EXPLAINING THE MORTGAGE MELTDOWN

My oldest son recently asked me to explain the current mortgage mess in terms a non-economist could understand. My reply to him follows:

1. Several years ago the government, through Fannie Mae and Freddie Mac started to make mortgages easier to obtain. They did this by pooling already issued mortgages and selling Bonds backed by them. This provided more money to issue mortgage loans.
2. Eventually the private market began to engage in the same sort of pooling
3. At some point in time a smart MBA or engineer turned financial analyst realized that real estate prices seemed to be on a constant rise. If this was the case, you could lend money to people who had poor credit. If they didn’t pay their loans you would make money on the resale of the house. If they did pay, you’d make money because their fees and interest rates were higher.
4. When this happened, many investment banks, and even commercial banks, saw that they could borrow short term at lower interest rates than they would earn on the long term mortgages. So they bought the mortgage bonds and borrowed short term, making money on the differential in interest rates.
5. Now we come to the real problem:
a. People started to default on the loans
b. The extra houses on the market pushed real-estate prices down below value of the outstanding mortgages
c. The value of the securities backing the mortgages began to drop.
d. Then people found out that the system assigning specific mortgages to specific bonds was so convoluted that you couldn’t tell if the mortgages backing your bonds were good or bad.
e. This drove the prices of the bonds even lower.
f. The short term debt that the banks used to borrow funds became due.
g. The lenders however would not refinance all of the short term debt because the bonds pledged to cover the debt in case of default, had less value than the refinancing need.
h. If what you owe the (short term borrowing) is higher in value than what you own (the mortgage backed securities) then you are legally insolvent (bankrupt).
i. Nobody wants to lend money to someone who is bankrupt. In times of uncertainty, nobody wants to assume any risk by lending to anyone.
j. Without credit, business stops and we have a depression.
6. Now we have to ask why the republican Mantra of Market Discipline didn’t work. I addressed this in a Blog I wrote several days ago and have reproduced here so you don’t have to go looking it up:

For “Market Discipline” to work the participants and decision makers in the system have to be subject to both the rewards and the potential losses from assuming high risk. When the decision makers are subject to the potential losses they tend to act in a prudent manner. The problem lies in the fact that the remuneration systems in place in today’s markets provide very high rewards to executives who engage in successful risk taking. On the other hand, if the risks are unsuccessful, there is no penalty to the decision makers. They may lose their jobs, but their separation packages have such high payouts that the losses are limited. Just look at the Fannie Mae and Freddie Mac CEO’s. The payouts are in excess of $10 million each. Bears Stearns had similar arrangements and I’m sure that Lehman executives will also come out well off. The biggest losers are the shareholders and the public. The people making the decisions are not the risk takers and have no incentive to be prudent decision makers.

Lets face it, if you are allowed to gamble with someone else’s money and are allowed to keep a high percentage of the winnings while getting paid for doing the gambling if there are losses, why wouldn’t you make the riskiest bets. In fact, looking out for your own self interest, you’d be dumb not to take inordinate risks. For you it is a win-win situation.

This is the simplest I could make it. To be honest, one of the biggest reasons for the whole problem is that the people making the decisions didn’t have a clue as to what they were doing. Let’s face it, look at all the education I have and look at how hard it is for me to explain it to you.

Good luck absorbing all of this. Let me know if I’ve helped.

Dad

Whoops

If you've read my "Nightmare..." blog, please substitute Palin for Huckabee and everything else will stay the same.

Also, please note that many commentators are speculating as to why McCain is doing so well when his policies are so in line with Bush's. I believe that my "Nightmare..." Blog has the answer: Unfortunately many Americans are just not yet ready to vote for a minority group member. I believe Obama's candidacy is ten years early.

There Is No Market Discipline!!

As an economist I have always believed that “Market Discipline” would provide the means of preventing excess risk and imprudent actions on the part of corporate executives. I believed that ENRON and World Com were aberrations. I did wonder, however, how these aberrations could occur.

