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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Thursday, January 22, 2015

Trinity Institute on Economic Inequality: a Preview

From this evening, January 22, through Saturday, we will be attending Trinity Institute at Trinity Church in Manhattan.  This year's theme name is Creating Common Good, and the majority of the discussion will be about economic inequality.  Speakers are people you may well have heard of: Cornel West, Juliet Schor and the Archbishop of Canterbury, to name a few.

Perhaps some of you are even attending via livestreaming into your own church or other center.  If you are at Trinity Church, let's try to find each other.

Next week, afterward, I will write at least one article on the content.  Friday's speakers highlight the problem of inequality and Saturday's program emphasizes actions to try to ameliorate it, such as better early-childhood education.

Meantime, a couple of facts on the broad topic:

For the five years through 2013, Census Bureau data show the most unequal distribution of income in the 60-year history of their calculations, measured by the so-called Gini Index, a composite gauge of income spread.  The top 5% of households have just over 22% of total money income.  Separate IRS figures show that the vaunted "1%" paid 38% of the income tax in 2012.  Median household income – that is, half of households are above and half below – was $51,939, down 8% in inflation-adjusted terms from the pre-recession level in 2007.  The share of the population with income below the poverty level was 14.5% in 2013.  This is an improvement from the 15% level of the previous three years; but in the mid-2000s, ahead of the recession, the rate hovered around 12.5%.

The Organization for Economic Co-operation and Development ("OECD") calculates that through 2012, the U.S. has a wider range of relative income spread, that is, a higher Gini Index, than 19 of the other 21 countries in that group.  Only Mexico and Turkey had showed more inequality in incomes.  All but two countries did experience steady or widening inequality over the previous 25 years, but only four countries showed a larger change than in the U.S.

A couple of our own recent articles have spoken to related issues.  We have noted a decline in labor force participation and an associated phenomenon called "job polarization".  Compared to historical patterns, people seem discouraged from seeking work, and some of that discouragement may be associated with a decrease in job opportunities in the middle-income range, such as factory work and office administration.  At least some post-high-school education or some re-orienting of high school course offerings toward mechanical skills seems needed.  We've also been concerned about poverty, which came to specific attention in the recent police killings.  Answers to this particular poverty situation involve better education as well and some kind of business investment – or at least business interest – in lower-income neighborhoods.

That type of material will be the subjects of Trinity Institute presentations, so we'll see if there are new, helpful solutions in the works.  Stay tuned!

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Monday, December 22, 2014

Two New York City Cops Are Killed; Our Local Bishop Speaks

Just over two weeks ago, we posted commentary here [directly below] on the grand jury decisions in the Ferguson and Staten Island police brutality cases not to indict the police officers who killed two presumed criminals they were trying to arrest.  The demonstrations against the police have continued since then, mostly in New York, but also in other cities.  It all came to a head this past Saturday afternoon when a man drove from Baltimore to Brooklyn and proceeded to shoot to death two cops sitting in their patrol car.

We were thinking perhaps that our blog post, in which we advocate efforts to offer preventive help to, and lift up, people in low-income, high-crime areas, skipped too many steps or missed the point of the demonstrations altogether.  They were, after all, anti-police demonstrations, not necessarily outbursts from demoralized people about their own seemingly powerless states of life.

Whatever the real goal, the situation got way out of hand and led to the deaths of two ordinary cops doing a routine patrol job on a Saturday afternoon.  They were not taking any actions and, as it happens, they weren't even white.  One, named Wenjian Liu, is the son of immigrant parents from China.  The other, Rafael Ramos, is Hispanic.  Officer Ramos was hardly a violent man; he was due to graduate later that very afternoon from a program that trains lay chaplains for public service in crisis times just such as this.

Feelings are heavy today in Brooklyn.  The 84th Precinct, the officers' station, is our local precinct, the station house four blocks down the street from where we live.  We just now returned from adding some flowers to a growing collection at the front door of the building.

Brooklyn is in the Episcopal Diocese of Long Island.  Our Bishop, Lawrence Provenzano, happened to have been in Brooklyn yesterday, making a long-scheduled visit at a parish in a neighborhood not far away.  Afterward, he visited the scene of the shooting at Myrtle and Tompkins Avenues in Bedford-Stuyvesant and talked to local police and to the people of that community.  Then when he got home last night, he wrote to the clergy of the Diocese; the letter is posted on the Diocese website.  His own pain is palpable and he urges a second look.  Listen to some of what he says.

