Sharp Personal Income Drop Is Bottom-Up Economics Failure

Economy: The economy racked up another dubious achievement in January, when personal income suffered the biggest drop in 20 years and disposable income suffered its biggest decline in more than 50.

Is this what "bottom-up" prosperity looks like?

According to the Commerce Department report issued Friday, personal income fell by $505.5 billion in January - a 3.6% drop - erasing all the income gains made since last September.

On a real, per-capita basis, it's even worse, with incomes falling 4.2% in January, leaving income still well below where it stood when President Obama took office four years ago promising "hope and change."

The data also point to the futility of Obama's war on the rich. December incomes shot up, the Commerce data show, because companies paid out dividends early to avoid the tax hikes on investment income they knew were coming. That means taxes paid this year will be significantly smaller than the tax hike advocates expected.

Even the bright spot in the Commerce report - consumer spending climbed in January - had a dark lining, since it came almost entirely as a result of higher energy prices.

Other reports issued in the past few days point in the same direction.

As IBD noted last week, wages still haven't reached their previous peak before the recession hit five years ago. That's not just because the losses during the recession were so deep, but because wage growth has been so sluggish during the recovery.

By comparison, it took just two years for wages to recover their losses from the 2001 recession, and by this point they were 8% above their prior peak.

Meanwhile, a Sentier Research report released on Thursday finds that real median household incomes have not budged in two years, and are still $2,400 below where they stood in June 2009, when the economic recovery officially started.

We also now know that good-paying jobs lost during the recession are being replaced by lower-paying jobs. The National Employment Law Project found that 60% of the jobs lost during the recession paid midwages, but just 22% of the jobs created in the recovery did so.

The pool of unemployed workers, meanwhile, is still fantasticly high, with more long-term jobless today than at the end of the recession.

Obama might not think much of the idea that a rising tide lifts all boats, but it's pretty clear that a stagnant economy causes the middle class to sink.

What all these numbers also show is that Obama's "grow the middle class," and "bottom-up prosperity" spending programs just aren't working.

Government spending on education, roads, research, transfer payments and everything else are at all-time highs. So are deficits. Yet the economy stubbornly refuses to reach "escape velocity."

It's been almost four years since the recovery officially got under way. Perhaps now would be a good time for lawmakers and the White House to get focused on policies that will actually spur real, prosperity-spreading economic growth.