Secular Right | Reality & Reason

Aug/10

1

The Great Stagnation

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Via the Financial Times:

The slow economic strangulation of the Freemans and millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the “personal recession” that ordinary Americans had been suffering for years. Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the multiple is above 300.
The trend has only been getting stronger. Most economists see the Great Stagnation as a structural problem – meaning it is immune to the business cycle. In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start. Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.

The FT being the FT, this article (which is nevertheless well worth reading) comes with the usual leftish slant (what has CEO pay got to do with all this?), and it is striking that its author has nothing to say about the impact of mass immigration on wage rates within the US, but the Great Stagnation is, sadly, all too real – and it is unlikely to mean anything good for this country’s politics.

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6 comments

  • cynthia curran · August 1, 2010 at 10:45 pm

    Also, the left favored keeping interest rates low as well, so blacks and hispanics could also qualify to buy homes. And Obama’s poor policies like favoring labor unions like SEIU and a Health Care plan over creating jobs is not mention. Also, the difference between the average job and CEO’s is less than mention. People today even with the mortagage downturn have much larger houses than they did in 1973, even though women work but most american families have less kids than they did in the 1960′s, so if they have a job a lot of them actually have a higher standard of living than in the 1960′s. Not saying that some blue collar types in certain states have lost during this decade but the left always blasts big business and gets donations from Wall Street like Obama did, its the small business that will be hit by Obama’s regulations not billionaires like Buffet or Soros.

  • John · August 2, 2010 at 1:43 am

    I think immigration is partly responsible for the stagnation of lower wage people, but something is going else with the middle class. I’ve heard 2 reasons for this: (1) Computers/machines are doing a lot of the jobs that lower skilled people used to do: We don’t need people to reset bowling pins anymore. (2) A lot of new jobs are “winner take all” or at least winner take more than before. Whereas a great car mechanic is only somewhat more productive than a good one, a great scientist is many times more productive than an good one. Globalization means everyone will watch highly paid international movie stars, instead of each country watching their own national stars.

    In terms of GDP, we are nearly up to the level we were, pre-recession. However, there are a lot more unemployed. In the past, pretty much any able-bodied person who was willing to work could get some type of job and support himself. That is no longer true. In the future, it is looking like there will be lots of people who would like to work, but don’t have any skills anyone wants. Martin Luther King once said that “When a man is unemployed, society is telling him that he doesn’t have a right to exist.” I don’t see a happy ending in the near future.

  • D · August 3, 2010 at 1:44 am

    CEO pay is very relevant because it illustrates the point precisely. Not every company has a major league baseball player or an A-list movie star, but every company has a CEO.

    Further, It’s not the price of successful CEOs that’s galling. It’s the price of failures. In what economics textbook is it explained that, say, Joe Nardelli really earned all that money despite a flat stock price and no downside risk?

    In a discussion of wage stagnation and winner-take-all economics, CEO pay is extrememly relevant.

  • cynthia curran · August 3, 2010 at 3:11 am

    Actually, whites have as a mention two income versus over one income in the 1960′s. They also have 1 to 3 kids versus 2 to 5 in the 1960′s. Houses were only 1,000 square feet in 1965, but the left states that its the end of the world. So, I still think that the left is trying to control us by scaring us to death. And the more rich the better people are, the more poor the worst people are. The left likes to think the us is the 19th century which is nonsense.

  • Old Whig · August 5, 2010 at 8:27 pm

    To compare wages is in fact irrelevant. The relevant factor is how much does your wage buy?

    It says that the inflation adjusted wages has not risen since 1937 but the relative cost of buying a house, a car, clothes and food has dramatically fallen. So there has to be something wrong with the inflation adjusted numbers. One thing that I know for certain that is an large error is that workers today have non-cash benefits up until 50 % of salary and 100 % of salary for federal workers. This became very prevalent during the high inflation and high taxation 60-70s. (Pension, longer vacation, paid overtime, bonuses 401k. These are in fact deferred salary)

    Maybe it’s like the obesity explosion. Sometime in the 80s the BMI was changed 5 points and over night very many people became obese but it was only a technical obesity, no change in weight of the individual measured. The Food Industrial Complex needed this change to keep people concerned since obesity was going down not up, its like the Alcohol Industrial complex that designates “Binge Drinking” as more than 5 units of alcohol.

    Further more the static comparing CEOs salaries is also irrelevant their number is only some 1,500 average CEO pay minus the top 1,500 has not risen dramatically. So no not everybody has a Fortune 500 CEOs. The question of 1,500 individual is not for the general public and politicians to discus and meddle in. They only have to set transparency rules so that shareholders can easily find out how high the remuneration is and who decided it. In fact it is solely a business between the shareholders, board and General Meeting to set remuneration levels.

  • pangloss · August 9, 2010 at 2:49 am

    There are two issues that come to mind – cars cost more but there was far more wealth in them

    Take a look at a 1957 Chevy and one will find that it is far more automobile than the injection molded autos of these days.

    Besides mass, there was incredible detail that was design, material, and labor intensive – from the steering wheel to the grill.

    Another issue is that it took one income to maintain a family of 4 or 5 while these days, it takes two incomes to maintain a family of 3.

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