Census Figures Show Americans’ Incomes Fell in 2020

Link: https://www.wsj.com/articles/americans-incomes-fell-in-2020-census-figures-show-11631629285

Excerpt:

Americans last year saw their first significant decline in household income in nearly a decade, government data showed, with economic pain from the Covid-19 pandemic prompting government aid that helped keep millions from falling into poverty.

An annual assessment of the nation’s financial well-being, released Tuesday by the Census Bureau, offered insight into how households fared during the pandemic’s first year. It arrives as Washington debates how much more to spend to bolster the economy during the worst public-health crisis in a century.

Median household income was about $67,500 in 2020, down 2.9% from the prior year, when it hit an inflation-adjusted historical high. It came as the U.S. last year saw millions lose their jobs and national unemployment soar from a 50-year low to a high of 14.8%.

The last time median household income fell significantly was 2011, in the aftermath of the 2007-09 recession.

The Census Bureau’s topline income figure includes unemployment benefits but doesn’t account for income and payroll taxes nor stimulus checks or other noncash benefits like federal food programs. If those had been counted, the median household income would have risen 4% to $62,773.

Author(s): John McCormick, Paul Overberg

Publication Date: 14 Sept 2021

Publication Site: Wall Street Journal

Social Security COLA for 2022 Estimated Near 6%

Link: https://www.thinkadvisor.com/2021/09/14/social-security-cola-estimate-for-2022-dropped-to-6-to-6-1/

Excerpt:

The annual cost-of-living adjustment, or COLA, for Social Security benefits in 2022 — usually announced in October — could be 6% to 6.1%, the highest since 1983, based on Tuesday’s Consumer Price Index announcement, according to Social Security and Medicare policy analyst Mary Johnson of The Senior Citizens League, who estimated the 2022 COLA would be 6.2% a month ago.

The latest estimate, which is based on inflation of 0.3% in August, is especially significant as next year’s COLA will be calculated on the average of third-quarter, or July, August and September, CPI data.

…..

The consumer price index for all urban consumers in August rose 5.3% over the past 12 months, and 0.3% from the previous month, the Labor Department reported Tuesday. (The CPI includes food and energy.)

Author(s): Ginger Szala

Publication Date: 14 Sept 2021

Publication Site: Think Advisor

Libor Transition Stokes Sales of Risky Corporate Debt

Link: https://www.wsj.com/articles/libor-transition-stokes-sales-of-risky-corporate-debt-11631451601

Excerpt:

Managers of collateralized loan obligations — securities made up of bundled loans with junk credit ratings — are rushing to close deals ahead of the year-end move away from the London interbank offered rate. The interest-rate benchmark underpins trillions of dollars of financial contracts but was scheduled for phaseout after a manipulation scandal.

That is helping push CLO sales to records. U.S. issuance topped $19.2 billion in August, a monthly record in data going back a decade, according to S&P Global Market Intelligence’s LCD.

…..

A wave of CLO refinancings this year allowed some managers to include fallback language shifting to SOFR in their documents, analysts said. But for other deals, CLO managers and investors must negotiate that changeover, which could create conflicts if they have different rate preferences.

Disruptions to the transition could increase the extra yield, or spread, that investors’ demand to hold triple-A rated CLO debt during the fourth quarter of this year, depending on how quickly the loan market transitions and how new CLO deals and investors position themselves, said Citi analysts in a June note.

SOFR is based on the cost of transactions in the market for overnight repurchase agreements, where large banks and hedge funds borrow or lend to one another using U.S. Treasurys as collateral. Unlike Libor, which tends to rise during periods of market stress, it doesn’t adjust for shifts in credit.

During last year’s spring selloff, the difference between three-month Libor and SOFR rose to 1.4 percentage points at its peak, according to BofA. That means CLO debtholders received a higher rate than what they would have if their bonds were linked to SOFR.

Author(s): Sebastian Pellejero

Publication Date: 12 September 2021

Publication Site: Wall Street Journal

Gig Workers In This State – Not California – Benefited Most From Federal Unemployment Benefit Expansion

Link: https://www.forbes.com/sites/lizfarmer/2021/09/09/gig-workers-in-this-statenot-californiabenefited-most-from-federal-unemployment-benefits/

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Excerpt:

Federal unemployment benefits ended this month for millions of Americans and data show that workers in Virginia might feel it the most.

