Lawrence Mishel’s recent piece on inequality includes a very telling graph:
We see that the second half of the 1990s is the first prolonged period when the top 1%’s income soared above that of the college educated in general; it coincided with the dot-com boom/bubble. We see a similar takeoff during the mid-2000s housing bubble and stock boom. In the market corrections/crashes that began in 2000 and 2007, we see the top 1%’s advantage mostly, but not completely, disappear.
A combination of stock options, stock-market-based bonuses, and “Takes money to make money” seems to be at work here. The graph seems to be at odds with the common argument (Greg Mankiw’s?) that the top 1% deserve all they get because they are so much more productive, as it seems doubtful that their superior productivity deserts them in bad times.
Edward Luce’s recent Financial Times feature, “The crisis of middle-class America,” is a must-read. It seems to be excerpted (lots of “. . .”), but it still contains a ton of detail about two seemingly comfortable middle-class families who’ve seen their living standards fall gradually and then, after the 2008 crisis, abruptly. The piece is mostly a human-interest article, light on statistics and technical explanations, but there is this illuminating quote from Harvard economist Larry Katz:
‘“Think of the American economy as a large apartment block,” says the softly spoken professor. “A century ago – even 30 years ago – it was the object of envy. But in the last generation its character has changed. The penthouses at the top keep getting larger and larger. The apartments in the middle are feeling more and more squeezed and the basement has flooded. To round it off, the elevator is no longer working. That broken elevator is what gets people down the most.”’
Here’s hoping this article is part of a much longer series. Although the early verdict on the 2000s seems about right — two recessions with a bubble-driven recovery in between — people still tend to view the 1980s and 1990s as Prosperity Decades. Based on aggregates like rising real GDP and falling unemployment rates, they were, especially the ’90s. And as the long economic expansion of the Clinton years took hold, the warnings of some economists of a “silent depression” of eroding real wages and disappearing middle-class jobs (especially for non-college-educated workers) became increasingly ignored. Ditto for the wave of warnings about “downsizing” in the mid-’90s, as eloquently reported by The New York Times (and followed up a decade later in a book by William Baumol, Alan Blinder & Edward Wolff that seems to have gotten far too little attention).
Macroeconomics is the study of economic aggregates, so macroeconomists and the macro debate tend to focus on aggregate statistics, even though the bottom line would seem to be how individual people (be they rich, poor, middle class, black, white, old, young, etc.) are doing. The debate over the economy’s performance during the 1980s, which inevitably took a partisan cast as a debate over Reaganomics, generally came down to aggregates. On the pro side, an eight-year economic expansion, falling unemployment, low inflation, a booming stock market, and faster productivity growth than in the 1970s. On the con side, unemployment and poverty rates that skyrocketed in the early ’80s recession and stayed high for much of the decade, rising inequality, and stagnant median real incomes. Either way, people looked to aggregates, which left a lot out. For example, were median incomes stagnant because the incomes of most people were stagnant or because there was a relative increase in the number of poor households even as other people’s incomes rose? And how much of the decade’s prosperity trickled down to families who were at the bottom and middle rungs on the economic ladder when the decade began? Based on the standard aggregated data, including the Census data on income percentiles, we don’t know, because we’re not comparing the same people over time. Reagan defenders and others inclined to ignore the issue of inequality make that excuse again and again: “It’s not the same people!” Which is true but raises the question, So why don’t we just study the same people over time?
An ideal study would combine scores of case studies like the ones in the FT article with analysis of longitudinal data on particular families surveyed over time. There are longitudinal data sources out there (e.g., the National Longitudinal Study, the Panel Survey of Income Dynamics), but I confess I haven’t seen whatever macro studies have been done with them. Seems to me way too much of what we “know” about the macroeconomy is based on aggregates like per-capita GDP and way too little on studies of actual households. But the only to measure the American dream, I think, is one household (or one person) at a time.
Now here’s something you’ll really like . . . a July 1974 live version of the rock classic that inspired the title of this post:
Blogging Through the Wreckage 