At Myrtle and Tompkins, I stood and talked with police officers, people on the street and residents standing on stoops or in the doorways of the Tompkins Houses. The police officers talked about their fears and those of their families. They talked about being accustomed to dealing with critical situations - homicides, rapes, domestic disturbance, robberies, but not being able to rationally deal with "their own" being murdered.    At Myrtle and Tompkins people talked to me about being scared by all the killings, the rhetoric all around them, and now the possible negative reaction in the community following the murder of the two officers.

It became clear to me today that regardless of what happens next; what organizing goes on, what investigations are launched, programs developed and rhetoric shared, the church . . . must not engage in grandstanding, instigating, organizing, or even marching any longer.  People are scared, hurt, confused and bewildered.  The place of the church in all of this is not to seize the moment to be relevant or for that matter prophetic.  Our place in all of this for right now is to incarnate peace - peace in language, peace in program, peace in attitude and peace in church.

I am calling upon the clergy of the diocese to be agents of peace in the neighborhoods and communities we serve.  Our young people need some assurance and security. Our young people of color need to know that we will stand with them, that we will protect and guide them in sensible and responsible ways. They need to know that we will teach them how to stand up for their rights and stand with them when those rights are violated without resorting to violence.  Those who serve us and protect us need to know that we do not wish them harm and that we see them for who they are and aren't. The police need to know that we are allies with them in service to the community.

. . . . I am asking that we strive, and teach and practice peace and peacemaking. I am asking us to put the needs of our young people, their families and communities first. Violence cannot be a response to violence. Hatred must be remedied by love - love incarnate, made real by those who are called to be the Body of Christ.
. . . .
May Eric Garner, Michael Brown, Wenjian Liu and Rafael Ramos rest in peace.  May their families know the comfort and mercy of Jesus. And may the people of our communities find and know peace.

We are struck by the strength of our Bishop's words.  And there are more in his full text.  As we work for peace in our cities, perhaps our own suggestions for fostering more education and encouraging business opportunities in low-income neighborhoods aren't too far-fetched after all.  They're long-run, to be sure, but these situations will keep cropping up and need to be tackled at the base.  We'll be following up soon with some more specific ideas along these lines.

Meantime, may you all enjoy peace – and joy – for Christmas and for many days after. 

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Friday, December 05, 2014

Ferguson, Staten Island and Moving Forward

On November 25, Barbara Crafton posted the following comment on the Geranium Farm Facebook page [1]:

Discouraged and sad about yet another young black man who won't grow old, yet another set of parents who won't see grandchildren, yet another town torn apart. And another missed chance for all of us.
Or is it missed? We still have a chance to learn a better way. But first we must admit that we need one. And that means we must listen to one another, and not leave the room when someone says something that we don't like, muttering something snide about "playing the race card." Newsflash: we are ALL playing the race card, all the time, and most of us don't know it. None of us can opt out of this deadly game. 
But we CAN decide how we will play. Truth or a comfortable lie? A desire to understand or an insistence on remaining ignorant of realities other than the one we ourselves inhabit. 
We have no grounds for despair, and no right to it. Not as long as we're still alive.
We were intending to add some of our own commentary to this about moving forward from here.  Those thoughts originated as an extension of the article we posted two weeks ago about lower labor force participation and how that condition might be corrected.  That problem may be different from the racism questions Barbara discusses, but the two may have similar answers.

Then, Wednesday, to our surprise, a grand jury in Staten Island, New York, declared that it would not indict another white policeman for his fierce action against still another black man he was trying to arrest.  This one is closer to home, quite literally.

We live at the Brooklyn end of the Brooklyn Bridge.  On that afternoon of December 3rd, we had occasion to cross the street right at the entrance to the Bridge, at about 5:15PM, roughly two-and-a-half hours after the grand jury's decision became known.  There were police everywhere.  A block or so on up a hill toward Brooklyn Heights, a group of police vans and cars was parked next to a park.  The cops, fortunately, were standing around idly because right then they had nothing to do.  I chatted with one of them in a nearby diner, and he told me that, in contrast, his colleagues elsewhere in the city were plenty busy.  Indeed, that was the time when the "die-in" at Grand Central Station was going on.  The next day, after a night of demonstrations around the city, heavy, visible police presence remained in our local neighborhood and, I assume, elsewhere around the city.

Unlike Ferguson, these New York City protests seem non-violent; hardly any property has been damaged and we've not heard of any significant injuries.