The recent meltdown in the mortgage markets has convinced me that the excessive risk taking is not an aberration. Rather, it is built into the very fabric of the modern financial system. How this came about is very simple:

For “Market Discipline” to work the participants and decision makers in the system have to be subject to both the rewards and the potential losses from assuming high risk. When the decision makers are subject to the potential losses they tend to act in a prudent manner. The problem lies in the fact that the remuneration systems in place in today’s markets provide very high rewards to executives who engage in successful risk taking. On the other hand, if the risks are unsuccessful, there is no penalty to the decision makers. They may lose their jobs, but their separation packages have such high payouts that the losses are limited. Just look at the Fannie Mae and Freddie Mac CEO’s. The payouts are in excess of $10 million each. Bears Stearns had similar arrangements and I’m sure that Lehman executives will also come out well off. The biggest losers are the shareholders and the public. The people making the decisions are not the risk takers and have no incentive to be prudent decision makers.

Lets face it, if you are allowed to gamble with someone else’s money and are allowed to keep a high percentage of the winnings while getting paid for doing the gambling if there are losses, why wouldn’t you make the riskiest bets. In fact, looking out for your own self interest, you’d be dumb not to take inordinate risks. For you it is a win-win situation.

LAWS NEED ACCEPTENCE TO WORK

I am often amazed by people who seem to believe that the mere passing of a law will cure the social ills of the world. The failure of prohibition has proven that this approach does not work. The real reason we gave up the 55 mile an hour speed limit was the police saying that there were so many violators that they could not enforce the laws. Yet MADD (Mothers Against Drunk Drivers) persists in insisting that a 21 year old drinking age will solve the problem of Binge Drinking. The fact that we have had a 21 year old drinking age for many years and Binge Drinking continues to be a problem has no effect on their belief that their approach works.

The problem is that there are too many people who operate on belief rather than evidence. They let their beliefs govern policy decisions and win arguments because they claim to be looking out for a greater good. The problem with this approach is that it often leads to more problems than it solves. There was a study of prohibition that found that many people started drinking during that era because they were told that they couldn’t [I wish I could remember where I read this]. I do know that I grew up in an era when New York and Louisiana were the only states with an 18 year old drinking age. Most of us didn’t even think of Binge Drinking because we could get a drink any time we wanted one. There was no “Forbidden Fruit” aspect to the consumption of alcohol. There was no sense of getting away with something.

When MADD quotes the statistics from the era of the lower drinking age are they adjusting the data for the fact that there were differing drinking ages in different states? This fact alone could account for many of the drunken driving deaths. For example: Pennsylvania never lowered its drinking age; New Jersey had a 19 year old drinking age and New York had an 18 year old drinking age. Pennsylvania kids would cross the border to either New York or New Jersey to drink. Then they would drive home and get into accidents. If they had been allowed to drink in Pennsylvania they might have stayed in someone’s home and never have been on the road. In addition there is a high likelihood that they might have had less to drink because it was legally available. Add to this that fear of getting caught drinking illegally often dissuades those who get into medical trouble through drinking from seeking help for themselves or their friends.

Looking at all of this convinces me that maintaining a 21 year old drinking age is an effort in futility. In addition, maintaining this artificially high age may actually exacerbate the problem. Remember, laws only work when the people they apply to believe in them.

Once Again the Lesser of Two Evils

As I sit here reviewing e-mails from both the Obama and McCain camps I wonder how a nation of 300 million people can be faced with the choice of either continuing what has proven to be a catastrophic administration or returning the nation to the doldrums of the Carter administration. Why do I believe that these are our choices? It is simple:

1. Sen. McCain has already said that he will continue Bush’s Iraq war policies and he has also proposed that Bush’s tax cuts for the rich are his answer to our economic problems. Even when he had disagreed with Bush we find that McCain’s position has shifted to meet Bush’s. The move to allow off-shore drilling is an example of this. So a vote for McCain ends up being a vote for DubbaYa.

2. Regarding Sen. Obama I believe Rep. Charlie Rangel (D-NY) said it best when he was asked why he, as a black man, was supporting Sen. Clinton in the NY primary. His answer was [as I paraphrase it] “… a president does not act alone; A president relies on experts for advice... I know who is in Hillary’s Rolodex. I don’t know who is in Obama’s…” Looking at Sen. Obama’s appointments it looks as if he is using Jimmy Carter’s Rolodex. The Carter administration was the Democratic equivalent of the DubbaYa years. Does Obama really believe that following the Carter ways will help America? It is the Carter years that brought about the Reagan revolution. I fear a repeat of the Carter legacy could lead us to something like “The Limbaugh Regression.”

All I can say at this point is “Wake Up Barack, You said you wanted change. Why are you bringing us back to disaster?

