The Personal Income Problem

Last week, I looked at Obama’s GDP problem.  This week I’ll look at the Disposable Personal Income (DPI) problem.  DPI is after tax income, what’s left to spend and save.  The following chart (thanks to the FRED database at Federal Reserve) showd the real, or inflation adjusted, rise in per person disposable income since 1960.

Zooming in on the past thirty years shows just how severe this recession has been.  Real disposable income flattened out or declined only slightly in past recessions; in this recent recession, it fell sharply.

Looking closer at the last ten years shows the 2008 – 2009 decline more clearly and the stalling out of income growth over the past two years.

Now the bad news for the 99% of us.  Remember, this is inflation adjusted income, in 2005 constant dollars. When we look at the annual increase in income, we see a steady decline in the peaks.  The chart below shows a three year smoothed average of that yearly increase in real income.  We are working more and making less.  Higher paying manufacturing jobs have been lost to foreign countries and more of us are working in the service sector, whose average wages and productivity gains are below that of manufacturing workers.

Next, let’s look at Obama’s problem in this election year.  Below is that same chart with the results of re-elections over the past 40 years.

Voters cast their ballots with their guts and the level of personal income and financial security is both a dollar figure and a gut feeling.  President Obama can make a good case, as Ronald Reagan did, that the poor to middling economic performance of the past few years is due largely to the severity of the downturn he inherited.  The chart also shows the decline in personal income during Reagan’s second term and helps to explain why Reagan received poor poll numbers from the public on his management of the economy in the mid to late eighties.  Many are not old enough to remember those days and some who are old enough were not paying much attention at the time.  With a tripling of the nation’s debt and personal incomes falling during Reagan’s second term, Reagan’s vice-president, HW Bush, felt he had to run away from Reagan’s economic policies to get elected.  In a two decade effort to lift up Reagan’s legacy, the mainstream conservative media has consistently glossed over, rationalized or neglected much of the economic history of those times. 

Ross Perot, running as an Independent, kept the 1992 election focus on the economy.  HW Bush would have been re-elected had not Perot taken enough Republican votes that he cost Bush his re-election.  Obama can learn from HW Bush’s experience.  With no substantive third party challenger to take away votes, Obama will need to broaden the political conversation to include more than the economy.

Obama’s most ardent supporters have become lukewarm but Romney has not won much enthusiasm either.  This election will be one of trench warfare, each side carrying their banner, hoping to rally voters to the banner, not the man.

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