We do hope the judge in the Staten Island court will accede to the prosecutor's request and release some of the grand jury records.  Through various press reports and conversations, we have come to understand, though, that Eric Garner was actively resisting arrest, which makes the policeman's actions look less overdone than the video of the incident alone might indicate.  Also, we learned that the senior police officer in Daniel Pantaleo's patrol unit that day was a sergeant who is an African American woman.  At the same time, our point here is not to make judgments either way on this whole unfortunate mess.

Our point is to talk about the kinds of actions that might address some of the underlying problems.  Why are those black men so desperate that they robbed a convenience store or sold unlicensed cigarettes.  Why are their communities less well off than surrounding towns or neighborhoods.  We've found two specific approaches; they're long-term actions, not immediate responses, and they're meant to lift up people in lower-income neighborhoods, regardless of race.  These themes seem to fit Barbara Crafton's broader perspective described in her Ferguson comments.

First, we've just become acquainted with a group in Atlanta called Operation HOPE.  Perhaps some of you already know them.  The founder is John Hope Bryant, an associate of Andrew Young; one of the board members is Bernice King, daughter of Martin Luther King, Jr.  Operation HOPE works in schools in low-income areas to help students learn about legitimate banking and business activities.  In a recent book on his work[2], Bryant explains that the people who live there have entrepreneurial talents and leanings; it's just that their businesses concentrate on illegitimate activities like drugs – or in Mr. Garner's case, selling unlicensed cigarettes on a street corner.  So Bryant wants to shift them to more fulfilling work; he talks about a young man who took a notary public exam and then set up a portable notary business.  He talks about three young men who set up a cleaning and yard-work business in his own community.  Then Operation HOPE works with banks to set up regularized financial services in these neighborhoods; bank managers go into schools and explain standard banking to students, so they know there is an alternative to check-cashing outlets and loan sharks.  SunTrust Banks in Atlanta is one of the main supporters and participants in these efforts, as are other financial institutions.

We've also just become acquainted with Nicole Baker Fulgham.  Dr. Fulgham is founder of The Expectations Project, an organization that seeks to further education reform and narrow the academic achievement gap by enlisting particular contributions from churches and people of faith.   She will appear in January at Trinity Institute at Trinity Church Wall Street in New York.  She has written Educating All God's Children describing the need for this work [3].  We are still reading the book, and the early pages document ways poverty handicaps educational efforts.  Intriguingly, Dr. Fulgham comments on the transformation of the population of the southern California city where she lived from mainly African American to Hispanic; as that shift took place, she explains, the African-American leaders in the school system were hesitant to yield their governance positions and influence to the incoming Hispanic population even as it became the majority in the community.  Thus, as Barbara Crafton commented, we can all be racists in one form or another, even if we believe we want to be anti-racist.

How hard is this?

At least we can see some ways forward here, which address at least two issues at once.  We can perhaps ease inequality by lifting up the bottom groups and helping them learn to generate their own growth.  We can limit crime by showing people fruitful, legal ways to make money.  And we can encourage participation in the real labor force, not the shadow economy.  The drawback, of course, is getting versions of Mr. Bryant's and Dr. Fulgham's programs in place in the vast number of locations where they are needed.  That takes time, but maybe if we can all look forward to something constructive, then fewer people will feel the need to stage a die-in in Grand Central Station or – this evening – in the intersection in front of Brooklyn's Barclay Center sports arena.

[2] John Hope Bryant,  How the Poor Can Save Capitalism.  San Francisco: Berrett-Koehler Publishers, Inc.  2014.  Operation HOPE's website is

[3] Nicole Baker Fulgham, Educating All God's Children.  Grand Rapids, MI:  Brazos Press, a division of Baker Publishing Company.  2013.  See the Facebook page of the related organization, The Expectations Project:

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Saturday, November 15, 2014

Why People Might Pull Back from the Job Market

Back in early summer we expressed concern that fewer people are participating in the labor market – fewer people are working or actively hunting for work, relative to the size of the population – than has been the case for more than 35 years.  Five years after the presumed end of a massive recession, this fact surprised us and we promised to look more into what might be going on.  Shouldn't more people be more anxious to work or to find work?  Instead, the so-called labor force participation rate stands at just 62.8% of the population as of October, down from 65.7% in July 2009, the last month of the official recession period.

