The Shriveling Middle Class In California
Friday, December 9, 2011 at 10:54AM An ominous trend picks up speed: the middle class is shriveling. In 1980, 60% of Californians lived in middle-income families. By 2010, only 47.9% did, according to a study by the Public Policy Institute of California (PPIC), a non-partisan research organization (24-page report PDF, 2-page summary PDF). Main culprits: declining incomes and disappearing jobs.
From 2007, when the recession began, through its end in 2009, family incomes across the spectrum dropped over 5%. But then, instead of going into recovery mode, they continued to go south for another 6% through 2010—the end of the timeframe of the study. Given the astronomical cost of living in California, the study defined a middle-income family as one that earned between $44,000 and $155,000 in 2010.
But the declines weren’t spread evenly across the income spectrum. Families whose incomes were in the top 10% saw their incomes decline 5%. Those at the bottom 10% of the spectrum, the poorest families in California, saw their incomes plummet by 21%.
In a further indictment of income inequality in California—something that is clearer than daylight if you walk or drive around with your eyes open—the upper 10% enjoyed incomes that were higher than those of their counterparts in the rest of the US, while the lowest 10% earned less than their counterparts elsewhere. And income inequality between to top 10% and the bottom 10% doubled since 1980, to where in 2010, the top end earned 12 times as much as the bottom 10%.
Family income is a factor of wages, hours worked, underemployment, and unemployment. The main culprit for the loss of family income during and after the recession was unemployment which, according to the Bureau of Labor Statistics, peaked at 12.5% from September through December 2010. It has since edged down but still hovers at 11.7% (preliminary, October 2011).
However, the BLS percentages of unemployment are a form of statistical hocus-pocus that distorts and understates the actual unemployment problem. Here are the raw numbers of employed people in California:
Peak employment in California occurred, according to the BLS, in January 2008, when 17,023,322 people were working. At the trough in August 2011—that’s correct, August 2011, that’s not a typo—only 15,830,729 people were working. During that period, 1,192,593 jobs had evaporated. Where the heck is the jobs recovery?
Maybe it’s in the future. Maybe it has started a couple of months ago. But there are certainly no signs of a jobs recovery in California before September 2011—and even that may turn out to be a fluke.
And if there actually is a jobs recovery that would raise family incomes? The PPIC warns:
If previous post-recession patterns repeat themselves, it is likely that lower-income families will recover much more slowly than those at the high end, potentially worsening income inequality that is already at a record high.
A thriving economy based on the American model requires a thriving and growing middle class. However, the current conditions—a shriveling middle class and rising income disparity—mark the transition to a banana republic.
Meanwhile, corporate tax dodging in California and elsewhere in the US puts the finger on the strenuously hushed-up Basic Flaw In The Tax Code.
Reader Comments (13)
California is a front runner in terms of what I call "The Green Madness" hiking energy prices, taxes, red tape for businesses, land use etc. etc.
Job destruction has become Government policy.
Under these conditions no recovery is possible.
R. de Haan - You could be right. But... the air that arrives in SF from China is sometimes already pretty bad. When you add the local crud to it (traffic, refineries, etc.), it can get nasty. Hence the "spare the air days" when the air is considered unhealthy. A while ago, green tech has produced some jobs in CA, but now they seem to be wandering off to China as well (big trade dispute brewing on solar panels).
There are a lot of reasons why things aren't working in CA, from horrible schools with high dropout rates to high taxes. Which is unfortunate. Because I love living in SF.
The illegals are here to take down the U.S.
All of it was planned for years. Can we do anything about it. We can right now but most won't.
To give you an idea of the scale of what is happening, 20% of America's net worth vanished in the sub-prime meltdown. The cost of illegal aliens is less than the cost of a single (non-working) weapons system like "Star Wars." Incidentally, did you know that if Pentagon spending was 300% of our nearest military rival's (China's), there would be Federal budget surpluses forever?
So are California's taxes and regulation were the actual causes of our current difficulties? No. Consider that low-tax, low-regulation Texas' unemployment was within 0.1% of California's, and at that level only because they got lots of government jobs. And don't forget: high-tax, high-regulation Massachusetts had lower unemployment than both Texas and California. The "Help, they're regulating us to death!" lament doesn't pass the sniff test.
The real story is not government grown too big for its britches, What happened is that fraudulent private mortgage financing occurred on such a gigantic scale it became toxic to the economy. Ironically, Texas had better (and more) regulation of lenders. California's housing bubble popping was a direct result of under-regulation.
And no, the sub-prime meltdown wasn't caused by FNMA / FHLMC, or the Community Reinvestment act funding loans to borrowers who couldn't afford them. If that produced the bubble, then there wouldn't have been such a bubble in Europe, which had a bubble too, but had neither Fannie, Freddie or the CRA. ... and FNMA / FHLMC never held more than 14% of the sub-prime loans... But you'll hear that too. Right wingers love to ignore the man behind the curtain.
