorer. If it happens to Americans at the lower end of the scale, then they will get poorer.
If America catches a cold-everyone sneezes. After all one of the major exports of US is dollar inflation.
A dollar collapse is pretty impossible, unless the denominated commodities(gold, diamonds, oil, gas), and banking loans seize to be denominated in the $$$, At the moment the higher oil prices are soaking up the abundant dollars. I do however share the opinion that this inflationary balloon will burst at some point.
New-world gold and silver screwed the Ottomans. Chinese or other players dumping their dollar reserves(Which are continually dwindling in value before their eyes!) may have the same effect. In the end only culmination of multiple factors could push the Dollar over the edge. A continued decrease in dollar demand would be one indicator preceding such an event.
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Omar al Hashim
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Posted: 22-Nov-2007 at 03:54 |
The US will not collapse Soviet style. I don't think it will collapse at all. Although it will have various ups & downs, the US will continue to weaken for at least half a century yet. Presently I think the US is in a low, primarily because their current government has so openly exposed their weaknesses. With a new administration, and withdrawal from their military adventures, the US should partially, but never wholly recover.
America will gradually loose its economic strength, just as it is already loosing its military strength. People will diversify, the world will move on, and America will be left behind. It'll take 50-100 years so no-one hold your breath.
Edited by Omar al Hashim - 22-Nov-2007 at 03:56
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JanusRook
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Posted: 22-Nov-2007 at 05:57 |
My economics teacher said the basic problem is that the Americans spend all there money. They don't save at all (In general) |
See I never understood this. Why should anyone save money just for the sake of saving money? Currency is worthless in itself. Currency only has worth when it is being used for capital. Therefore it is better to spend all your money because at least you have some tangible capital that you can use now instead of waiting for something you may not be able to afford later. Currently I have only the bare minimum needed to provide a cushion in my bank account. I do however have several hundreds of dollars worth of technological equipment. If I didn't purchase it I would just have money in my bank account doing nothing, so what's the point of leaving money to rot? So banks have the ability to give out more loans?
The US will not collapse Soviet style. I don't think it will collapse at all.
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No....of course not...we're not that lucky....
It'll take 50-100 years so no-one hold your breath.
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Depends on the kinds of politicians being elected. I believe that more jobs going overseas and the lack of a raise in minimum wage as well as rising gas prices and a refusal to look into alternative energy sources, also the hold of Special Interest Groups can easily speed up the deterioration of America. Personally I believe that when Alan Greenspan dies America is f*cked irregardless...
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Eondt
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Posted: 22-Nov-2007 at 06:42 |
Originally posted by JanusRookSee I never understood this. Why should anyone save money just for the sake of saving money? Currency is worthless in itself. Currency only has worth when it is being used for capital. Therefore it is better to spend all your money because at least you have some tangible capital that you can use now instead of waiting for something you may not be able to afford later.[/QUOTE
I think you answered it yourself. If you spend it on capital no problem. Not saving money has two consequences. First the cost of capital increases for any new entrants into the market (the guys who wants to loan money) as banks can't lend out what they dont have (your saved money), unless they in turn loan money from the central bank. This results in incre |
I think you answered it yourself. If you spend it on capital no problem. Not saving money has two consequences. First the cost of capital increases for any new entrants into the market (the guys who wants to loan money) as banks can't lend out what they dont have (your saved money), unless they in turn loan money from the central bank. This results in increased inflation as the cost of this capital is passed on to the consumer.
The second issue is if all your expenditure (i.e. not saving) goes towards imports, leaving the country's current account in a deficit. Not that much of an issue if the majority of the imports were for infrastructure and capital project investments but if for luxury's and consumables, its a problem.
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Guests
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Posted: 22-Nov-2007 at 06:43 |
Political incompetatnce will harm the US economy much more than any weaknesses. The strenghts (an industrial, technological and research leader) far outweight the weaknesses. Dramas like the Dubai ports saga are far more harmful than any weakness.
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