The federal government’s enhanced unemployment benefit added $300 to weekly unemployment checks issued by states and also expanded coverage to the self-employed and freelancers, such as rideshare drivers and musicians. That expansion, called pandemic unemployment assistance (PUA) was a lifeline for these gig workers who previously weren’t eligible for any unemployment help.

An analysis I did for the Rockefeller Institute of Government on unemployment benefits given to non-traditional workers shows that the PUA program had the biggest financial impact in Virginia, where those payments accounted for nearly 26% of all unemployment benefits paid in 2020.

Author(s): Liz Farmer

Publication Date: 9 September 2021

Publication Site: Forbes

Wage Stagnation and Its Discontents: Rethinking the Safety Net to Encourage a More Dynamic Economy

Link: https://www.manhattan-institute.org/schrager-wage-stagnation-rethinking-safety-net

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Excerpt:

Guaranteed jobs or UBI are poorly targeted and do not match the needs of new workers and may even hold them back by offering the sort of guarantees that perpetuate wage stagnation. Instead, the new safety net should offer various programs to smooth out dips in income and offer benefits that are not tied to a single employer, including:

Wage insurance—benefits that account for a drop in income, not just a loss of employment

Income averaging—tax rates based on income over three or five years, not just a single year, which will make income more stable for workers in variable work arrangements

Providing contingent workers the opportunity to receive benefits, such as health care and sick leave, that are not tied to traditional employment

To protect themselves against income risk, Americans have resorted to stagnation. We can provide downside protection in alternate ways—so that Americans can feel more free to switch jobs, try alternative forms of work, or start new companies. The above-mentioned programs are a more cost-effective and efficient way to address the needs of the new labor force than the guarantee-oriented policies that receive more attention. These programs provide options that would provide more robust insurance that can help spur a more dynamic economy. The options are merely a starting point to think more creatively about how to support a changing economy and break the cycle of stagnation.

Author(s): Allison Schrager

Publication Date: 9 September 2021

Publication Site: Manhattan Institute

The Downton Abbey effect: British aristocratic matches with American business heiresses in the late 19th century

Link: https://voxeu.org/article/downton-abbey-effect-british-aristocrats-american-brides

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The premise of my recent paper (Taylor 2021) is that the rapid decline in British agricultural prices in the last quarter of the 19th century, which shrank not only the income of aristocratic landed estates but also the income of ‘commoner’ (i.e. non-aristocratic) families who owned land, led to a significant proportion of male aristocrats marrying American heiresses with rich dowries as substitutes for the traditional source – namely, brides from British families with landed estates but no titles. 

British agricultural prices began their drop in the mid-1870s for several reasons, from the development of US railroads and prairies to the advent of steamships, all of which led to the UK market being flooded with cheap prairie wheat. Meanwhile, in the US, high society shunned the families of the newly rich businessmen making their fortunes during the Gilded Age. East Coast high society was the jealously guarded preserve of families who could trace their ancestry back to the earliest Dutch or English settlers, and who socially ostracised the nouveau riche business magnates and their families. So, what were these newly rich families to do? They married into the British aristocracy as a means of establishing a social pedigree, whatever the cost.

…..

Figure 1 shows the percentage of marriages between British aristocrats and non-aristocrats (‘out-marriages’) for British males born in 20-year cohorts between 1700 and 1899, as well as the 20-year average real price of wheat in London 33 years later (33 being the average age at which British aristocrats married during the 18th and 19th centuries). The positive correlation between the decline in the price of wheat and the percentage of brides from landed families marrying into the aristocracy is striking, as is the rise in the percentage of ‘out-marriages’ to foreigners as wheat prices fell.

Link to paper: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16209

Author(s): Mark Taylor

Publication Date: 5 September 2021

Publication Site: Vox EU

What explains the decline in r∗? Rising income inequality versus demographic shifts

Link: https://www.kansascityfed.org/documents/8337/JH_paper_Sufi_3.pdf

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Downward pressure on the natural rate of interest (r∗) is often attributed to an increase in saving. This study uses microeconomic data from the SCF+ to explore the relative importance of demographic shifts versus rising income inequality on the evolution of saving behavior in the United States from 1950 to 2019. The evidence suggests that rising income inequality is the more important factor explaining the decline in r∗. Saving rates are significantly higher for high income households within a given birth cohort relative to middle and low income households in the same birth cohort, and there has been a large rise in income shares for high income households since the 1980s. The result has been a large rise in saving by high income earners since the 1980s, which is the exact same time period during which r∗ has fallen. Differences in saving rates across the working age distribution are smaller, and there has not been a consistent monotonic shift in income toward any given age group. Both findings challenge the view that demographic shifts due to the aging of the baby boom generation explain the decline in r∗.
.

