New York Times, April 9, 2008: For Many, a Boom That Wasn۪t
By DAVID LEONHARDT
How hasthe United Stateseconomy gotten to this point?
It۪s not just the apparentrecession. Recessions happen. If you tried to build an economy immune to thehuman emotions that produce boom and bust, you would end up with something thatlooked like East Germany.
The bigger problem is that thenow-finished boom was, for most Americans, nothing of the sort. In 2000, at theend of the previous economic expansion, the median American family made about$61,000, according to the CensusBureau۪s inflation-adjusted numbers. In 2007, in what looks to have beenthe final year of the most recent expansion, the median family, amazingly,seems to have made less about $60,500.
This has never happened before,at least not for as long as the government has been keeping records. In everyother expansion since World War II, the buying power of most American familiesgrew while the economy did. You can think of this as the most basic test of aneconomy۪s health: does it produce ever-rising living standards for itscitizens?
In the second half of the 20thcentury, the United Statespassed the test in a way that arguably no other country ever has. It became, asthe clich̩ goes, the richest country on earth. Now, though, most familiesaren۪t getting any richer.
“We have had expansions beforewhere the bottom end didn۪t do well,” said Lawrence F. Katz, a Harvardeconomist who studies the job market. “But we۪ve never had an expansion inwhich the middle of income distribution had no wage growth.”
More than anything else morethan even the war in Iraq the stagnation of the great American middle-class machine explains the glumnational mood today. As part of a poll that will be released Wednesday, the PewResearch Center asked people how they had done over the last five years.During that time, remember, the overall economy grew every year, often at agood pace.
Yet most respondents said theyhad either been stuck in place or fallen backward. Pew says this is the mostdownbeat short-term assessment of personal progress in almost a half century ofpolling.
The causes of the wage slowdownhave been building for a long time. They have relatively little to do withPresident Bush or any other individual politician (though it is true that theBush administration has shown scant interest in addressing the problem).
The slowdown began in the 1970s,with an oil shock that raised the cost of everyday living. The technologicalrevolution and the rise of global trade followed, reducing the bargaining powerof a large section of the work force. In recent years, the cost of health carehas aggravated the problem, by taking a huge bite out of most workers۪paychecks.
Real median family income morethan doubled from the late 1940s to the late ۪70s. It has risen less than 25percent in the three decades since. Statistics like these are now so familiaras to be almost numbing. But the larger point is still crucial: the modernAmerican economy distributes the fruits of its growth to a relatively narrowslice of the population. We don۪t need another decade of evidence to feelconfident about that conclusion.
Anxiety about the income slowdownhas flared at various times over the past three decades. It seemed to crescendoin the first half of the 1990s, when voters first threw GeorgeH. W. Bush out of office, then, two years later, did the same to theDemocratic leaders of Congress. Pat Buchanan went around preaching a kind ofpitchfork populism during the 1996 New Hampshire Republican primary and hewon it.
Then came a technology bubblethat made everything seem better, for a time. Record-low oil prices in the1990s helped, too. So did the recent housing bubble, allowing families tosupplement their incomes by taking equity out of their homes.
Now, though, we appear to be outof bubbles. It۪s hard to see how the economy will get back on track withoutsome fundamental changes. This, I think, can fairly be considered the No. 1economic project awaiting the next president.
Fortunately, there is an obviousmodel waiting to be dusted off. The income gains of the postwar period didn۪tjust happen. They were the product of a deliberate program to build up themiddle class, through the Interstate highway system, the G. I. Bill and othermeasures.
It۪s easy enough to imagine a newversion of that program, with job-creating investments in biomedical research,alternative energy, roads, railroads and education. On the campaign trail, HillaryClinton, JohnMcCain and BarackObama all mention ideas like these.
But there is still a lack ofstrategic seriousness to the discussion, as Bruce Katz of the BrookingsInstitution notes. After all, the United States spends a lot of moneyon education already but has still lost its standing as the country with thehighest college graduation rate in the world. (South Korea and a couple of other countries have passed us,while Japan, Britain and Canada are close behind.)
The same goes for public works.Spending on physical infrastructure is at a 20-year high as a share of grossdomestic product, but too much of the money is spent on the inefficient petprograms championed by individual members of Congress. Pork barrel spendingdoes not add up to a national economic strategy.
Health care and taxes will haveto be part of the discussion, too. Dr. Ezekiel Emanuel of the NationalInstitutes of Health pointed out to me that a serious effort to curtailwasteful medical spending would directly help workers. It would spare them frompaying the insurance premiums and taxes that now cover that care.
The tax code, meanwhile, hasbecome far more favorable to high-income workers at the same time that they and they alone have received large pretax raises. That doesn۪t make muchsense, does it?
It۪s a pretty big to-do list. Butit۪s a pretty big problem. Since the economy now seems to be in recession, andsince recessions inevitably bring their own pay cuts, my guess is that theproblem will look even bigger by the time the next president takes office.
E-mail:leonhardt@nytimes.com