Arkady
President
As I've pointed out before, the perception that America isn't as wealthy as in the past is an illusion created by distribution, not a fact of economics. US real GDP per capita is up considerably from earlier historical eras that are generally regarded as having been prosperous. For example, as of October 1, 2013, real GDP per capita was $49,811.08. That's an all-time record in American history. Compare that to the Clinton-era peak, which is often regarded as the most prosperous time in our history -- the figure has risen about 12% since then. Compare to the end of the Reagan years, which conservatives like to think of as having been prosperous. We're up 44% since then. We're also up about 119% compared to the end of the spectacular Kennedy/Johnson years and 191% since the end of the "nifty fifties."
As a nation, we've never been this rich... and keep in mind, those figures already offset for inflation and population growth, so that's a real increase in how much money there is to go around, per person. Yet most have lost ground. Poverty is up 3.2 points since 2000, 1.8 points since the end of the Reagan years, and 1.7 points since the end of the Johnson administration. Median real family incomes are down 7% since 2000, and up only 4.8% since the end of the Reagan years. What's happening here? How is the nation becoming so much richer, as a whole, while people at both the bottom lose ground, and people in the middle either lose ground or just barely gain (a 4.8% increase in income versus 44% increase in real GDP per capita)?
The big picture answer is that more and more wealth is going to fewer and fewer people. All those new billionaires and multi-millionaires are getting their double-digit income growth by way of taking all the new economic growth in the country for themselves... and sometimes more than that, resulting in decreases for everyone else. But while that's an accurate description of what's happening, it doesn't explain WHY it's happening. What is it that caused real GDP per capita to diverge from income this way?
I don't know, but one way to explore it is to look at historically how much these two things have diverged in various eras. Here is the difference between the annualized real GDP per capita growth rate and the annualized median real family income growth rate in each modern presidential era (larger positive numbers indicate less growth going to the median family):
Obama 4.44
Reagan 1.68
Carter 1.62
GW Bush 1.61
GHW Bush 1.58
Clinton 0.94
Nixon-Ford 0.47
Kennedy-Johnson 0.12
Eisenhower -1.87
From that, you can see that this is largely an issue that took off in the Carter era. Other than the Clinton years, which were a brief period when median families again got a decent cut of overall GDP growth, all of the most recent presidencies have been ones where the lion's share of GDP growth is going somewhere else.
Any theories about what went wrong? One possible culprit is tax policy. The Carter era started with a sizable cut to the estate tax rate, and by the time he left office, the amount exempted from estate taxation had almost tripled. Carter also signed a huge cut in the capital gains tax rate, which mostly affects rich people. Reagan stacked additional upper-class tax breaks on top of this. Could that be influencing this divergence of GDP and income numbers, by allowing greater concentration of wealth within their social and business spheres, bringing income along for the ride? The fact that Clinton pushed through an upper-class tax hike at the start of his presidency, and it was a period of closer tracking of income and GDP numbers, supports the case, as does the fact they again diverged dramatically once GW Bush pushed through his upper-class tax cuts.
The good news here is that we may again be on the right track, after the first couple years of the Obama era having been so horrible. The poverty rate has again been falling, from 15.1% in 2010 to 14.5% in 2013. And median real family incomes are growing again (up $670 last year). So perhaps, as during the Clinton era, we'll go through another period where some meaningful portion of the country's growing wealth is shared with the middle and lower class, rather than horded exclusively by the rich. But I'm not terribly hopeful. I think the aristocracy-favoring policies of recent decades mostly remain in place (including ultra-low tax rates for the rich), so even as our country keeps getting richer and richer, I think most people will be lucky if they just don't lose ground.
As a nation, we've never been this rich... and keep in mind, those figures already offset for inflation and population growth, so that's a real increase in how much money there is to go around, per person. Yet most have lost ground. Poverty is up 3.2 points since 2000, 1.8 points since the end of the Reagan years, and 1.7 points since the end of the Johnson administration. Median real family incomes are down 7% since 2000, and up only 4.8% since the end of the Reagan years. What's happening here? How is the nation becoming so much richer, as a whole, while people at both the bottom lose ground, and people in the middle either lose ground or just barely gain (a 4.8% increase in income versus 44% increase in real GDP per capita)?
The big picture answer is that more and more wealth is going to fewer and fewer people. All those new billionaires and multi-millionaires are getting their double-digit income growth by way of taking all the new economic growth in the country for themselves... and sometimes more than that, resulting in decreases for everyone else. But while that's an accurate description of what's happening, it doesn't explain WHY it's happening. What is it that caused real GDP per capita to diverge from income this way?
I don't know, but one way to explore it is to look at historically how much these two things have diverged in various eras. Here is the difference between the annualized real GDP per capita growth rate and the annualized median real family income growth rate in each modern presidential era (larger positive numbers indicate less growth going to the median family):
Obama 4.44
Reagan 1.68
Carter 1.62
GW Bush 1.61
GHW Bush 1.58
Clinton 0.94
Nixon-Ford 0.47
Kennedy-Johnson 0.12
Eisenhower -1.87
From that, you can see that this is largely an issue that took off in the Carter era. Other than the Clinton years, which were a brief period when median families again got a decent cut of overall GDP growth, all of the most recent presidencies have been ones where the lion's share of GDP growth is going somewhere else.
Any theories about what went wrong? One possible culprit is tax policy. The Carter era started with a sizable cut to the estate tax rate, and by the time he left office, the amount exempted from estate taxation had almost tripled. Carter also signed a huge cut in the capital gains tax rate, which mostly affects rich people. Reagan stacked additional upper-class tax breaks on top of this. Could that be influencing this divergence of GDP and income numbers, by allowing greater concentration of wealth within their social and business spheres, bringing income along for the ride? The fact that Clinton pushed through an upper-class tax hike at the start of his presidency, and it was a period of closer tracking of income and GDP numbers, supports the case, as does the fact they again diverged dramatically once GW Bush pushed through his upper-class tax cuts.
The good news here is that we may again be on the right track, after the first couple years of the Obama era having been so horrible. The poverty rate has again been falling, from 15.1% in 2010 to 14.5% in 2013. And median real family incomes are growing again (up $670 last year). So perhaps, as during the Clinton era, we'll go through another period where some meaningful portion of the country's growing wealth is shared with the middle and lower class, rather than horded exclusively by the rich. But I'm not terribly hopeful. I think the aristocracy-favoring policies of recent decades mostly remain in place (including ultra-low tax rates for the rich), so even as our country keeps getting richer and richer, I think most people will be lucky if they just don't lose ground.