To recap our June comments a bit, we look at three different age groups, older people, teens and middle-agers, each of whom has a distinct relationship to the labor market that reduces its participation.  First and perhaps most straightforward, there are more and more older people, so retirement is a bigger factor than it has been historically.  Indeed, Federal Reserve economists have used fairly simple arithmetic with Labor Department data to estimate that about 1.25% of the decline in the participation rate is due to the aging population.[1]  We could explore retirement more, of course, but for our current discussion, this much about that group will cover it.  Second, teen-agers seem to be less interested in getting a job than they were "when we were their age".  Our subsequent research has turned up three reasons for this, which we will discuss momentarily.  Finally, an increased share of middle-age workers has been pulling back from the workforce.  Since this group is obviously the most important part of the working population, we want to know more.

Teens:  School and Competition from Immigrants
For teenagers and young adults, increased schooling looks to be the main force.  Aaronson and her Federal Reserve colleagues, whose study we just referenced about retirees, discuss teens as well, examining the monthly employment data and the Labor Department's "American Time Use Survey". They show that more young people are enrolled in school and for those enrolled, school and extracurricular activities take more time every day.  You parents would be aware of this, and the numbers show it to be so.  They estimate that school enrollment – including increased attendance in summer school – and school time factors account for about three-quarters of the decline in teen-age participation in recent years.[2]

There are two likely and similar reasons for the remaining fall-off in teen-age work interest.  First, teens face heightened competition from adults without college educations.  Due to changing technology, those adults face an increasingly complicated job market.  It turns out that the kinds of work young people often do, such as food preparation, retail sales and personal care, are now done by older workers more frequently than before.  We'll detail this issue when we talk below about middle-agers.  Second, teens also face increasing competition from immigrant workers.  Extensive statistical analysis shows that teens have been more susceptible than adults to competition from the growing numbers of immigrants who have no more than a high school education.  These immigrants would have about the same amount of work experience in the U.S. as do native-born teenagers.[3]

So altogether, teens are spending more time in school, and they are meeting greater competition for the kinds of jobs they often do; these factors are discouraging more of them from even trying to find jobs.

Middle-Agers: Job Polarization a Growing Obstacle
The group that concerns us most are the middle-agers, whom labor market analysts refer to as "prime-working-age" from 25 to 54.   While 81% of this huge group do work or actively seek work, that share has come down from 83% just before the recession.  Our research "googling" has turned up papers from other business economists, Federal Reserve economists and even the Fed's Chair, which all indicate that we are hardly the only people puzzled over this pull-back from work.  Even if 2 percentage points doesn't look very dramatic, the growth of the economy as a whole and especially the well-being of those very people who have pulled away can be hurt.  What's been going on with those middle-agers?  Can we tell something about why?

San Francisco Federal Reserve economists Mary Daly and Elliot Marks argue that the depth and severity of the recession have discouraged people but now that total employment is finally back to pre-recession numbers and looking more vigorous, those people might be expected to re-enter the labor force and seek jobs anew.[4]  Indeed, the September and October employment reports did look more favorable, extending a trend of quite decent job growth through seven months and including upward revisions to the last three months' results.  Daly and Marks seem to argue that this will re-attract some "non-participants".  They further argue that, as such a trend might feed on itself, work will become far more enticing than it has been over the last six or seven years.  Separately, the latest several weeks' data on new claims for unemployment insurance show that layoffs are holding at eight-year lows, another favorable sign.

Other writers are not so sanguine.  A whole group of studies has emerged describing a spreading phenomenon known as "job polarization".  This development could well discourage a sizable group of people from even trying to find work.  You might be able to guess what it means just from what you already see every day in the working world.  At one end are high-level jobs in technology and finance and business management.  At the other end are service jobs, such as those in restaurants and hospitals.  The middle range of factory workers and office administrative positions is shrinking.  Robots and other sophisticated machines do increasing amounts of manufacturing assembly work, while the very computers you and I use every day replace more and more secretaries, bookkeepers and the like.  So the mix of jobs – and incomes – are more and more polarized: high-end jobs and low-end jobs predominate.  This force plays into the income inequality situation, as it seems to mean that energetic people who may not have advanced educations might not be able to move up in the world as they have been in recent decades.  A whole "special report" in a recent issue of The Economist puts this in fairly stark terms and discusses its global reach, as it is hardly confined just to the US and Europe.[5]

There's no concrete proof that polarization is directly connected to people's withdrawal from the labor force, but we can make one strong inference.  The monthly employment survey asks people who are "not in the labor force" if they would actually like to have a job or if they don't want to work.  For the middle-aged population, the share who say they don't even want a job has risen from 14% of that population in the late 1990s to 17% more recently.  The share of that age group who would work if they thought there was a good chance of getting a job has also risen, albeit marginally.  Since this age group is much less subject to retirement than older workers and is seen to face less impact than teens from the influx of foreign workers, we can only believe that discouragement over the increasing lack of opportunity is a major factor holding them back.