MARKET DISCIPLINE MEANS ALLOWING DEPRESSIONS

Today, July 13th, the Fed and the treasury announced that they are setting up guarantees for Freddie Mac and Fannie Mae. I expect that there will be a whole set of outraged people on the left who are protesting the “bail out”. What these people do not realize is that a policy of “…let the big boys suffer…” will only lead to suffering for the little guy. The last time we had economic problems of this magnitude was in the late 1920’s and early 1930’s. At that time the Fed and the treasury took a “...let the chips fall where they may…” attitude. The Fed failed to act as a lender of last resort and there were multiple bank failures which brought the economy to a screeching halt and led to the Great Depression.

The world has changed and many of the roles played by commercial banks in the 1920’s are now played by other forms of financial institutions. The Fed’s mandate, however, was set in that earlier era. If the Fed is forced to deal only with its original mandate then massive failures of financial institutions will lead to another Great Depression. Ben Bernanke is to be commended for finding innovative methods to deal with issues that go beyond the Feds original charter.

We do need to remember how we got into this mess. The root cause of the problem is the belief that market discipline will keep excess risk under control. The problem with this attitude is that it forgets that the ultimate form of market discipline is a depression. A depression forces all those who engage in excessively risky behavior to suffer financial loss. The fact that innocents would also suffer is not included in the equation.

As the last depression was winding down, a whole set of laws and regulations were enacted. They were designed to prevent a future depression from occurring. However, the Regan Era mantra of “Market Discipline” caused us to relax or eliminate many of those regulations. People who should have known better said “…the discipline of the market will prevent a future Great Depression…” What they forgot was that the first Great Depression occurred when regulation was non existent and “Markets Ruled”. If market discipline worked to avoid depressions then the Great Depression never should have occurred. There is a simple equation:

Unregulated Market Rule = Potential Depressions

Politically Correct 23rd Psalm for the 21st Century

Supreme Entity you are my herder. I will consume as if resources were unlimited. You coerce me to lie down in organically grown pastures. You guide me toward stagnant pools. You reconstruct my undefined and nebulous spirit. You direct me to be right-minded to puff-up your image. Even when I am in danger of dying, I will not be afraid of the wrong minded who are not responsible for their actions due to their upbringing, for you are nearby. You comfort me with your accoutrements. You set a table for me even when I’m surrounded by those who disagree with me. You pour oil over my head to signify that I’m supposedly better than others. It’s a sure bet that good things will come as I go forward, and I will have an abode in your habitat for ever.

OBAMANIA

Barak Obama, as a presidential candidate, is a creation of the media. Outside of Illinois nobody had ever heard of the man prior to his run for the US Senate. While running for the senate, the press started to ask the question that nobody else was asking: “Could this man be the first viable “Black” candidate for president?” I doubt that even Mr. Obama was thinking about this for 2008 until the press suggested it.

Ever since, Mr. Obama has been given extreme latitude by the press. While the media went after Mrs. Clinton for her proposals they neglected to point out that Mr. Obama merely responded with platitudes. Mr. Obama is very likable and Mrs. Clinton can appear to be aloof and hard to talk to. This puts the working press into Mr. Obama’s camp. They may not even realize they are doing it. However, it is easier cast a critical eye on the proposals of someone you don’t like and be forgiving of those you do like.

The mass media needs to take a good look at itself. The last time a situation like this occurred we ended up with positive stories about G. W. Bush and negative ones about Al Gore. Although they deny it, the press’s attitudes about a candidate come through clearly in what is supposed to be pure news coverage. Even though we all want a likable person in the White House we must accept the fact that likable and competent do not always go together. There are times, when a job needs doing, that I’d rather work with someone who I know is good at what they do rather than with a good friend who may not be as capable.

THE ECONOMIC LEGACY OF FINANCING A WAR EXCLUSIVELY WITH DEBT

In the Spring of 1966, Temple University dedicated its new building for the “School of Business and Public Administration”. The dedication speaker was Walter Heller and his subject was “CAN THE US FIGHT THE WARS ON POVERTY AND IN VIETNAM AT HE SAME TIME?” Heller’s answer of yes had a caveat that was ignored by the press. He said that we would need adjustments to revenue in order to avoid economic adjustments when the Vietnam War ended. When it ended we were left with a period of high inflation, low economic growth, and high levels of unemployment. This is the very definition of Stagflation.

