Contradictions Regarding U.S. Economy

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If This Is Such a Rich Country, Why Are We Getting Squeezed?

By Heather Boushey and Joshua Holland, AlterNet. Posted July 18, 2007.

While the rich are getting richer, they're slashing social security, medicare and other social programs for the rest of us. What gives?

The commercial media is telling us two perfectly contradictory stories about the American economy. The first is how wonderfully rich we are in the United States. The stock market's booming -- some analysts predict the Dow will break the 15,000 this year -- the economy is expanding at a healthy clip, productivity growth is up and unemployment and inflation are relatively low.

But, at the same time, we're also told that we don't have the money to pay for a robust social safety net. When it comes to paying for universal health coverage, affording retirement security for our elderly, investing in programs for the poor or educating our children, we need to pinch pennies. According to this storyline, we face a looming "entitlement crisis" -- we won't be able to afford to keep the Baby Boomers in good health and out of poverty, we're told, unless we slash their benefits and privatize the programs that their elderly parents enjoy today.

This is the line we hear from the Administration when it talks about entitlement "reform": Treasury Secretary Henry Paulson says that "The biggest economic issue facing our country is the growth in spending on the major entitlement programs: Medicare, Medicaid, and Social Security." The solution, according to the Heritage Foundation, is to cut entitlement spending: "Reforming Social Security, Medicare, and Medicaid is the only way to get the budget under control."

How can two narratives that are so clearly at odds with each other be so pervasive? Are we seriously supposed to believe that Paris Hilton has to dig between the cushions of her sofa to buy a can of tuna?

What reconciles these two themes is absent from our mainstream economic discourse: we "can't afford" all sorts of programs that are clearly in the common good because most of the benefits of our growing economy have gone to a very small group of Americans, who have, in turn, seen their taxes slashed again and again in the past six years. It's a story that isn't told as often as it should in the commercial press because it's a supposedly "liberal" narrative -- never mind that über-conservative former Fed Chairman Alan Greenspan told Congress that there is a "really serious problem here, as I've mentioned many times … in the consequent concentration of income that is rising."

Saying that the majority of the country's economic gains in recent years have gone to the top one percent of the income ladder understates the trend. You have to cut the pie into even smaller slices to get the full picture. Because while the bottom half of the top one percent of the income distribution have done far better than the average wage slaves, it is a smaller slice still -- the top .01 percent -- that has grabbed most of the gains--seeing an impressive 250 percent increase in income between 1973 and 2005 -- from an economy that's grown by 160 percent.

An analysis by economists Thomas Piketty and Emmanuel Saez gives us the best perspective of what's going on for everyone else. They found that despite several periods of healthy growth between 1973 and 2005, the average income of all but the top ten percent of the income ladder -- nine out of ten American families - fell by 11 percent when adjusted for inflation. For three decades, economic growth in the United States has gone first and foremost to building today's modern Gilded Age. The recipients of those gains don't care about a fully funded Social Security system or a healthy Medicare program -- they don't need them.

Meanwhile, even as the top earners' incomes have gone through the roof, their tax burden has shriveled. At the same time, the share of federal revenues contributed by corporations has declined -- by two-thirds since 1962.

It's important to understand how that plays out in our national economic discourse. When people tell us that our economy cannot "afford" things like universal health care or paid sick days, it fits with the economic experience that most Americans have had in their real lives -- the benefits of our boom-boom economy have not gone to the great masses, but to "someplace else."

Americans feel pinched. Polls show that they feel a time crunch--not having enough time for family and friends--and that they're anxious about getting into or staying in the middle class. Over the past generation, the economy has not been good to the typical, married-couple family (let along single-parent families) and families feel, rightly, that they need to be careful about where their dollars go.

It's not that they're not working hard. The typical U.S. family puts in more time at work than ever before. The typical married couple works an additional 13.3 weeks per year--533 hours--compared to a generation ago. But even though families are working more, their incomes have grown by only a third between 1973 and the present. That's much worse than the generation before -- between 1947 and 1973, the typical married-couple family saw their income rise by 115 percent. And that was often just one parent's income -- this was a period when most families could afford a stay-at-home mother. Of course, fewer families have that luxury today -- those with stay-at-home moms have the same inflation-adjusted median income in 2007 as they did in 1973 -- they haven't gained a penny from three decades of growth.

When we talk about the slow growth of family income, economists like to mention globalization, mechanization, or other factors that require us to be lean and mean and more "competitive." The storyline is that U.S. families have not seen their income grow because America has had to fight it out in a wide-open global economy, and these are lean times for workers.

But that's simply not true.

The economy--as measured by gross domestic product (GDP)--has grown by over 160 percent since 1973 (PDF). This is only slightly less than the period from 1947 to 1973 when GDP grew by 176 percent. That's come as Americans have become much more productive -- productivity has grown by over 80 percent since 1973 -- meaning it now takes fewer workers to produce the same number of widgets as it did in the past.

As each worker in the U.S. economy produces more "stuff" per hour, be that DVD players or clients served, those goods and services are being sold in greater numbers. In a healthy economy, that growth is shared between workers and investors and wage growth should rise with productivity. This was the case in the decades between World War II and the early 1970s, when productivity and median wages both increased by an average of two to three percent every year. But since 1973, productivity increased sharply, especially after the late 1990s, but median wage growth has been flat. So firms are getting much more output per worker, but they're not paying for it. They've pocketed the difference in executive compensation and corporate profits. The share of national income going to wages is at the lowest level ever recorded, while the piece of the pie gobbled up by corporate profits is at its highest point since 1960.

But when the masses ask for help paying for health insurance or child care, or request that everyone be given the right to paid sick days, we're told we cannot afford it. "Afford" seems to be a very special term in the current American context: letting the wealthy take ever-bigger pieces of our national product is something we always seem able to afford.

We work hard. We--the 99.9 percent-- and deserve a bigger piece of the pie. With a growing economy, we can afford it and we all know just where to look for how to pay for it.