A Bad Decade: 10-Year Private Income Growth Goes Negative

Each month the BEA releases figures for personal income and disposable personal income. These figures are a mix of private sector income and money received by individuals from the government. These government payments take the form of wages paid to government employees, and social benefits such as Medicare and Medicaid.

So I decided to take a shot at calculating ‘private’ personal income. From personal income I removed government social benefits (about $2.1 trillion in 2009) and wages paid to government employees (about $1.2 trillion). Then I added back in contributions for government social insurance, such as Social Security and Medicare payroll taxes (just under $1 trillion). Finally, I adjusted for inflation and population size to get a figure for real ‘private’ personal income per capita.

Here’s a chart of  the 10-year growth rate of real private personal income per capita (the first quarter figure for 2010 is based on the average of January and February).  

Over the past decade, real private personal income per capita has fallen at a 0.2% annual pace, the first time that has happened since the Great Depression.

Let’s compare this with the usual figure quoted by economists, real disposable income per capita. Real disposable income per capita–which includes government wages and social benefits, and adjusts for tax changes–rose at a 1.2% rate over the past ten years. In other words, when we add in government spending increases and tax cuts, real incomes per capita rose rather than fell.

The logical conclusion is that the private sector has been crapped out for the past ten years. Even before the crisis hit, the main thing that  kept the economy afloat was the succession of Bush tax cuts and the expansion of federal spending which boosted benefits,  particularly in healthcare. 

This was a bad bad decade.

 

Comments

  1. An expansion of federal spending boosted benefits? Where do you think the money for that federal spending was stolen from? The private sector, of course, your last post showed tax revenue rising 7% during the last decade, from the last bust to the top of the boom. Funny how you think the meager 1.4% annual increase in taxation and govt spending kept the economy “afloat,” all while globalization, finance and technology were increasing household net worth by at least 30% this decade. As for the private sector, we’re undergoing a transition to an information economy so most of your old stats, like those in this post, are fairly useless. Many benefits of this transition are currently undercounted, like the fact that music or news cost almost nothing nowadays or that prices on most goods have been driven through the floor because of globalization and information available on the internet. Second, we’re on the verge of another tech boom, which has only been held back because of the economic ignorance of most people (Take a bow, economists!) in not embracing micropayments, but we’ve been rapidly deploying ancillary technologies like broadband internet, extremely powerful computers, next-generation wireless data networks and the handheld devices to use with them. It was not a bad decade, it was a mediocre decade where we were flush with cash and opportunity but flushed a significant portion of it down the drain of the housing boom, rather than being smart enough to start that next tech boom. Oh well, you reap what you sow, but let’s not exaggerate, Mike.

    • Mike Mandel says:

      The fact that the past decade was bad says nothing about the next decade.

      I’m pretty sure that the perhaps temporary failure of innovation in the life sciences–as manifested in the continued rise of health care costs and the flat death rate for most age groups–exercised more of a downward pull on living standards than the upward push of low-cost music and news. Your benefits from low-cost music is capped by the amount of time you spend listening to it.

    • But my point was that the last decade wasn’t bad, it was mixed but still largely positive. I think the way we pay for medical services, with medical prepayment/insurance rather than through medical savings accounts, had a lot more to do with our medical problems than the lack of innovation. I agree that music is a relatively small portion of the economy but the information economy is the meta-economy, as it sways buying decisions that affect all other sectors. For example, it is well known that the rise of eBay and Craig’s list have caused the prices of all the varied goods one finds on those websites to drop, because of the market competition brought to bear by such information services. The information economy is widespread, though not as much as it soon will be, and I’m skeptical that all these new benefits are being measured accurately by your outdated, industrial age stats.

  2. Scott Paul says:

    Over that same period, we lost about 5 million manufacturing jobs. To the extent the jobs were replaced–and many of them weren’t–they tended to be in lower wage occupations. I suspect this played a significant role in the decline you analyze.