This morning, The Bureau of Labor Statistics announced that the inflation rate for January was an annualized 4.91% (the monthly rate was 0.4%). We, also, have had recent indications that the unemployment rate is rising. Combining this with Ben Benake’s prediction, also published this morning, that the country is facing a period of high inflation and low growth, we can see that we are well on the road to another period of Stagflation.

The current Stagflation is a direct result of the “Conservatives” (I call them Regressives) insistence on paying for the Iraq War exclusively with debt. Some how they believe, despite the evidence, that giving tax breaks to the most affluent of us brings about prosperity to all. Given the current economic situation, I can only conclude that support for making all of the Bush tax cuts permanent is based purely upon greed. Let the middle class and the poor pay so that the obscenely wealthy can become even more outlandishly opulent. What we need is a more equitable tax policy.

Tax policy usually relies on either of two principles: The “Ability to Pay Principle” or the “Benefit Principle”. Both of these forget the fact that paying taxes is painful. We would all like to pay as little as possible to the various levels of government. However, as long as we have to support our government we should make sure that when we pay taxes we are “equalizing the pain” to each of us. The problem with “Flat Taxes”, “Value Added Taxes”, and the various consumption taxes is that they tend to distribute the pain to the lowest economic levels in society. To see how this applies we need to look at the satisfaction people get from having income and/or wealth.

It is well known that as people obtain more and more of a good or service the satisfaction they get from the last unit of the good is lower than the satisfaction received from the immediately prior unit. In economics this is known as the Law of Diminishing Marginal Utility. This “law” applies to income and wealth as well as the consumption of goods and services. The more income or wealth you have, the less each additional dollar of income or wealth means to you in terms of your over all satisfaction.

Applying this to tax policy we can see that a 20% flat tax would cost $4,000 to a person with a taxable income of $20,000 per year and $20,000 to a person with a taxable income of $100,000 per year. In terms of the ability to enjoy the fruits of the economic system, the $4,000 to the low income individual is a much greater sacrifice than the $20,000 is to the high income individual. Equalizing the pain of paying taxes would require that the low-income person pays a lower tax rate or the higher income person faces a higher tax rate or some combination of lower and higher rates.

Progressive income taxation is not a “soak the rich” scheme. It is the only system that has the capability of equalizing the pain of supporting government.

RATIONING MEDICAL CARE

Every Monday night several of my friends and I have a “Boys Night Out.” It usually entails dinner and conversation over a wide range of topics. On a recent evening the subject moved to a discussion of the “US Health Care Crisis”. Several of the participants were also in the health care field. In fact, if we consider my own past employment in the Medical Insurance Industry to be in the field, only one person was not a current or past participant in the health care system.

When all of the discussion was done, it appeared that the main argument against a government plan was that it would lead to rationing. This is the same argument that President Bush has been using for the past seven years. The problem is that people fail to realize that we do have medical care rationing today. It is one of the fundamental principles of economics that the price mechanism serves as a method of rationing goods and services. Those who can afford the goods and services and are willing to pay for them get them.

Health Care, as a service, is subject to this same principle. However, the existence of health insurance changes the underlying rationing to those who can afford the service and those who have adequate health insurance. Those who cannot afford the service or, in this case, who don’t have adequate health insurance do are “Rationed Out” of the health care market.

So when the President and his cronies shout out their war cry: “DO YOU WANT YOUR HEALTH CARE RATIONED”? You can reply: “IT ALREADY IS!”

A NIGHTMARE OF THE FUTURE

As I look at the current activity in the two parties, I believe that all progressives, whether Democrat or Republican, need to have grave concern for the future of the republic. There is a real possibility that we can end up with a president who advocates turning the country into a “Theocracy”.

The scenario begins with the outcome of the Democratic Convention:

Either Hillary Clinton or Barak Obama will be the party’s nominee. The candidate with the greatest chance of winning a general election, John Edwards, has dropped out.

If Hillary is nominated, her chances of winning are slim because there are so many Americans who appear to have a visceral dislike for her. When asked, most people with that attitude that I have spoken to cannot express why they feel that way. They just do! Unfortunately, there appear to be an awful lot of them. There may be enough to kill Ms. Clinton’s chances if the Republicans nominate a semi-moderate candidate.

If Obama is nominated it would show that the country has grown-up in the last 50 years. Unfortunately, I am afraid it has not grown up enough to elect him. Although there are few Americans who would state outright that they would not vote for a Black Man, in the privacy of the voting booth there are many who are just not ready to pull that lever for a minority candidate. If the Republicans nominate a semi-moderate candidate the dislike of the current administration may not be sufficient to overcome the deep seeded prejudice of many Americans.

