Carpe Diem

Living Large: America’s Prosperous Middle Class To hear the Lou Dobbses and Bill O’Reillys of the world–not to mention politicians ranging from Ron Paul to Hillary Clinton–the middle class of America (however you define that term) has never had it so tough. Between credit squeezes, out-of-control immigration, rising costs of education and health care and everything else, it’s all darkness out there for those of us who are neither millionaires nor welfare cases, right?

In “Living Large,” Drew Carey and examine the plight of the American middle class. What do they find? Click here to watch the video.

Featured in the video is Michael Cox, chief economist at the Federal Reserve Bank of Dallas. On the topic of the middle class making ends meet Cox says, “If you’re willing to settle for the living standards of the 1970s, it’s easy to make ends meet. It’s not the high cost of living, it’s the cost of living high, and it’s the fact that we insist on having so much more today.” Further, “Americans are richer today than at any time in history. We should really be thankful that we live in a society where we don’t have to work day and night in order just to eke out a living.”

Despite what Lou Dobbs and the media tell us, just by being alive in 21st century America, even if you’re middle class, you’ve “won first prize in the lottery of life.”

Carpe Diem

Rich Are Getting Richer, Poor Are Getting Richer

Let’s Permanently Dismiss the “Stagnant Wage Myth”: ALL income groups have gotten richer in a generation:
2 of Every 3 Americans Are Better Off Today Than Their Parents, and More Than 80% of the Bottom Fifth Are Richer Than Their Parents
The charts above are from the study “Economic Mobility of Families Across Generations” from the Economic Mobility Project, based on a sample of 2,367 individuals who were between the ages of 0 and 18 in 1968 and have been tracked into adulthood. Here is what the study shows:

1. Adults who were children in 1968—those who were in their 30s and 40s at the end of the century—have more income than did their parents’ generation.

Median family income rose by 29% between the two generations, from $55,600 in inflation-adjusted dollars to $71,900. Average family incomes, grew even more rapidly, from $61,600 to $88,000 (a 43% increase). Income growth occurred throughout the income distribution for all five quintiles, as shown in the top chart above (click to enlarge), although family income in the top quintile grew by 52%, compared to 18% for the bottom fifth.

2. The average number of individuals per family shrank from 3.1 to 2.3 individuals between 1969 and 1998. Taking into account the smaller family size as well as the growth in family income, families are generally better off economically today.

3. More than 2 out of every 3 Americans who were children in 1968 had higher levels of real family income in 1995–2002 than their parents had in 1967–1971 (see bottom chart above, click to enlarge). Children born to parents in the bottom fifth were MORE likely to surpass their parents’ income than children from any other background. More than four out of five children (82%) born to parents in the bottom quintile have greater family income than their parents. In contrast, less than half (43%) of those whose parents are in the top fifth of income surpass their parents.
4. Economic mobility is measured in this study by tracking only changes in cash income. Income mobility would be higher at the top income quintiles with the inclusion of the value of fringe benefits, since employer contributions to retirement and health insurance totaled 7% of wages in 1967–1971 (parents’ generation) and 13% in 1995–2002 (children’s generation).
In other words, contrary to the picture portrayed by the media:
1. Real incomes are NOT stagnant – real median family income has increased by 29% over the last quarter century, and real incomes have increased for ALL income groups over the last generation.

2. The middle class has not disappeared, it’s gotten richer! Real income of the middle quintile (middle class) has increased by 29%.

3. Although it’s true that income inequality has increased, it doesn’t really matter because the poor have gotten richer AND the rich have gotten richer. The rich have NOT gotten richer at the expense of the poor, all groups have gotten richer together.

4. There is significant upward income mobility, especially for the lowest income group. Children born to parents in the bottom quintile are more likely to surpass their parents’ income (82%) than are children from any other background.
Bottom Line: It’s truly remarkable and extraordinary that more than 2 of every 3 Americans born a generation ago have already surpassed their parents’ income, and more than 4 of every 5 Americans born to parents in the bottom fifth during the late 1960s and early 1970s are better off than their parents. Do you think that was ever the case at any other time in history like the 5th Century, 10th Century or 15th Century? Not likely. It’s probably true that just being alive in the 21st Century, especially being alive in the U.S., you’ve “won first prize in the lottery of life.”
Carpe Diem

Universal Access = Restricted Access + Long Waits

From today’s IBD:

Long waits are a hallmark of government health care anywhere it’s employed. When the perception exists that treatment is free, system overuse is inevitable. People can think of no reason to self-ration care. They show up in emergency rooms and doctor’s offices with conditions for which they wouldn’t seek treatment if they paid directly at the time of service.

Thanks to the profit motive, private health care providers have an incentive to cut waiting times, lest they lose customers to the competition. Government providers have no such motivation.

They do have incentive, however, to ration care when demand gets too high and costs soar. But to do so exposes “universal access” and “equal access” to be inaccurate descriptions. “Restricted access” would be more fitting.

Case Study: Canadian Health Care

Waiting times are the weak spot in Canadian healthcare. Canadian health consumers with a complicated condition can be subject to up to four lengthy waits: the first, to see their family doctor, or to find a general practitioner if they do not have a regular doctor; the second, to see the appropriate specialist for their ailment; the third, for diagnostic procedures to determine appropriate treatment; and the fourth, for treatment. It is not unusual for these cumulative delays to exceed a year.

Carpe Diem

Wipro’s CEO: U.S. Must Fix IT Worker Shortage

ATLANTAAzim Premji, an Indian entrepreneur who became one of the richest men in the world by transforming a small cooking oil business into a global information technology powerhouse, says the United States’ business leadership needs to “take the problem by the horns” and better address the country’s growing shortage of high-tech professionals.