What Can We Do? Post-High School Training
So what can be done about "job polarization" and about lower teen participation in the workforce?  Are we stuck in a new economic quagmire?  A full-blown answer would take much more space than we have here, but we can offer a couple of ideas.

The Labor Department makes 10-year projections of the growth in various occupations and categorizes them by the amount of education needed for entry.[6]  The middle-range ones being hit by polarization are typically filled by people with a high-school diploma.  Sure enough, projections for those show several office functions and various kinds of factory assembly work with absolute declines over coming years.  Even with other jobs expanding, such as personal care assistants, computer-controlled machine operators and customer service representatives, total jobs for high school grads are seen as the slowest growing segment.

By contrast, if people get just a bit more education, such as a vocational school or community college, their prospects pick up sharply.  That is, if they get training in some technical skill or perhaps additional math background, more occupations with greater prospective growth will be open to them and will enable them to move ahead rather than languish.  And, in addition, make more money over their working lives.

Teach Soft Skills
Another word we've seen in discussions of these issues is "employability".  Specific job qualifications are obviously important.  But recently, prospective employers report that they often meet candidates who don't have so-called "soft skills".[7]  While the amount of education someone has may address the impact of job polarization, it can be the soft-skill, employability issue that covers everyone and all jobs, technical, advanced professional or low-end, this last sort the kind that teenagers and immigrant laborers often compete for.  Soft skills: do you dress properly, are you on time, do you listen carefully to instructions and in turn do you ask relevant questions to clarify and enhance your understanding, and perhaps most seriously, can you pass a drug test.  Indeed, in a recent listing of the 10 most important skills employers are known to desire in order to hire for some presumed popular jobs, the first four are the soft ones.[8]  Would you be a responsible and attentive worker, whatever the job itself is about.  These skills can be taught at home, in high school and also in many workforce development programs run by local governments and nonprofit organizations.

So training focused for the workaday world is one big answer to our potential job and labor market predicament.  There are also social factors, such as single-parent households, that contribute to trends in labor force participation.  And we haven't mentioned lackluster wage gains.  So there is farther to go on these issues.  For the present, we do have the one approach of training, which can help, and help a lot.

[1] Stephanie Aaronson, "Labor Force Participation: Recent Developments and Future Prospects".  Paper prepared for the Fall 2014 Brookings Panel on Economic Activity.  September 2014. Page 23.

[2] Op. cit., page 26.

[3] Christopher L. Smith.  "The Impact of Low-Skilled Immigration on the Youth Labor Market,"  Journal of Labor Economics.  Vol. 30, No. 1, January 2012.  Pp 55-89.

[4] Mary C. Daly and Elliot M. Marks.  "The Labor Market in the Aftermath of the Great Recession," Business Economics.  Vol. 49, No. 3, July 2014.  Pp. 149-155.

[5] Ryan Avent.  "The Third Great Wave," The Economist.  October 4, 2014.  Special Report, pp. 3-18.

[6] U.S. Bureau of Labor Statistics.  "Employment Projections: Occupational employment, job openings and worker characteristics." December 2013.  The table includes more than 800 occupational categories, which we sorted by educational requirements.

[7] Dennis Lockhart.  "Strategic Workforce Development: Training for Employability."  Keynote Remarks for Community Development Conference: Transforming U.S. Workforce Development Policies for the 21st Century.  Rutgers University, New Brunswick, New Jersey, October 16, 2014.

Lockhart is President and Chief Executive of the Federal Reserve Bank of Atlanta, a co-sponsor of the conference.  He mentions three soft-skills training programs, Year-Up, STRIVE, and 12 for Life.

[8] Meghan Casserly.  "The 10 Skills That Will Get You Hired in 2013,"  Forbes website, December 10, 2012.

Also see Rachel Burstein.  "Here Are the Crucial Job Skills Employers Are Really Looking For." website, August 29, 2014.


Monday, September 15, 2014

Personal Finances, the Great Recession and the Sluggish Recovery

We all keep wishing the economy would "feel better", don't we? that there could be a sense of greater confidence in jobs, in opportunities, in everyone's financial situations.  We wonder why the recovery from the recent Great Recession could be taking so very long.

