An AOL Daily Finance article Aug. 14 proposes that the U.S. economy has already become a plutonomy.

“Two generations ago, ‘two Americas’ referred to the sharp divide between prospering Americans and those mired in poverty, stagnation and prejudice, a gulf addressed by Michael Harrington in his influential book, The Other America: Poverty in the United States,” writes Charles Hugh Smith in “Why Growth May Still Leave 95% of Americans Behind.”

“With the advent of social programs such as Medicare, Medicaid, food stamps and housing subsidies, much of the grinding rural and urban poverty described in the book has been alleviated.

“But the gap between the super-rich, the wealthy and ‘the rest of us’ has widened, forming what is in essence two Americas — the top 5% and the bottom 95%. And this is creating a situation where economic growth, as measured by GDP, may increasingly mean that 95% of Americans are still not doing better financially.”

Stocks rally even as unemployment ratchets up

For recent evidence look no further than the market’s reaction to the August jobs numbers. This from a Sept. 3 CNBC stock blog: “Stocks were sharply higher Friday after the government reported August non-farm payrolls fell much less than expected.”

That’s right–the private sector added 67,000 jobs, but overall we still lost more than were created, and the “official unemployment rate” ticked UP to 9.6 per cent. Total unemployment remains at nearly 17 per cent. Furthermore, as the Kansas City Business Journal says, “Idled workers who haven’t actively been seeking work aren’t counted among the unemployed.

“It’s estimated that 16.7 percent of Americans want to work but don’t have a job.

“The net gain of 67,000 on private business payrolls couldn’t make up for 114,000 temporary Census Bureau jobs that ended in August. Also, state and local governments cut about 10,000 workers. Manufacturing employment declined by 27,000 jobs.”

Nevertheless, the news wasn’t as bad as Wall Street feared, so the  “August numbers . . . pushed up stock gauges on Friday,” according to a Sept. 3 piece in The New York Times, which also reported that “Optimists were taking their good news where they could. By the end of the day, the Standard & Poor’s 500-stock index was up 1.32 percent, continuing a rally that began in the middle of the week. Market reaction to the jobs data on Friday was tempered somewhat by a report that said growth in the services sector had slowed in August.”

CEOs make out as layoffs increase

A recent report from the Institute for Policy Studies has been making headlines, too–this  from the Kansas City Star:

CEO compensation totaled $598 million at the 50 companies that laid off the most workers

“The nation’s biggest job-cutting companies paid their top executives an average of $12 million last year, according to a report released today.

“The 50 U.S. chief executives who laid off the most employees between November 2008 and April 2010 eliminated a total of 531,363 jobs, according to the Institute for Policy Studies, a research group that works for social justice and against wealth concentration.

“In ‘CEO Pay and the Great Recession,’ the institute said the $598 million in combined pay for the 50 executives would have paid one month’s worth of average-sized unemployment benefits for each of the laid-off workers.”

And for anyone confused by headlines about CEOs having it rough, too, this is from the institute, itself:

“Month after month, the headlines have pounded home a remarkably consistent message: Corporate executives, here in the Great Recession, are suffering, too.

“Corporate executives, in reality, are not suffering at all. Their pay, to be sure, dipped on average in 2009 from 2008 levels, just as their pay in 2008, the first Great Recession year, dipped somewhat from 2007. But executive pay overall remains far above inflationadjusted levels of years past. In fact, after adjusting for inflation, CEO pay in 2009 more than doubled the CEO pay average for the decade of the 1990s, more than quadrupled the CEO pay average for the 1980s, and ran approximately eight times the CEO average for all the decades of the mid-20th century.

“American workers, by contrast, are taking home less in real weekly wages than they took home in the 1970s. Back in those years, precious few top executives made over 30 times what their workers made. In 2009, we calculate in the 17th annual Executive Excess, CEOs of major U.S. corporations averaged 263 times the average compensation of American workers. CEOs are clearly not hurting.”

Reagan’s budget director chimes in

Moreover, anyone who thinks these data are some sort of liberal claptrap or anti-capitalist propaganda should take a gander at David Stockman’s op-ed piece in the July 31 NY Times. Yes, that Stockman, former director of President Reagan’s Office of Management and Budget. Here’s an excerpt:

“It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street’s shrinking economy — got only 12 percent. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy.”

“Furthermore,” says the AOL Daily Finance article, “the very rich are pulling away from the merely wealthy. Those earning $10 million or more per year are increasingly wealthier than the 321,000 earning $1 million or more, and those top earners are pulling away from the rest of the top 5% of households by income.

“In the housing and stock market boom years of 2002 and 2007, the incomes of the bottom 99% of households by earnings grew by a meager 1.3% a year in inflation-adjusted terms, while the pockets of the top 1% grew 10% a year.