Author(s): Atif Mian, Ludwig Straub, Amir Sufi

Publication Date: August 2021

Publication Site: Kansas City Federal Reserve

Inequality, not gerontocracy — Who killed interest rates?

Link: https://doctorow.medium.com/inequality-not-gerontocracy-fbd7d012ba4a

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The received wisdom among economists is that the US’s historical low interests rates are driven by high savings by aging boomers who are getting ready for, or in, retirement.

The idea is boomers have salted away so much cash that banks don’t bid for their savings, so interest rates fall.

But at last week’s Jackson Hole conference, a trio of economists presented a very different explanation for low interest, one that better fits the facts.

…..

So we can’t really say that low interest rates are being caused by an aging population with high retirement savings, because while the US population is aging, it does not have high savings. Quite the contrary.

And, as Robert Armstrong points out in his analysis of the paper for the Financial Times, even in places like Japan, with large cohorts of retirees and near-retirees who do have adequate savings, rates are scraping bottom.

…..

So why are rates so low? Well, the paper says it is being caused by high levels of savings — just not aging boomers’ savings. Rather, it’s the savings of the ultra-wealthy, the 1%, who are sitting on mountains of unproductive capital, chasing returns.

Author(s): Cory Doctorow

Publication Date: 1 September 2021

Publication Site: Cory Doctorow at Medium.com

Social Security: Benefit Terminations and the Trust Fund Running out

Link: https://marypatcampbell.substack.com/p/social-security-benefit-terminations

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Through the mechanism of the Trust Fund, Congress can put off having to act on the fundamental demographic problem that they can’t do much about. They hope they can run the Magic Money Machine to cover all the goodies they want, and in 2034, the Boomers will mostly be over age 80. Maybe another pandemic will deal with them….

(and nobody cares about us Gen Xers. In 2034, I won’t even be eligible for Social Security old age benefits.)

Nobody expects the Social Security benefits to be cut in 2034, or whatever other magic date when the Trust Fund runs out. The only thing the current Trust Fund mechanism requires is cuts… only if Congress doesn’t actually pass legislation to “fix” the issue.

They have been doing ad hoc “fixes” to Medicare and other parts for years so as to avoid massive cuts.

Author(s): Mary Pat Campbell

Publication Date: 6 September 2021

Publication Site: STUMP at substack

How the office will be different for workers when they return

Link: https://www.cnbc.com/2021/09/02/how-the-office-will-be-different-for-workers-when-they-return.html

Excerpt:

As companies allow employees to work from home and not commute into an office, the question of where they can live will likely be raised as workers potentially will seek out cheaper options as opposed to big cities.

“It’s good for employees; they’re obviously making a choice and taking advantage of lower cost of living, cheaper housing, lower taxes and shorter commutes, so they’re going to be happier,” Moody’s Analytics chief economist Mark Zandi said.

That, in turn, will make companies address several human resources issues, such as how much they should be paying workers who live in cheaper places, Zandi said.

“For example, say I worked in New York and decided now I want to work in Vero Beach, Florida,” Zandi said. “I don’t want to go back to New York, I can do my job here no problem — but if I’m living in Vero Beach, should I get New York wages or Vero Beach wages?”

Author(s): Ian Thomas

Publication Date: 2 September 2021

Publication Site: CNBC

How Many People Are Now Covered by Unemployment Insurance?

Link: https://mishtalk.com/economics/how-many-people-are-now-covered-by-unemployment-insurance

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In April of 2020, there were 145.67 million people covered by unemployment insurance but only 133.33 million people working. 

This unusual inversion had never happened before. It lasted 4 months, April through June of 2020.

Covered Employment data is weekly, ending Saturday and lags by a week. I use a “monthly average” which run through July vs the employment level series which runs through August.

Author(s): Mike Shedlock

Publication Date: 6 September 2021

Publication Site: Mish Talk

August 29-September 4, 1921

Link: https://roaring20s.substack.com/p/august-29-1921

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Pundits, observers, and investors believe the 1920s will be a slow growth decade. High taxes, heavy regulations, wage pressures are the main culprits. (Author note: the consensus in 1921 was incredibly bearish and incorrectly predicted a slow growth decade; the polar opposite consensus circulates today) This editorial cartoon sums up the mood in 1921:

Author(s): Tate

Publication Date: 29 August 2021

Publication Site: Roaring 20s at substack