Moving the Republicans, it looks as if John McCain, a semi-moderate, will get the party’s nomination. However, the party’s right wing believes him to be too far to the left. In order to gain the support of the conservative core McCain will have to accept Huckabee as his Vice-Presidential running mate. McCain is 72 years old and has had some health problems. The presidency, for someone who doesn’t delegate everything al la Reagan, is a psychological and physical pressure cooker. As a result there is a good chance that McCain may not survive his first term. This would leave us with President Huckabee.

Huckabee has already expressed his desire to change the constitution so that it reflects the teaching of the Bible. A constitution that expresses a particular religious viewpoint is the definition of a theocracy and is no better than the Iranian constitution that place Sharia as the guiding principle for laws. His stance doesn’t take into account that there are many different translations of the bible and they do not necessarily agree with each other. In addition, there are many non-Christians in the USA. Are we going to ignore them? Also, the bible is contradictory in many of its laws. Making the bible a part of the constitution would require that a particular sectarian approach would need to be adopted and forced upon everyone else. When this happens, American will no longer be the beacon of liberty and diversity that is the standard that the world has looked to.

ONCE MORE INTO THE BREECH WITH AN INADEQUATE PLAN

President Bush appears to be unable to learn from the past and incapable of acting outside of his preconceived notions despite proof that he is wrong. His plan to fight recession meets the definition of insanity: “…The belief that performing the same act repeatedly will result in different outcomes.”

1. A major component of the president’s plan calls for incentives for business to invest. The problem with this is that business will only invest when there is a good business reason to do so e.g. there is a demand for the business’s product. In April of 2004 CFO.Com, hardly a liberal publication, printed an article which established that “Tax Breaks Don’t Boost Investment”. The research looked at 275 companies that had been given tax incentives to invest. The 25 companies with the largest tax breaks reduced their investment by an average of 22%. The other companies studied reduced their investment by an average of 13%. Given this data it is hard to see how the President’s plan will help boost the economy. It will only increase corporate after tax profits. In other words: rob the treasury to help the rich.

2. The second component of the President’s plan calls for a one shot tax rebate that he hopes people will put into the spending stream. However, given the record high levels of consumer debt combined with the record low savings rate and the loss of defined benefit pension plans this result is unlikely. People will probably use the rebate to lower their debt levels or add to the savings. Again, the benefit to the economy may be negligible to non-existent.

3. The best way to stimulate the economy would require putting money into the hands of those who will spend it. People spend when they internalize the fact that the money is really there. This means permanent tax cuts for the poor and middle class. The tax cuts can be offset by raising taxes on those who do not spend the bulk of their marginal income. The President, however, has proposed that expiring tax cuts to the very people who don’t spend should be made permanent. Again, he demonstrates his determination to implement plans based upon belief as opposed to fact. He reminds me of the legislature that decided because gravity was a law it could be repealed. Neither they nor he make any sense.

PENSION REFORM = WALL STREET WELFARE

Cloaked in language that makes it appear to be the savior of private pensions, the new pension reform law will actually accelerate the move away from traditional pension plans. In addition, it will increase brokerage profits, increase short-run top executive bonuses paid on the basis of stock prices, and increase the long-run risk faced by average Americans.

To understand these issues we need to understand the contents of the bill and how pension funding is measured:

First, the bill will require company based defined benefit pension plans to be 100% funded in seven years as opposed to a 90% funding requirement. Although this sounds good there are two issues which make this a problem. The first issue is that full funding is based upon actuarial assumptions regarding inflation, interest rates and wage growth. These assumptions change and the level required to be fully funded changes based upon the market value of the assets in the plan. Some plans which were under-funded 2 years ago are fully funded today due to stock market growth. This means that some firms may never have to put a dime into the system. The second issue has to do with the fact that other firms are severely under-funded and, as a result of the funding requirement, will just give up the plans that they have.

Second, the bill expands the amount that may be placed into 401k and IRA retirement systems. The increase in funding to IRA’s and 401k’s, combined with the few firms increasing their defined benefit funding, will lead to increased short-term demand for stocks on Wall Street. This increased demand will drive up stock price regardless of company performances. The increased prices will benefit those who already own stock and will provide huge bonuses to corporate executives, the Bush constituency, whose incentive pay is based upon the valuation of their company’s stock. This increased demand will also lead to more transactions through brokerages and increased commissions to brokerage firms.

