Financial Crisis

A New American Dream Becomes Reality As Cities Grow More Than Suburbs

June 29, 2012
Families bike together in Portland, by Steven Vance

According to the 2011 census estimates, for the first since 1920—nearly a century—cities are growing more than suburbs. A recent study shows 77% of millennials want to live in the urban core. 28 year-old Denver resident, Jaclyn King said, “I will never live in the suburbs… I just like being connected to everything down here—concerts, work, restaurants, all of it.

The New Inequality Story is Wealth, Not Income

June 20, 2012
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Inequality has been receiving a fair amount of attention in recent years. Even before the Great Recession hit, a number of researchers and academics were sharing observations on the divergent paths of those in the middle and on the bottom compared to those at the top and very top. Median wages have been relatively stagnant, and, more importantly, had become divorced from productivity gains. And while poverty has persisted for large segments of the population, the share of income controlled by those at the top has continued to climb. These have been long-term trends which began to take shape in the early 1980s. Two questions have been on my mind. First, what about wealth? Second, what’s the connection between the Great Recession and inequality in America?

I’ve posed these questions to Tim Noah, whose recent book, The Great Divergence, has helped elevate the discussion of inequality in America. Tim recently posted a response on his informative and insightful blog. But I didn’t like his answers.

In his book, Tim limits his discussion of inequality to the distribution of income. I think this fails to capture the full extent of the phenomenon. In some ways, I understand the choice. We have much better data for income than we do for wealth and traditionally that is where the research on inequality has focused. Still, income is only part to the story, and I fear Tim has needlessly limited his inquiry. It reminds me of looking for something where the light is brightest even though it was lost somewhere else.

New data from the Federal Reserve make it clear that wealth has assumed a leading role in the inequality story. Their Survey of Consumer Finances offers one of the fullest accounts of the family balance sheet. Unfortunately, it is conducted only every three years. The good news is that the last two surveys (2007 and 2010) offer a means to examine the impact of the Great Recession.

Here is what the Fed reported about the changes in wealth holdings. Between 2007 and 2010, the average family saw their wealth decline 39 percent. That is a sentence that deserves to be bolded. This far outpaced the 8% drop of income the average family experienced.  The 39% drop in wealth speaks to the severity of the recession and it did get front page treatment on a number of news outlets. But the impact was not experienced equally. Families in the top ten percent by income actually saw their net worth increase almost two percent.

Those at the top had their wealth holdings increase and almost everybody else experienced a drastic decline. That’s inequality by definition. Check out the visual (rollover to see the absolute figures).

Here’s another perspective on the same phenomenon. This time the families are ranked by their net worth holdings rather than income. Those in the bottom 25% had their (admittedly small) wealth holdings completely wiped out. Families in the next three groups experienced big drops but at increasingly declining rates. The top 10% were relatively immune from the impact of the Great Recession, experiencing a wealth loss of 6.4%.

These charts offer new and illuminating information. While we have known for years that median incomes have stagnated even as there were income gains at the very top, the re-concentration of wealth is an emerging phenomenon. And it appears that the Great Recession has changed the dynamics at play.

Tim writes on his excellent blog that he can’t get too worked up about this for a number of reasons, almost all of which I find surprising.

Preserving Access to Justice: Legal Services and the Safety Net

June 19, 2012
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The Legal Services Corporation (LSC), which provides funding to legal services organizations throughout the country, is an essential feature of the safety net—though rarely described as such. LSC funding is used to provide civil legal services to households at or below 125% of the federal poverty line. Unlike in criminal cases, where the right to counsel is constitutionally guaranteed for indigent defendants, parties to civil cases have no such right under federal law. In other words, depending on where you live, it’s perfectly legal for you to lose your house, all your possessions, and perhaps even custody of your child without ever talking to a lawyer, no matter how little money you make.

LSC-funded services are crucial in helping keep many families afloat. Yet perhaps unsurprisingly, like other social services programs, LSC has faced major budget cuts, and continues to see its funding attacked. Over the past three decades, LSC’s budget has been effectively cut by just around seventy percent. One member of Congress even proposed an amendment to the FY 2013 House Appropriations Bill that would have ended all funding for LSC, citing the organization as “nonessential” and alleging fraud (it failed, but received 122 votes in the House). Like the proposed cuts to SNAP, cutting LSC’s funding—or even failing to increase it—could have truly dire consequences for low-income communities nationwide.

Europocalypse Explained

June 15, 2012

Europe's fiscal future is looking bleaker by the day. This weekend, the G-20 will convene in Mexico to determine how to avoid a possible global market meltdown spurred by European bank debt and default. In this podcast, two members of New America's World Economic Roundtable --Jonathan Carmel, the portfolio manager at Carmel Asset Management, and Peter Tchir, the founder of T. F. Market Advisers -- talk about the implications of the impending Spanish bank bailout, the possible consequences of this weekend's Greek election, and how the U.S.

The Case for Wage-Led Growth

  • By Jeff Madrick, Roosevelt Institute and Schwartz Center for Economic Policy Analysis
June 15, 2012

The share of wages and salaries in Gross Domestic Product (GDP) has declined in most rich nations over the past 20 to 30 years. Over the same period, income inequality has grown in most of these nations, and rapidly in some of the largest of them, resulting in slow wage growth for most consumers. 

12 Signs of the Europocalypse

  • By
  • Douglas Rediker,
  • New America Foundation
  • and David Gordon
June 12, 2012 |
Two short years ago, if anyone had suggested that we would be considering pan-European bank regulation, cross-border deposit guarantees, joint and several Eurobonds, and the very survival of the common currency, they would have been dismissed as nothing short of crazy. But what was unthinkable then appears to be verging on the inevitable now.

Achtung Baby: Germany Is Riskier than You Think

June 5, 2012

This presentation is posted with permission from World Economic Roundtable members from Carmel Asset Management.

Why a Grexit Would Make Lehman Look Like Childs Play

June 5, 2012

This post originally appeared at TF Market Advisors.

by Peter Tchir

Defeating the "Paradox of Thrift"

May 22, 2012

Our work can be quickly summarized (though not perfectly captured) by saying that we're in the business of "promoting savings." There are a lot of reasons that's not a perfect summary, but those kind of shortcuts often come in handy.

The Sidebar: France's New President and Egypt's Democratic Transition

May 17, 2012

On this week's episode of The Sidebar podcast (available below) Leila Hilal discusses Egypt's first ever presidential debate and the emerging democratic process in the Middle East. Jeff Vanke talks about France's new president and the future of the Eurozone. Elizabeth Weingarten hosts.

Also, Leila Hilal spoke with us on camera to preview Egypt's upcoming elections:

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