  3. There is your answer why innovation has failed to pay off. To whom will it be sold (at full price) when there are not enough discretionary funds?

    And there are food chains and circularities in the whole innovation ecology. Innovators are making use of others’ innovative products and services. But when they in turn cannot project sales of their own innovations, they will not invest (at full price) in their “innovation inputs”. At the end of the day, innovation has to result in salable product, otherwise it will remain restrained.

  4. [Sorry for the double post if there is a delay in comments showing up]

    There is your answer why innovation has failed to pay off. To whom will it be sold (at full price) when there are not enough discretionary funds?

    And there are food chains and circularities in the whole innovation ecology. Innovators are making use of others’ innovative products and services. But when they in turn cannot project sales of their own innovations, they will not invest (at full price) in their “innovation inputs”. At the end of the day, innovation has to result in salable product, otherwise it will remain restrained.

  5. The Fifth Horseman says:

    Michael,

    The reason wages are not rising, despite high productivity growth throughout the decade, is because everyone’s raises are consumed by increases in healthcare premiums.

    Money that would have gone to a raise instead goes to pay the premium increase.

    • And here I thought we have labor market slack, and employers don’t have to raise wages to attract and retain scarce talent. But the healthcare cost angle is certainly also there.

      • The Fifth Horseman says:

        cm,

        The dollar rise in your premium (certainly if you have kids), probably matches or exceeds what might have been your standard raise.

    • Somehow I cannot see a reply link on second-level responses; this is in response to “HC premium matches what might have been your raise”.

      I’m not arguing that healthcare costs to employers increase. However so many successful companies are sitting on mountains of cash that it is hard to believe they cannot pay raises because healthcare and other business costs are rising. All compensation metrics are set competitively. Raises, bonuses etc. will in the aggregate be awarded based on employee turnover. The latter must be at record lows these last few years.

      From my vantage point, there are slim pickings out there. If myself and most of my colleagues cannot land better offers out there, and people who do leave are replaced with little friction, they don’t have to give us raises. Neither would they if healthcare costs were more stable.

  6. Mike Reardon says:

    Mr.Mandel above “Even before the crisis hit, the main thing that kept the economy afloat was the succession of Bush tax cuts and the expansion of federal spending which boosted benefits, particularly in healthcare.”

    I always thought direct foreign reinvestment and financial manipulation thru leverage gave the economy its real lift. I think it was a permissive attitude in Bush policy at that end and the actual Bush Tax cuts were just another boost to an economy already on its own financial steroids. Even back into the time of energy deregulation the tax cuts were only an extra push.

    • I believe you’ve caught Mike out in the journalist game of trying to seem even-handed by picking one Republican policy and one Democratic policy and presenting both together, regardless of how silly it is to do so.😉 It has nothing to do with the facts, it’s just to provide political deniability, so that when either side whines they can say they presented their side also.

  7. Mike Mandel says:

    Which Democratic policy? The Bush Administration was mostly responsible for the increase in pharma benefits. In retrospect, I tend to believe that Bush was reacting, in his own way, to the weakness in the private economy.

  8. The increased govt spending that you mention? No Republican runs on increased govt spending, particularly for health care or pharma. Bush cut a deal with the Democrats to pass Medicare Part D, which is why only 8 Democratic Senators voted against it. Bush was just bribing seniors to vote for him in 2004, which is why 82 Senators were glad to jump in on that mass payoff (except McCain and a few others who voted against it), so I don’t think he considered it economic “stimulus,” nor can it be considering the smaller scale of the payoff compared to GDP.

  9. Jonathan says:

    Maybe it’s not so much the government stealing the fruits of our labor, so much as our employers profiting off our increased productivity.

Trackbacks

  1. […] Michael Mandel looks at income during the aughts: “Over the past decade, real private personal income per capita has fallen at a 0.2% annual pace, the first time that has happened since the Great Depression.” […]

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