Don't get me wrong, though. This is not a Democrat/Republican issue, at least in the way most people think.
William K. Black, a former Office of Thrift Supervision (OTS) regulator notes that during the previous "biggest ever" political / financial scandal--the S&L scandal--OTS filed more than 10,000 referrals for criminal prosecution, and the Justice Dept. prosecuted 1000+ cases with a 90% conviction rate. This occurred during the deregulatory days of Reagan / Bush 41. The administration and (Democratic) congress were furious, but the bureaucrats, many of them Republican appointees, actually believed in the effectiveness of regulation and enforced the laws despite all the politicians' objections. Politically well-connected malefactors like Charles Keating and Michael Milliken did time.
The current sub-prime mortgage meltdown of the Bush 43 / Obama years is roughly 70 times larger. For example, just bailing out one of Angelo Mozilo's enterprises (IndyMac) cost more than the entire S&L bailout. In this current 70-times-larger biggest-ever political / financial scandal, OTS has filed literally zero referrals for prosecution and Justice has prosecuted 10 cases. Obviously the Republicans led the way toward deregulation, but the Dems have been ever-so-complicit.
Oh yes, and Bernie Madoff is in jail because he turned himself in.
One current malefactor, Angelo Mozilo, former CEO of Countrywide, made $500 million securitizing non-Fannie / Freddie loans that were 80% fraudulent. He settled for $20 - $65 million, with no admission of guilt, and walked. Meanwhile, trespass in Zuccotti park and you'll be harassed, possibly tortured and arrested.
Anyway, the FIRE (Finance, Insurance, Real Estate) sector has captured the machinery making public policy. So the government moves, with alacrity, to provide bailouts for FIRE. The recent audit of the Fed says it issued $16 - $29 trillion to help FIRE. But, darn it, when it comes to grandma's Social Security and Medicare, we're fresh out of money (issued without limit or commodity backing).
Q: How much risk do lenders take lending money to a borrower who can legally issue the currency for repayment without limit.
A: None
Q: Then why the fuss about the debt and deficit?
A: It encourages deflation (a transfer of wealth from debtors to creditors) and this way, the banksters can steal more of the public realm.
The EU is literally suggesting that Greece (which has an economy the size of Miami, FL, and cannot issue its own currency) mortgage the Parthenon and its ports. Michael Hudson calls this war by other means, and calls the target of this strategy a "toll-booth society" in which rentiers collect tolls on everything.
So, sad to say given all the hope accompanying Obama's inauguration, if they don't watch out, the Obama administration will literally be the most corrupt in history. No, not just U.S. history, but the history of the world.
Of course, it requires much less thought, and far fewer facts, to blame it all on brown people sneaking across a river at night.
I liked that you point out this is now way beyond any Democrat/Republican political divide, and is firmly structural and systemic, with regulatory capture the name of the game.
As a consequence it's now about stripping the public sectors in the economy to the bare walls to shore up insolvent (private) institutions as far as the eye can see.
Hell of way to run a railroad, but there it is.
"There has been class warfare going on," Buffett, 81, said in a Sept. 30 interview with Charlie Rose on PBS. It's just that my class is winning. And my class isn't just winning, I mean we're killing them."
Having worked in CA's mortgage industry (ALT-A products, one step up from sub-prime) I can tell you for a FACT, that its was not under regulation that caused the housing melt down. That myth is perpetuated by bankers and politicians to avoid the blame for the 2008 collapse. We were so regulated (and trained mind you) on how EXACTLY to follow the law, and we did. It was not the lack of regulation, but in FACT that the laws themselves were bad.
Heck, the whole myth that sub-prime is the cause of the housing bubble is just plain wrong. Sub-prime was just the first group of loans to experience defaults because...........wait for it.........THEY ARE POOR!
Poor people, by defination, don't have money. So, when the economy started to turn south in 2006, guess what, the poor folk were the first to stop paying their mortgages.
Next, in regards to the FNMA / FHLMC and all the others that only held 14% of the sub-prime paper. Do you know why that is? Because sub-prime loans are more risky, they offer a higher rate of return. So you had dip-shit investors running over their grandma's in search of that extra 1% yeild. Thats the truth and if you were there, you would know how wrong your statements are today. Just flat out wrong.
Adam, I read you post and its clear you are a smart individual. But having been in the business, you sir, are WAY OUT OF YOUR LEAGUE.
PS When I told my boss that many of the loans we were doing could lead to trouble, his response was "Well Ben Bernanke was on CNBC the other day saying that housing won't go down much. Do you think your smart then Ben Bernanke?" No Joke.
PPS The only regulation that will ever work, is the loss of your money. Learn it, live it and love it.