Surely you didn’t think we’d forget a gift for those who’ve enjoyed (or been enraged by) this column in 2015. Here are 12 charts that we think show some of the most important economic developments of 2015.
#1 is the figure above, and it’s first for a reason: it shows the extent to which critically important economic relationships are poorly understood. As unemployment has fallen to levels the Federal Reserve considers to be the “natural rate” (i.e., the lowest jobless rate consistent with stable inflation), neither prices nor wages accelerated. In fact, the Fed’s preferred inflation measure decelerated. This breakdown became clear in 2015, and it has profound implications for macroeconomics and monetary policy.
#2: The year 2015 was the sixth full year in an expansion that began in the second half of 2009. But we’ve still got untapped capacity. We’ve yet to close the output gap that developed in the Great Recession — the gap between actual and potential GDP (CBO’s estimate of GDP when the economy is firing on all cylinders). Note also the damage done to potential GDP since the Great Recession; today’s estimates are lower both in real dollars and slope. Even so, actual GDP hasn’t caught up, making her a runner that can’t seem to cross a goal line — one that’s moving toward her!
#3: The Economic Policy Institute gets the nod for a figure that captures (a) the growth of inequality, as a huge gap has evolved between the typical worker’s compensation and the productivity growth that workers themselves are helping to create, and (b) what we believe will be a key issue in the 2016 campaign.
#4: One reason inequality keeps growing is because of the economic shampoo cycle: bubble, bust, repeat. The schematic is below. Start at the top, as high levels of inequality generate both stagnant middle income growth and cheap credit. Sprinkle in inadequate financial market oversight and you get the depicted cycle. For more on this problem, including what to do about it, check out chapter 7 in that renowned 2015 publication, “The Reconnection Agenda.”
#5: High and rising levels of inequality, supported by the shampoo cycle, have contributed to unbalanced accumulations of student debt, with negative implications for upward mobility.
#6: But education is a limited part of the story: poor college graduates are less than half as likely to end up in the top fifth of the income scale as rich non-graduates. Clearly, there’s something well beyond “meritocracy” going on here.
#7: Fortunately, there are policies that can help offset some of the negative trends shown above. The minimum wage movement and the “Fight for $15” gained a lot of ground in 2015, though the fight to increase the federal minimum will continue to be fought in the years to come.
#8: You know how conservative politicians like to spout the old Reagan line: “We fought a war on poverty and we lost”? Um, no, we didn’t. Just look how much Social Security, for example, reduces poverty among the elderly. Keep this figure in mind when people start talking about how we have to break Social Security to fix Social Security.
#9: Speaking of social policies making a real, positive difference in people’s lives, the Affordable Care Act is dramatically reducing the number of the uninsured.
#10: Moreover, the benefits from safety-net and social-insurance programs are long-lasting, with long-term impacts on opportunity.
#11: These observations are relevant to the year-end tax deal, which preserved important anti-poverty tax credits for economically vulnerable families trying to get ahead.
#12: That tax deal, however, also included a number of wasteful tax breaks that push against our need for more, not less, revenues going forward. As 2015 ends and a presidential election year begins, it seems fitting for the last figure to show research by Martin Gilens and Benjamin Page on how the policy preferences of wealthy elites dominate our political system, compared to the preferences of average citizens.
Clearly, we’ve got serious work to do in the new year in the name of political and economic justice.