Wall Street, Main Street, and Nevada’s Working Families

Average hourly earnings

The Bureau of Labor Statistics released its Jan. 30th report and we get a look at the reason some people aren’t feeling all that Bullish about the economy.  For starters there’s the chart shown above – the average hourly earnings increases or decreases.  Those zeros aren’t all that appealing. Even during the housing bubble period (2005-2008) the increases in hourly earnings weren’t  all that impressive.  The table for average weekly hours for all employees in the private sector isn’t much more delightful – being filled with more zeros as it is.

Average hourly earnings haven’t moved much since 2006, average weekly hours haven’t moved much more, and thus we have a situation in which about the only way to stay in place is to take on more consumer debt.  As illustrated in a 2013 publication from the NY Federal Reserve:

Consumer Debt Trends Chart

There are a couple of ways to look at the chart – for the half-full souls it looks like people are shedding mortgage debt, for the half-empty it looks like fewer people are buying homes and therefore the construction sector is still a bit weak.  The New York Federal Reserve reports on consumer indebtedness on a quarterly basis, the last report told us:

“Aggregate household debt balances increased slightly in the third quarter of 2014. As of September 30, 2014, total household indebtedness was $11.71 trillion, up by 0.7 percent from its level in the second quarter of 2014, an increase of $78 billion. Overall household debt still remains 7.6 percent below its 2008 Q3 peak of $12.68 trillion.”

Overall household debt includes housing debt. We might want to drill down to non-housing debt levels.

non housing debt balance

That large reddish swath is student loan debt, the orange is credit cards, and the green shows auto loans in the last ten years.  Remember, Wall Street has securitized this debt and it’s happily traded in securitized form in the financial markets; betting that Americans can (or can’t) pay off the debts incurred.   We can infer with some confidence that this national chart is representative of what’s been happening in Nevada.  Nevada’s median family income hasn’t exactly stormed up to the top of the charts.

Nevada Median Family Income 59 to 99

Nevada Median Family Income 2000 to 2013

The ACS reported an annual median income for Nevada families as $56,499 in 2000, and the number has struggled to maintain that general level. The number reported for 2013 is $51,230.

The good news is that Nevada’s unemployment rate is down to 6.8% as of December 2014. More good news is that we’ve seen a 3.7% YOY growth rate. [DETR pdf] Last August the state’s economist was pleased with the wage numbers:

“Wage trends during the first three months of the year in Nevada were a bit more encouraging than in prior quarters,” he said. “Whereas prior gains struggled to keep pace with inflation, this year’s first quarter gain outpaced the overall level of inflation. Specifically, inflation, as measured by the Consumer Price Index, came in at 1.4 percent relative to a year ago during the first three months of the year. Hence, wages grew in real terms.” [DETR pdf]

Before we dance, there’s the usual fly in the floor wax: “However, wage gains have been sluggish, averaging just a bit above one percent annually over the 2011-2013 period.”

Here’s the point at which it’s necessary to talk about the differences between Wall Street and Main Street.  If American consumers, Nevadans included, are taking on more student debt, car debt, mortgage debt, and credit card debt, Wall Street is buoyantly elated. More debt = more securitization = more financial products = more revenue = more bonus payments.  The picture isn’t quite the same for Main Street.

People make decisions about their own personal finances and those decisions create some markets and deplete others. For example, as of August 1913, the New York Federal Reserve was reporting that people holding student loan debt were “retreating from the housing and auto market.”  That would make sense – burdened by student loans? — then a person would be much less likely to take on auto loans or mortgages.  This means, of course, that the local auto dealership or the local developer isn’t going to see increased demand for his or her products – while those burdened with student and other loans or credit obligations decide not to take on yet more debt.  What’s great for Wall Street becomes a drag on Main Street.

There are at least a couple of ways to help people reduce indebtedness and thus enhance their local economies.   For those at the lower end of the economic spectrum we could increase the federal minimum wage.  This will be met with the usual objections, mostly commonly that employers will be forced to cut employees and therefore the people we hope to help will be the ones hurt.  This is a false argument. Hiring isn’t geared to wages, at least it isn’t in a free market economy. Again, and again, and again,  the only rational reason to hire someone, anyone, is that current staffing levels are inadequate to provide an acceptable level of customer service. 

Tax breaks, veterans’ status – those are nice, but if there is no increased demand for service at Ready Auto Dealers Inc. then an additional mechanic will not be hired.  Tax incentives, apprenticeships – those are nice too, but if there is no increase in the demand for single family home construction then Mugwump Brothers Construction won’t need to hire another carpenter. Free market enterprise simply works that way. 

If Nevada (and national) median family income remains stagnant, then the demand for goods and services will remain stalled. If average hourly earnings remain sluggish, and the average weekly hours fall along that line, then there is less demand for goods and services.  If middle income workers take on more debt, Wall Street is delighted, Main Street is on the defensive.

There is one way to finance projects which would help the Great American Middle.  Make some simple tax code reforms.   Wall Street will squawk to the Heavens, but we could (1) close the trust fund loophole which allows the ultra-wealthy to pass along appreciating assets to their offspring – tax free; (2) Raise the capital gains and dividend rates back to what they were when Ronald Reagan was in office – 28%; (3) put the breaks on excessive borrowing by Wall Street financial firms.  What could we buy with this?

For one thing, we could invest some of the revenue in INFRASTRUCTURE which will employ workers across the country in jobs which will create assets for states and municipalities.  Bridges, dams, water works, sewer systems, schools, aren’t counted on the books as liabilities – they are assets.  We might also want to consider investing in education and training facilities and employment.  Want to reduce the burden of student loans?

We could make it easier for states to finance their colleges and universities. Improve the Pell Grant program. Improve the GI Bill. It worked after World War II, it can work again.  We could assist working families by adjusting the child care tax credit, operating on the assumption that it’s more important to have children of working families in adequate day care than it is to protect the inheritance of far fewer trust fund children.  There are far more options available, once we stop protecting the interests of the ultra-wealthy, the friends and allies of Wall Street, and start giving a higher priority to the needs of average families on Elm Street who spend their disposable income on Main Street.

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