Our last look at the economy, posted in late June, focused on the job market, and we promised then to talk again about possible reasons the current malaise has resulted in people dropping out of the labor force.   Very soon, the Census Bureau and the Labor Department will publish some detailed data for 2013 that hopefully will help us tackle that question.

Meantime, there is one area we can speak to, the condition of personal finances, a topic for which we already have a quantity of recent information.  One of the main causes of the Great Recession was that people borrowed lots and lots of money.  Much of the public commentary about that recession asserts that financial speculation and bankers brought on the crisis.  Clearly they were important, but it's also true that people took on more and more debt.  Bankers and traders did speculative things with that debt, but it all did start with the consumers who borrowed the money.  A key, then, to the resumption of stronger growth is likely related to the progress people are making in correcting this over-reaching.

Mortgages & Homeowners' Negative Equity
Mortgage debt expanded sharply from the middle of 2001 through 2006, over 13% a year.  The payments on that debt, so-called "debt service", surged from 5.9% of people's disposable income in 2004 to 7.2% at the end of 2007.  People who refinanced mortgages borrowed more than their existing liability during those years, decreasing the equity they had in their homes.  Overall, this home equity withdrawal amounted to almost $500 billion a year from 2003 to 2006.[1]

As people were stretching their personal financial conditions, interest rates began to rise in 2004 and people with adjustable rate mortgages or initially low "teaser" rates saw their mortgage payments go up sharply.  By late 2006, unusual numbers of borrowers started having trouble keeping current on their payments on those and regular mortgages as well.  The greater delinquencies hurt the lenders and the owners of bonds backed by the mortgages.  The climb in home sales peaked in 2005, and they began to decline.  Home prices started to fall in 2006; although those have finally begun to climb again, they remain well below their 2005/06 highs.  The result, even now, is that 17% of homeowners have a mortgage that is larger than the value of their home.[2]  Called "negative equity", that's actually an improvement from over 25% in early 2013 and almost 31% in mid-2012, but remains a heavy weight on people's approach to spending and their outlook on the economy in general.

Even now, after some recovery, housing and mortgage activity remain in the doldrums.  New home construction this year is running no more than half the pace of 2005, and sales of existing homes are still down some 30% from that year's pace.  The latest weekly report from the Mortgage Bankers Association shows a new recovery low last week in the volume of mortgage applications.  People are still staying back from mortgage debt.

Credit Card Debt Got Big Too
Another consumer debt issue is credit cards.  From the spring of 2006 through early 2008, credit card balances accelerated; from very modest growth of about 2% year-over-year in early 2006, they were expanding at a 10% rate by late 2007.

Average credit card balances reached what are, to us, astounding levels:  in 2007, households in the middle 20% income bracket owed $6,300 and those in the next rung down, $4,900.  Balances were higher, of course, in higher brackets, so the average over the entire income span was $8,200.[3]  If these were charged interest at a common credit card rate of 1-1/2% a month, the interest add-on each month would have been $120!  Delinquency rates on credit cards in those years hovered around 9% and rose rapidly during the recession; they reached 13.74% by the spring of 2010.[4]

Credit card usage did slow.  By last year, the middle income bracket's average had fallen to just $4,900 and the overall average to $5,700, this latter a reduction of 35% from its peak.  People are paying larger portions of their bills each month too; from 19% of their balance each month in 2006, people in recent months have been paying almost 25%.[5]  The lower balances have obviously accompanied more sluggish spending growth.  In the 2004-2007 period of big increases in credit card balances, spending was expanding at rates of 6 and 7% a year.  It declined outright in 2009 and has had a modest, uneven pattern since then.  In 2013, people increased their outlays on categories of items that might be charged to a card by just 3% and this year's second quarter was up 3.6% from a year earlier, half the pace during the "spree".[6]

There are numerous reasons for the currently mediocre performance of the U.S. economy, and one of them is surely this restraint on credit use.  Some of this might be banks turning down applications, but as we note with the mortgage information, people are not even applying in much volume in the first place.  In view of the excess of the 2004-2007 period, this caution is quite appropriate.   Importantly, it is helping to improve credit quality; credit card delinquencies in the second quarter were back down to 2.25%, and those on mortgages are down from a peak of 8.9% in early 2010 to 3.4% in the latest period.