Premji, CEO and chairman of Bangalore-based Wipro Ltd., calls the lack of technology talent in the U.S. a “serious problem.”

“America does not have the talent,” said Premji, 62, in a Jan. 29 interview with Atlanta Business Chronicle. “There’s a huge shortage of IT professionals here.”

While India has experienced an economic boom due to the increasing number of students getting high-tech degrees there, the number of awarded engineering degrees in the United States has dropped 20 percent over the past two decades, according to pro worker-visa-advocacy group Compete America. That fact can be seen with the growing demand for H-1B visas, which allow foreigners to temporarily live here to fulfill specialty jobs, usually in technology.

NOTE: Bangalore-based Wipro (NYSE: WIT) is in the process of opening its first American software development center in Atlanta and plans to hire 200 employees within a year and up to 500 within three years.

Carpe Diem

Rx: Online MD House Calls

LA TimesConsulting your family physician is finally moving into the 21st century and out of the doctor’s office. Since the dawn of e-mail, patients have been pleading for more doctors to offer medical advice online. No traffic jams, no long waits, no germ-infested offices with outdated magazines and bad elevator music.

There was always one major roadblock: Most health insurers wouldn’t pay for it. Until now.

In recent weeks, Aetna Inc., the nation’s largest insurer, and Cigna Corp. have agreed to reimburse doctors for online visits. Other large insurers are expected to follow, experts say.

These new online services, which typically cost the same as a regular office visit, are aimed primarily at those who already have a doctor. The virtual visits are considered best for follow-up consultations and treatment for minor ailments such as colds and sore throats.

Carpe Diem

Commercial Loan Growth Shows Ongoing Strength

A few weeks ago, I posted about commercial bank loans being at a record high of $760 billion in early January, based on weekly Federal Reserve banking data for large commercial banks. The updated chart above (click to enlarge) reflects a few more weeks of banking data, and this time shows the percent change from a year ago. Not only is commercial lending at an all-time high based on volume, but also the year-to-year growth rate has been phenomenal: double-digit growth in commercial bank loans for almost 6 months now, and close to 20% growth for the last 4 months, stronger growth in commercial lending than at any time in at least 20 years.

Listening to media reports on the U.S. banking system and credit markets, one gets the idea that commercial lending and credit have dried up, and thousands of banks and companies are teetering on the edge of insolvency (e.g., see Paul Krugman’s blog post “Credit Crunch“). Yet the reality is that commercial lending is at an all-time historical high, and growing at the fastest rate in recent history.

This suggests that thousands of companies are applying for, and being granted, commercial loans to finance business investment and expansion. And the growth in commercial lending is stronger than ever before. Not exactly an ingredient for a recession. Notice on the graph above the significant declines in commercial lending that accompanied the recessions in 1990-1991 and 2001 – it would be difficult to suggest that we have entered a recession in January 2008 with such strong growth in commercial lending.

Carpe Diem

Congressional Pork Fest:The Earmark Favor Factory

Parade MagazineLast month, Congress passed a 3,500-page omnibus spending bill after less than 24 hours for review. The bill, which mostly renewed funding for existing programs, contained more than 9,000 “earmarks”—worth at least $7.4 billion—for legislators’ pet projects, including:

  • Olive fruit fly research in France: $213,000
  • Center for Grape Genetics in Geneva, N.Y.: $1.9 million
  • Fish-waste research in Alaska: $2.5 million
  • Awning renovations in Roanoke, Va.: $250,000
  • Cormorant control in Vermont, Michigan, Mississippi and New York: $1.2 million
The real problem with earmarks, says Rep. Jeff Flake (R., Ariz.), is that “they circumvent the normal process,” since they typically are placed in bills without discussion. Thus, lawmakers never get to debate them and find out if they’re genuinely necessary—or just more pork.


See a related WSJ article “MURTHA INC.: How A Lawmaker Rebuilt Hometown on Earmarks,” about the top Congressional earmarkers (see list above), and the #1 Leader of the Pork, Rep. John Murtha.

Carpe Diem

What About Excessive Athlete Compensation?

Sports IllustratedFor the fourth straight year, Sports Illustrated set out to rank the 50 top-earning American athletes (taking into account on and off the field income), and it’s no surprise to see the familiar names at the top of the list (see chart above, click to enlarge). The most obvious? Tiger Woods has reached an otherworldly plateau of nearly $112 million. Boxing is back from the dead for now, thanks to No. 2 Oscar De La Hoya, and the Shaq and Kobe rivalry lives on.

Half the list is made up of NBA players, while only 12 baseball players and five football players made the cut. There were three NASCAR drivers and just one woman (welcome, Michelle Wie!)

NEW YORK (AP)An Associated Press calculation shows that compensation for America’s top CEOs has skyrocketed into the stratospheric heights of pro athletes and movie stars: Half make more than $8.3 million a year, and some make much, much more.

Comment: Average compensation in 2007 of the top 50 athletes was $23.4 million, and median salary was $19.4 million. Median salary for CEOs in 2007 was only $8.3m for the 386 companies in the AP study referenced above (obviously a larger sample than for the SI athlete list).

Question: Why is it that when CEO salaries “skyrocket into the stratospheric heights of pro athletes,” CEO salaries are condemned as “excessive?” Where is the outrage about athletes’ salaries? After all, athletes made the stratospheric salaries before the CEOs did, so shouldn’t those salaries also be considered excessive?

Based on Google searches, apparently not: Search for “excessive CEO compensation” and you’ll find more than 3,000 references. Search for “excessive athlete compensation,” and you’ll find 0.

Update 1: See previous CD post on “excessive celebrity pay.”

Update 2: Google search for “overpaid athletes” = 12,600 hits. Google search for “overpaid CEOs” = 8,530 hits. Thanks to an anonymous commenter.