This article was posted on Saturday, Oct 01, 2016

A recent study from the Levy Economics Institute found that 90% of Americans were worse off financially in 2015 than at any time since the early 1970s. Furthermore, for the vast majority of Americans, the nation’s economy is in a prolonged stagnation, far worse than that of Japan. Worse than Japan? 

When we think of the Japanese economy, we think of the “Lost Decades.” Japan’s economy was the envy of the world in the 1980s, but starting in 1991, it fell into a prolonged recession and deflation which lasted from then to 2010. Japan’s GDP fell from $5.33 trillion to $4.36 trillion during that period, which saw wages fall by approximately 5%.

So are we really worse off today than Japan? The Levy Economics Institute at Bard College thinks the answer is YES, when it comes to real income – that is, income adjusted for inflation. According to their findings, 90% of Americans earn roughly the same real income today as the average American earned back in the early 1970s.

As a result of this stagnation in incomes and the plunge in housing values during the Great Recession, 99% of American households have seen their net worth fall since 2007 according to the study. Economic stagnation hasn’t reached the remaining 1% of the US population, which has seen a recovery in their real incomes over the same period to near new highs.

As a result of this stagnation in incomes and the plunge in housing values during the Great Recession, 99% of American households have seen their net worth fall since 2007 according to the study. Economic stagnation hasn’t reached the remaining 1% of the US population, which has seen a recovery in their real incomes over the same period to near new highs.

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The trends are clear.  The bottom 99% of U.S. income-earning households has seen their net worth decline since the financial crisis of 2007-2009.

Once upon a time, the American economy worked for nearly everybody, and even the middle class got richer. Things were quite different in the decades preceding the 70s, a period that stretches back to the late 1940s, when real incomes rose for both groups.

Simply put, for the vast majority of Americans, the dream of a steady increase in income was lost back in the early 1970s. What can explain this big shift in the income distribution in the last four decades? One clue is in the timeframe of the shift, which coincides with the growing openness of the American economy to international trade and investments. Many believe that globalization is largely to blame.

An open economy pitted American entrepreneurs and workers against overseas peers. For the top 10% of the population, those with the right skills, an open American economy was a good thing, a source of efficiency and opportunity that translated into higher real incomes.

Yet for the remaining 90% of the population, those with the wrong skills or little skills, the openness of the U.S. economy was a bad thing, a source of job losses and lower incomes.

Another contributing factor is out-of-control federal regulations, especially during the Obama administration. The Code of Federal Regulations is now more than 81,000 pages long.

A new study from George Mason University found that the U.S. economy would have been $4 trillion — or 25% — bigger than it was in 2012 had federal regulations been capped at 1980 levels. This is astonishing!

There is yet another clue why 90% of Americans are worse off today than in the 1970s.  The shift in income distribution became worse in the aftermath of the Great Recession, which brings up yet another reason for the decline; the ultra-low interest rate monetary policy, which boosted the prices of stocks and bonds, mostly benefiting the top 10%, which were very likely to own these assets. 

U.S. Economy Grows by Weakest Pace in Two Years

The U.S. economy expanded in the first quarter at the slowest pace in two years as American consumers reined-in spending and companies tightened their belts in response to weak global financial conditions and the plunge in oil prices.

First quarter Gross Domestic Product rose at a 0.5% annualized rate after a 1.4% fourth quarter advance, the Commerce Department reported. The increase was well below the 0.9% pre-report consensus and marked the third straight disappointing start to a new year. This advance report will be revised two more times.

The U.S. GDP has been trending lower each quarter since the second quarter of 2015. Weaker global economies and oil’s tumble resulted in the biggest business-investment slump in almost seven years in the first quarter, and household purchases climbed the least since early 2015, the GDP data showed.

The fact that personal consumption growth slowed in the first quarter is a disappointment, especially in light of much lower gasoline and energy prices from a year ago. Household purchases, which account for almost 70% of the economy, rose at a 1.9% annual pace last quarter, compared with 2.4% in the final three months of last year.

Consumer spending, while slightly better than the 1.7% median forecast, was a disappointment in light of the consumer-friendly fundamentals including low gasoline prices, cheap borrowing costs, increased hiring and warmer-than-usual winter weather.

Disposable income adjusted for inflation climbed 2.9% in the first quarter, an improvement from the 2.3% gain in the final three months of 2015. The savings rate ticked up to 5.2% in the first quarter from 5.0% in the fourth quarter of last year. Government spending rose at a 1.2% pace led by states and municipalities. That’s about it for the good news.

The biggest negative factor weighing on the economy last quarter came from companies. Nonresidential fixed investment, or spending on equipment, structures and intellectual property, dropped at a 5.9% annualized pace, the biggest decline since the second quarter of 2009. This was much worse than expected.

Investment is also languishing as corporations struggle to boost profits against a backdrop of weak overseas demand and restrained domestic purchases. Consumers in the U.S. scaled back purchases, and companies continued to trim inventories to bring them more in line with sales.

Inventories subtracted 0.33% from GDP growth after a 0.22 percentage-point drag in the fourth quarter of 2015. Progress in trimming inventories, along with receding headwinds from abroad and the latest comeback in the prices of oil and other commodities, may keep investment from deteriorating further. Weaker demand from overseas customers led to a drop in exports in the first quarter. Trade subtracted 0.34% from GDP growth, the most in a year.

Stripping out unsold goods and trade, the two most volatile components of GDP, as well as government expenditures, so-called final sales to private domestic purchasers increased at a 1.2% rate, the weakest advance since the third quarter of 2012.

Several forecasters suggested that the first quarter will be the worst quarter for consumption and the economy for all of 2016, as has been the case the last couple of years. In 2015, GDP rose 0.6% in the first quarter before rebounding to a 3.9% pace in the second quarter. In 2014, the economy shrank at a 0.9% rate in the first quarter and jumped by a 4.6% rate in the April-June period. 

Gary D. Halbert is the president and chairman of Halbert Wealth Management, Inc. His Forecasts & Trends Weekly E-Letter may be obtained free of charge by subscribing at