RALEIGH – Are things getting better or worse for average Americans?
There is a great deal of debate going on at the moment among folks with contrasting answers to this question. Obviously, politicians and political activists are discussing it. They are trading extravagant claims and pointed barbs. But those are not the exchanges to which I mean to draw your attention. We’ll hear plenty during the campaign homestretch that is now, post-Labor Day, about to commence.
Outside the political bubble, in the real world of economics where government’s ability to help or harm the basic structure of market transactions is limited, there is a more interesting exploration of what the available data tell us – and why so much of what is important in this matter is not really measured by the available data. Let’s begin with one of the left-of-center sites I enjoy visiting every now and then: The American Prospect.
The magazine is kicking off a debate this week about the economic prospects of the middle class and what Democrats and progressives should think and say on the question. The first writer is Stephen Rose, a senior economic fellow at Third Way. He thinks Democrats are overselling the middle-class misery message, given that most middle-class Americans are far from miserable. Incomes have risen over time, as has net worth, and most Americans have no credit card debt. Employer-sponsored health and pension benefits aren’t disappearing.
“The middle-class story of the last 60 years is largely one of success. The wealthy have done better than everyone else, and the bottom 25 percent (75 million people) often face tough times,” Rose wrote. “But repeatedly highlighting the troubles of this bottom group is not likely to resonate with the rest of the population. And the Democratic Party can only continue to advance its proud tradition of expanding economic opportunity for everyone in society if it does better among middle-class voters.”
Piece number two in the puzzle comes from the always-gloomy David Francis, economics columnist for the Christian Science Monitor. True to form, Francis’ column last week portrayed in the United States as, in some ways, a “second-rate economy.” In addition to observing that other developed countries often have lower poverty rates, he argued that the lack of federal programs such as national health insurance and mandated parental leave with pay hurt a broad swath of families, not just the poor. At least Francis can’t be accused of talking down the economy to hurt President Bush. He has been writing pretty much the same piece about the middle-class squeeze for many, many, many years. He often quotes the Economic Policy Institute, which has a new Labor Day study out with a similarly depressing thesis.
And then there was a front-page New York Times article last week suggesting that the current economic recovery is the first since World War II not to boost average wages. “As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s,” the Times reported. Reaction from free-market economists has been withering. Alan Reynolds, for example, pounced on the issue of comparing wage and profit shares of the economy. The two add up to only 56 percent. Some of the remainder is non-wage benefits, about which there is also a lot of disagreement.
Even after subtracting benefits, Reynolds wrote, “more than a third of GDP is still missing, which is why serious economists never compare labor’s income shares to ‘gross’ domestic product. GDP includes big items that are not any American’s income – notably, depreciation for wear and tear on everything from computers to highways. The sensible practice is to examine labor compensation as a share of national income. Then, it turns out that ‘labor’s share of income has averaged 70 percent [of national income] over the past 50 years and has remained within a narrow range of that average,’ according to the St. Louis Fed.”
Finally, the economists at Café Hayek have been generating a serious of interesting posts over the past few days on income shares, the middle class, and economic progress. Just keep scrolling down. Perhaps the most insightful is Donald Boudreaux’s initial reaction to the Times piece: “Would you prefer to live in 1967 with today’s real median household income ($46,326) or live today with 1967’s real median household income ($35,379)? (These figures are expressed in 2005 dollars, by the way.) Given these two options, I’d choose to live today with only 1967’s real median household income.”
Follow the links and read it all, Left and Right. You’ll be wealthier for it, intellectually speaking.
Hood is president of the John Locke Foundation.