Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
Even as the US Economy Produces More Jobs and Higher Wages, Somehow Capitalism Stays Broken. Weird.
Today’s populists overindulge in unwarranted economic nostalgia. For them, the immediate postwar decades were when America was really great. But maybe it’s a more recent period that they should be pining for. If you’re trying to make the case that “capitalism is broken,” then the Great Recession of 2007-2009 was your big moment. Capitalism seemed shattered, not just broken. It looked like this sucker was going down, to paraphrase President George W. Bush.
But then the economy started to recover, slowly but steadily. Indeed, the US expansion hit the 10-year mark this month and is on the verge of its longest-run on record if things stay on track through July. An economy that’s producing gobs of jobs every month — a total of 20 million since 2010 — as it grows year after year is a dodgy example of broken capitalism.
Just how dodgy an example is made crystal clear in a recent column by my AEI colleague Michael Strain, in which he notes a) the jobless rate is the lowest since 1969, b) wages are growing at faster than 3% for the typical workers (with wage growth strongest for those at the bottom), c) there are more job openings than unemployed workers, d) the prime-age participation rate has been rising since July 2015, erasing half the decline over the previous decade.
Stagnation never looked so, well, growthy. And that’s true even if you view things over the longer run. Typical worker wages have risen by a third over the past three decades, adjusted for inflation (specifically the Fed-favored PCE inflation measure, which takes into account how consumer behavior responds to price changes). And median household income? It’s up by 43% (after taxes and transfers, and adjusted for inflation). But the good news doesn’t stop there. The income inequality gap has stabilized since 2007 (or narrowed by 5% if you factor in government transfer payments and federal taxes). The story of the American economy for the past generation, Strain writes, “has been for jobs to be available for those who want them, for consumers to enjoy more and better goods and services, for quality of life to improve, and for capitalism to help push the poverty rate down.”
Does this chart illustrate an American capitalism — defined as “a political economy in which regulated markets create wealth and prosperity, some of which is redistributed or spent by government to ensure socially desirable outcomes, with those outcomes defined through politics” — that’s broken or one that’s imperfect and facing challenges, but fundamentally sound?
Spoiler: It’s the latter. Policy and politics should be focused on making sure more people can participate more fully in an innovative, market-driven American capitalism that continues to push forward the technological frontier.
Published in Economics
Comments:
1) “populists” cannot be easily lumped together
2) can anyone deny the US economy was really great in the 1950s?
3) “participation rate has been rising since July 2015, erasing half the decline”, so still underwater from a decade ago.
4) the problem with aggregate statistics is that they don’t see regional hardships. The population of Detroit has declined by 50%, which is kind of broken.
5) the aggregate also hides the impact on people with different education levels This quote is interesting:
You don’t seem very happy about this economic news.
Forget “populists”…..how do today’s socialists (aka democrats) deal with these numbers? How do they convince the American voter that what this economy needs is increased governmental control? Their options seem to be limited to: 1. Scream about Trump. 2. Ignore the economy at all costs. 3. Concentrate on income inequality and “fairness”.
Democrats have come a long way from “it’s the economy sstupid.”
The only economic system in the history of the world to lift the poor out of poverty is the free market, capitalist system. Country’s that embrace it grow and prosper. Those that don’t, don’t.
It amazes me that give these facts, anyone would be a proponent of any other system. I might understand it if people we proponents of a new idea, but instead they support ideas that have consistently failed. It is baffling.
I am moderately happy. I still think there are problems that should not be glossed over when dismissing complaints.
* employment participation is too low
* regulation is still too high
* the federal govt. needs a reduction in scope (do what it is supposed to do)
* govt. employees have too much political power
* immigration policy helps more education Americans at the expense of less educated Americans
* education policy in America favors wealthy college-track kids over blue-collar kids
* trade policy favors some regions at the expense of others (this is very hard problem)
* debt is too high for cities and the federal govt.
People said the same thing about the 90s growth spurt. It was followed by first mediocre and then abysmal economic performance.
The cheerful view of the stats is tempered by the deficit. It’s not just that debt is a negative indicator, deficits come from excess spending which stimulates the economy and provides the illusion that everything else is good.
Keynesians, being alert to Keynesian multipliers, should be acutely alert to this danger.