The better delinquency situation is laying the groundwork for renewed spending growth on a much sounder basis.  Recent retail sales reports suggest this might be happening.  Also, we do note that people are buying cars these days and obviously borrowing to do that.  After a long hiatus, many people's cars and SUVs have simply grown old and need replacing, so it is not surprising to see this.  It is the only category of ordinary consumer borrowing with much vigor.

People May Still Not Be Saving Enough.  Are You?
At the same time, there are two issues still to grapple with: student loans and saving.  Student loans are a whole topic on their own and we will return to talk about them and the "worth" of incurring big, long-term debt to pay for college.  Saving has improved since the Crash and recession, but continues as a matter of concern.

The saving rate, that is, the amount of personal income not spent, got as low as 2% during the debt-spree years, reached a band of 6-7% in 2011 and 2012 and recently was 5.3% in the second quarter.[7]  So it's clearly up off the lows, but not "high".  Also what isn't "high" is the number of people who actually have a cautionary stash of emergency cash under their mattress (or in a safe bank account somewhere) .  A special Federal Reserve survey of people's economic well-being taken during 2013 asked them about this:  "Have you set aside emergency or rainy day funds that would cover your expenses for 3 months?"  Only 39% of participants said yes.   Further, younger people have a lower positive response: only 33% of households headed by 18-44 year-old people said yes.  There is no history of this for comparison, so we don't know how low that number would have been during the spending-spree era.[8]

So we are not surprised that the economy remains relatively sluggish; we believe some of this reflects the extension of a rebuilding effort for people's own financial standing.  There are lots of other issues, but that is certainly one that had not impacted previous business cycles so deeply or pervasively.  We've illustrated some progress, though, and look forward to further improvement.  Meantime, stick a little cash under your mattress every paycheck until you think you can cover three months' worth of expenses!

A new book, published just in May, encouraged us to give these ideas some extra emphasis.  House of Debt, by Atif Mian and Amir Sufi, explores mortgage borrowing by zip code around the country, highlighting the role of the debt itself in generating the severe recessionary conditions throughout the economy, not just in the housing sector.  The book's subtitle is "How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again."  Hmmm. 

We also consulted Stephan Whitaker's "The Evolution of Household Leverage during the Recovery", an Economic Commentary of the Federal Reserve Bank of Cleveland, dated September 2, 2014.  Whitaker has calculated household debt/income ratios for census tracts around the country.

Footnotes cover specific data sources.  Most of our actual data references come from these sources as presented in the databases of Haver Analytics.

[1] Federal Reserve Board, Financial Accounts of the U.S.  Equity withdrawal amounts are taken from calculations made by Haver using those Federal Reserve data.

[2] Zillow, Inc. "U.S. Negative Equity Falls to 17 Percent", Press Release, August 26, 2014.

[3] Federal Reserve Board.  2013 Survey of Consumer Finances.  Issued September 4, 2014.

[4] Federal Reserve Bank of New York.  Household Debt and Credit Report.  2nd Quarter 2014, August 14, 2014.

[5] Payment rates on credit cards from the Standard & Poor's Ratings Services' U.S. Credit Card Quality Index (CCQI).

[6] Data on consumer spending from the Department of Commerce, Bureau of Economic Analysis (BEA), in the "national income accounts", that is, the same dataset as GDP and its other components.  We calculated a "credit card spending subtotal" by taking total consumer spending and subtracting off housing services, education, health care, vehicle purchases and other broad spending categories that aren't likely to be paid for by charging to a credit card.

[7] The saving rate is also taken from the BEA's national income accounts.

[8] Federal Reserve Board.  Report on the Economic Well-Being of U.S. Households in 2013.  "Savings Behavior", pp. 17-18.  July 2014.

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Sunday, August 17, 2014

A Remembrance of Robin Williams

We have an article in process on consumer finances and their role in the broader economy.  Even as we are working on that, we recognize that these days are full of heavy-weight events in the world.  In the last few weeks, we have written of praying for peace (July 18) and we have offered internet links to aid for the child immigrants in Texas (July 11).  Now, we also need to pause and remember a prominent man who has passed, Robin Williams.

