For the Bottom 20%, Life Gets Worse

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The recession did no favors for Americans who were the worst off financially at its start. They are unlikely to recover to where they were before the economic catastrophe. New research from the Federal Reserve Bank of Minneapolis shows that:

In 2010, the bottom 20 percent of the U.S. household earnings (which include labor, business and farm income) distribution was doing much worse, relative to the median, than in the entire postwar period. This is because this group’s earnings fell by about 30 percent relative to the median over the course of the recession. This lowest quintile also did poorly in terms of wealth, which declined about 40 percent.

Most of the recent discussion about wealth, or lack of wealth, in the U.S. has focused on the top 1% and whether they should share a larger burden of the tax base. Even if the amount that they pay moves much higher, it is hard to imagine how that sum would be large enough, or could be administered by the federal government well enough, to help pull the bottom 20% from the pit into which they sank over the past four years. The Minneapolis Fed acknowledges as much at the conclusion of its analysis:

we provide evidence that households that experience a severe earnings loss also face a large loss in disposable income and a loss in consumption, and that low-earnings households have become, during the course of the Great Recession, more vulnerable due to large losses in wealth.

The bottom 20%, the research appears to show, will remain at a bottom, which continues to be drop.

No one has offered a policy that is anywhere near iron clad to help the middle class regain its purchasing power. The same can be said of the poorest Americans. Most live in circumstances that are extremely hard to alter. Demographic data show that they tend to live in inner cities or in the poorest rural areas, where most of the work is menial and low paid. There is no way to import better work to people in those areas, and they do not have the means to move to areas where higher paying jobs exist. If they could, they would find themselves undertrained, in many cases. The size of the problem is colossal, and it is one of a large handful of problems that the federal government is rushing to solve as tax receipts falter and spending continues to rise.

The 20% that the Minneapolis Fed describes have lost what little “wealth” they had as the economy turned down, and there are no means imaginable to change that.

Douglas A. McIntyre

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