Third, defined benefit plans pay workers a pension based upon their earnings in the latter working years and the number of years of employment. This is a known amount and is not subject to fluctuations in the market. IRA’s and 401k’s allow either withdrawals or the purchase of annuities based upon the value in the plan at the time of retirement. IRA’s and 401k’s are invested in securities that are subject to the vagaries of the marketplace. If the market is down and interest rates are high, as we saw in the 1980’s, many people will find that they do not have enough money to retire. Cash balance plans, that many firms are using to substitute for defined benefit plans, are subject to the same market forces. The result is the shifting of risk from employers to workers.

The result of the supposed pension reform is a reverse Robin Hood effect of "taking" risk from the rich, who can afford it, and "giving" it to the poor who cannot survive it. Again the USA accelerates toward third world status.

Religious Fundamentalism and the Death of the American Economy

Once again President Bush is allowing his fundamentalist beliefs to cause irreparable harm to the American economy. This time it is his threat to veto legislation that would allow federal funding for expanded Stem Cell research. Does he believe that the US position will stop the research from taking place elsewhere in the world? The fact is that Europe and Asia are already deep into Stem Cell research. Stopping the research in the USA will only promote foreign companies to be the leaders in new, potentially life saving or life improving, products which may be developed.

If Mr. Bush’s narrow minded fundamentalism is carried to its ultimate conclusion, procedures and product developed overseas would not be permitted into the USA because it violates his religious principles to use products developed from Stem Cells. How many Americans will die young or live lives of agony because a narrowly defined fundamentalist religion is becoming the guiding light of all decisions? How can we let Mr. Bush guarantee the slow death our great pharmaceutical industry because he doesn’t believe in the most promising areas of research?

Mr. Bush needs to be reminded that religion’s opposition to “…lending at usury…,” meaning any type of interest, stymied European economic growth throughout the middle ages. Our President’s myopic view of the bible will exacerbate America’s, already beginning, decline to second or third world status.

Statistics Don’t Lie But they Can Deceive

Statistics Don’t Lie But they Can Deceive

By all of the traditional measures the American economy is in very good shape. Unemployment is down, GDP is growing at a rate above the long term average growth rate, and the number of jobs created is growing. Many economists believe that the poor showing for consumer confidence is merely reflecting that confidence may be a lagging indicator. However, anecdotal, and some statistical, data imply that the economic picture is less rosy than the traditional measures indicate.

Firstly, we need to look at job growth. The job growth numbers count the payrolls in one month and compare them to the payrolls in the following month. This might be good, but it ignores the question of whether the jobs are full-time or part-time. In fact there can be serious double counting in the system. For instance, I am an adjunct faculty member at several colleges. During the month of October I was added to the payrolls of four new colleges. I, therefore, accounted for five jobs in the system and four “NEW” jobs. How many people like me are out there carrying multiple jobs? In addition, how many of these new jobs were part-time?

Secondly, the reduction in unemployment can be distorted by aspects of the measurement system itself. Most people do not know that a person is considered to be employed if he received one hour’s pay in a two week period. That means if your aunt Mildred paid you $20 to move furniture to her attic, you are employed. The other problem with the measurement system is that it excludes discouraged workers. A discouraged worker is a person who wants to work but has gotten so discouraged by not finding any that they have not “actively” sought work in the last four weeks. These workers are not even counted as a part of the work force. Let alone the unemployed.

Thirdly, GDP measures the output of final goods and services in the economy and a growing GDP leads to growing disposable income. Looking at the numbers things look good. On the other hand disposable income says nothing about the distribution of that income. Median family income, however, gives us a better picture regarding distribution. Median family income is the income level where half of the families in the country earn more than this number and half earn less. Unfortunately, median family income has been decreasing over the last two years. A growing disposable income and a lowering median family income indicates that the people at the top are getting better off and those in the middle and lower income levels are become worse off.

It is no wonder that consumer confidence is poor. The average person is losing out in this supposed growth economy. The goal of an economy is to deliver prosperity to the members of that economy. I believe that the new age of integrated world economies requires that we develop new economic statistics which measure national prosperity.
Former Secretary of the Treasury Robert Rubin has, along these lines, proposed a new economic measure which I believe he called The Median Prosperity Index.