US households save while Obama fiddles

Reading time: 5 – 8 minutes

The Federal Reserve flow of funds figures for Q3 2009 show a continuation of the trend towards frugality by US households that has already been noted in the previous quarter.

Here are the critical numbers (Fed Release Z.1, Table F.100 Households and Non-profit Institutions), showing behavior in Q3 2009 compared to 2007, before the crash, on an annual basis (US$ billions):

Why Americans are mad at Obama

The above table explains why Americans are fed up with the Pelosi-Reid Congress and the Obama administration.  In reaction to the financial crisis, households have increased the personal savings rate from 1.5% to 4.0% of income since 2007, the year before the Crash.

Nancy Pelosi: two heartbeats from the Presidency, representative of less than 1/100% of American voters.

In response to hard times, households have kept the increase in personal outlays to only 2.8% since 2007, less than the increase in the cost of living — a decrease in spending in real terms.

Although the effective income tax rate has dropped from 12.6% to 9.9%, Americans have elected to save this “stimulus money”, rather than spend it — frightened by irresponsible behavior of their representatives in Congress. This is the basis for the Tea Party Movement.

An enormous segment of the US population now sees itself as being put upon by a profligate Democratic Congress that in hard times is flagrantly wasting tax money and burdening future generations in the name of narrow partisan interests — while those in the private sector are forced to tighten their belts.

Obama’s favorites: unionized public workers

For the millions of households in the private sector, personal income has been constrained.  Not only has confidence been sapped by high rates of unemployment, while those dependent upon public sector funds have done well, but non-unionized workers in the private sector and small business owners — spurned by Barack Obama and his allies — have suffered.

• Excessive dependence on government income: Since 2007, government social benefit payments have increased from 14.4% to 17.6% of household income.  This does not include salaries of government employees, estimated in excess of one trillion dollars, or more than 8.3% of household income.  This means that about  30% or more of household income comes from government sources.
  

  Millions of ordinary Americans went to the streets to protest the public sector takeover of the economy.

• The destructive effect of trade unions: After having contributed to the deindustrialization of the United States, the collapse of General Motors, and the creation of a ‘rust belt’ across the northeastern states, the trade unions have moved into the public sector, with a vengeance.  In 2009, 37.2% of government employees were unionized — a new record — as opposed to only 7.2% of unionized workers in the private sector. New York State has the highest union membership (38.1%) compared to only 3.1% in North Carolina.  There are now more unionized workers in the public sector than in the private sector.

The Public-Private Sector War

In 2004, I wrote an article, “Voting Bureaucrats, Democracy’s Snare“, warning of the dire economic consequences of having more voters in the public than the private sector.

It now seems, under Barack Obama, that the dismal trap of having too many government employees in a democracy may be about to snap shut.

The original Boston Tea Party led to the Revolutionary War and victory over the British Empire. Americans are now reading the Constitution.

The Tea Party Movement that has brought ordinary people to the streets to protest takeover of government by unionized thugs and self-serving bureaucrats is a sign that the decision point is being reached.

Obama is racing to pass his health care bill, knowing that this may deliver Americans permanently into the hands of his favored bureaucrats.

The mid-term Congressional election of 2010 will be the decisive battle in this war.  The outcome will determine whether the greatest days of the United States are in the past, or yet to come.