There is much we could say about Williams.  We could choose the serious side of his passing, including his illnesses and the manner of his death.  But in this moment, we choose to be light-hearted and remember the fun he brought us.  For Episcopalians, perhaps the easiest and most sentimental expression of this is a recitation of the gift he gave to us in particular, "The Top 10 Reasons for Being Episcopalian", which he presented during an HBO special in 2002.  These have been making the rounds this past week and you may have seen them already.  There's even a tee shirt, which you can find here:

The Top 10 Reasons for Being Episcopalian:
10. No snake handling.
9. You can believe in dinosaurs.
8. Male and female God created them; male and female we ordain them.
7. You don't have to check your brains at the door.
6. Pew aerobics.
5. Church year is color-coded.
4. Free wine on Sunday.
3. All of the pageantry - none of the guilt.
2. You don't have to know how to swim to get baptized.

And the Number One reason to be an Episcopalian:
1. No matter what you believe, there's bound to be at least one other Episcopalian who agrees with you.

May Williams help us to laugh at ourselves, which we need to do often and especially right now! 

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Tuesday, July 22, 2014

"The Courage to Grow Old"

Last year in this country, there were 19.5 million people over age 75.  This group made up 6.2% of the total population.  By 2026, just 12 years from now, Census Bureau projections indicate there will be about 10 million more of these elderly residents and they will be more than 8% of the population, growing another 10 million through the subsequent nine years to almost 11%.

So Barbara Crafton has written a book on growing old.  We know we don't need to justify any particular choice of topic for her writings, and her own reason for writing on this seems to be that she herself feels she is beginning "to grow old", as is evident in the Preface and Chapter 1 of the book.  Still, and perhaps too obvious to deserve mention, this is a topic of broad general interest, and her comments on several issues and her impressions of this time in our lives are significant for many people and their publication significantly timed, as illustrated by our data above.

Some of the topics are practical: among others, how do you convince your father that he shouldn't drive a car anymore?  How do you handle really elderly parents who want to live at home or in your home?  How do you conduct yourself on a date?[!]  Also, quite logically but with great feeling, how do you imagine approaching death and dying yourself?

So we have taken a step right here in what Barbara wants us to do.  We're talking about this.  We've already taken a courageous step.  See what she says on page 8:

In order to help those who love me deal with my death, I must come to terms with it myself.  It will help to think about death in advance.  Trust me [she says], this gets easier to do with practice – those things of which we refuse to think don't disappear meekly in response to our refusal:  they go underground.  There they grow in apparent size and virulence, becoming larger and more unthinkable than they really are.  What will happen to me in my death is that I will join the billions of human beings who have died; everyone who has ever lived has managed to do this.

We have already had experiences in our lives like this: major losses, traumatic events.  We realize that in order to function more fully as time passes, the best way to handle those experiences is to face them head on.  Our own death is no different, apparently.

One chapter talks about pain, and Barbara is quick to distinguish between acute pain and chronic pain.  Acute pain sends a signal:  oops, your finger is too close to the candle flame.  Ouch!  Then you take action to stop it.  Chronic pain is different.  You have to learn to live with chronic pain and counteract its source or compensate for it.  For instance, maybe your knees won't let you genuflect in church?  Then bow instead [that's what we ourselves have to do!].  She says these strategies take courage too; from page 35:

I think chronic pain teaches courage.  Real courage, I mean, not bravado – it teaches the kind of courage that looks unwaveringly at the way things really are, rather than the strutting, noisy kind that asserts power it doesn't possess and control over events that human beings don't really run.  No, the courage chronic pain can teach us is the slow kind, the patient kind – maybe "maturity" is a better term for it than "courage."

One more notion, an impressionist metaphor: "The Two Baskets".  We are in a basket that is nested in a bigger basket.  Page 80:

Baskets are woven, of course: strips of grass or straw or wood thread intricately over and under one another again and again . . . . But there is space between the strips, however tightly they might be woven.  You could peer out one of those spaces, if you wanted to. . . . Yup, there's something out there all right.  But you can't see it very clearly through that tiny opening.  Besides, who cares?  This basket is beautiful.  It contains everything you need.

One day, though, the smaller basket begins to fall apart . . . .

So you get the idea of where that image is going.  Barbara helps us understand that we have been inside the bigger basket all along.

In addition to Barbara's two baskets, we realize that we've actually seen a third basket.  A friend who lately became a grandmother showed us a picture of her grandson smiling at us – from the womb.  The wonders of ultrasound let us see inside and there was little Luke, inside the basket inside the basket inside the basket . . . .

Barbara Crafton's book The Courage to Grow Old is published by Morehouse, an imprint of Church Publishing, Incorporated.  It is available from Amazon and Barnes & Noble, in both paperback and Kindle or Nook editions.


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