“Over the past 25 years since 1985, the top 1%’s share of national income has doubled — in 2007, it netted 23% of the nation’s total income. The income of the wealthiest Americans — the top 0.1% — has tripled in that 25 year period. This wafer-thin slice of Americans now earn as much as the bottom 120 million wage earners.”

Greenspan weighs in, too

A crucial factor in this equation concerns the difference between money and capital. Both the working poor and middle-class workers labor for wages, that is, money. The ultra wealthy have the advantage of the clout of capital, that is, the leverage of being able to use finance as a tool to make more money. Hence, the original Citigroup paper referenced Part One, which was aimed at investors aiming at joining in the upper ranks of the Plutonomists. Citing a recent Bloomberg piece on Alan Greenspan, the Daily Finance piece continues, “The extremely wealthy are pulling away because their earnings come from capital, not labor. While wages have stagnated, returns on capital investments and speculations have soared. None other than former Federal Reserve Chairman Alan Greenspan recently described this yawning divide between those in the top slice of the economy who are doing very well and the 95% below them who are struggling.”

(For more information and a terrific slide show, see this ongoing series at Slate.)

As the first two installments at Slate demonstrate, the causes of what Paul Krugman labels the “Great Divergence” are not readily apparent. We will monitor the Slate series and update here with more, if applicable.

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Although few would argue that workers (and their decreased spending power) benefit when hard-strapped businesses close their doors, others believe the nation will be better served by letting marginal companies jump off the Darwinian cliff. Regardless of the various opinions, it’s tough to argue with the numbers that are emerging.

Citing a new report, Associated Press economics writer Jeannine Aversa says that a “new survey by the National Association for Business Economics depicts the worst business conditions in the U.S. since the report’s inception in 1982.” In a Jan. 26 article carried by several papers (here’s one), Aversa says that 39 “percent of NABE’s forecasters predicted job reductions through attrition or ‘significant’ layoffs over the next six months, up from 32 percent in the previous survey in October. Around 45 percent in the current survey anticipated no change in hiring plans, while roughly 17 percent thought hiring would increase.”

Calling the recession a “job killer” that experts believe will continue into 2009, she writes: “The economy lost 2.6 million jobs last year, the most since 1945. The unemployment rate jumped to 7.2 percent in December, the highest in 16 years, and is expected to keep climbing.”

Companies showing up in the latest round of layoffs announced Jan. 26 ranged from presumed leaders to those widely known to be in trouble. Sprint Nextel, recognized as the nation’s third-largest wireless carrier, announced cuts of 8,000 jobs (as well as severe cutbacks for remaining workers) while construction-equipment giant Caterpillar says it’s letting go of 20,000 employees.

Pharmaceutical titan Pfizer Inc. also is whacking 8,000 jobs–even though, as Aversa notes, its plan to buy competitor drugmaker Wyeth in a $68 billion deal is going forward, full-steam ahead. Top-ranked home improvement retailer HomeDepot is jettisoning 7,000 jobs, and the bailout-linked General Motors Corp. says it’s cutting 2,000 jobs at plants in Michigan and Ohio, following temporary shutdowns in January of plants across North America.

Quoted in an Indiana newspaper, a Chapter 7 Bankruptcy Court Trustee for the Hammond federal court says the increases in personal bankruptcy filings in that state are in “direct correlation to how bad the economy is, real estate market is and about jobs in general.

“It’s like a log jam broke lose, and now it’s steamrolling,” said Kenneth Manning.

He goes on to compare current Chapter 7 filers with those from previous years. Manning, also an attorney, is quoted as saying that in years past, most who turned to Chapter 7 were “plain stupid, irresponsible or had large uninsured medical costs.”

But now, he says, “People filing Chapter 7 now are those people who lost their jobs and those who were making a $80,000 gross salary a couple of years [ago] and half that now.”

The article explains that in “a Chapter 7 liquidation bankruptcy, filers must give up their nonexempt assets, but they can walk away from their unsecured debts and start over with a virtual ‘clean slate.’ However, filers must continue to pay secured creditors, including those for home or car loans, if they want to retain those assets.”

The problem, Manning says, is that the job losses, cutbacks and smaller wages for those who do find new jobs comes with strikingly poor timing, when “at the same time, the real estate market has flattened out.”

Manning indicated that during all his 25 years as a bankruptcy court trustee, “2008 was the first time in his career when many filers didn’t try to keep their homes.” The reason, the article summarizes, is because “[h]ome values have dropped so much that filers can’t sell their homes for enough money to pay off their mortgages and still get the amount of their equity out of the sale.”