In this populist, angry moment, in which candidates from opposite sides of the political spectrum have gained great traction by pointing out what’s wrong with America, it’s increasingly hard to get an accurate read of what’s really gone wrong and what hasn’t.
To be clear, what follows addresses this question through a narrow, economic lens. A broader assessment is, of course, equally valid and would invoke political power, class, psychology, gender and race. If, for example, racial, ethnic and country-of-origin diversity, not to mention bathroom use by those whose gender doesn’t match the one on their birth certificate, are what’s making you angry, that may be all you need to know. When someone talks about “making America great again,” you hear him saying: Make those “problems” go away. As long as we’ve been a nation, such prejudices mean there has always been something “wrong” with America.
But what follows speaks to those responding to the pessimistic message not out of racial, ethnic, or gender animosity but from their economic experience, both over the short and longer terms.
In a recent “wage update” on my blog, I focused on wage trends from both time horizons. Near term — in recent quarters — if you read the business press (or if you’re a Fed watcher), you’re hearing a lot about accelerating wage growth, which one might assume would dampen some of the negative political sentiments about the economy. In fact, wage growth is slowly accelerating from a bit below 2 percent per year to a bit above 2 percent, which is exactly what you’d expect from a tightening labor market.
That’s certainly good news, but the fact that in June we hit year seven of an economic expansion gets at the sense that a lot of people reasonably believe these gains were a long time coming.
There’s also an interesting technical point here. Recent wage gains — and as I point out, they’re fairly uniform across the wage scale (i.e., not just at the top) — remain positive even when you subtract out inflation, in part because the latter has been running so low. For example, hourly pay for service workers (non-managers) is up 2.5 percent over the past year (from $20.73 to $21.24), and inflation is up only about 1 percent, meaning the buying power of the hourly wage is up about 1.5 percent.
But, of course, the reason inflation is so low is low energy prices. That’s real and very important: There’s no question that low gas prices are boosting real incomes. But take out energy prices and inflation is running at a more normal 2 percent, so it’s worth remembering that apart from the gas station, people may still experience a squeeze on their paychecks.
Data on real median household income from Sentier Research (see figure 1 here, based on census data) present another angle on the living-standards story, both near and long term. Improvements in the job market and low inflation have reversed the damage done by the recession to middle-class incomes, but the level of median household income, about $57,000 in today’s dollars, is about the same as it was in 2000, a decade and a half ago. Surely this is a well-founded source of much anger.
These data leave out taxes and most government transfers, including the value of government-provided health benefits, leading some analysts to argue that, in fact, middle-class living standards have grown more quickly than the Sentier data indicate. Congressional Budget Office data show that although this is true, to the extent that middle-class families with kids have gotten ahead since 2000, it has been all taxes and government transfers. Real pay is actually down 2 percent (these data go only through 2011). Also, because government health benefits are counted at market value, the uniquely overpriced American health-care system shows up as better living standards. The fact that MRIs cost multiples here compared with other countries doesn’t make the American middle class that much better off.
That said, it’s important to recognize that increased government transfers have improved living standards of those at the middle and, even more so, bottom of the pay scale. But people aren’t angry about Social Security, Medicare and the Earned Income Tax Credit; it’s job quantity and quality, along with wage trends.
Finally, of course, there’s inequality, which, along with unresponsive, bought-and-sold-for politics, is behind the powerful, anger-inducing sentiment that “the game is rigged”:
— The figure below shows the gaping space between productivity growth and median compensation.
— The increase in residential segregation by income has serious negative implications for a public education system largely financed by local property taxes.
These are all legitimate sources of anger that belie facile claims about growing overall GDP, average (vs. median) incomes or average longevity.
What’s also so important about this moment is the collision of these facts with various policy agendas on offer. The anger on the right, which has potently fueled the rise of Donald Trump, is particularly easy to diagnose: a broad swath of conservative voters has come to view more trade agreements, more immigrant flows, tax cuts for the wealthy, (phony) fiscal finger-wagging, the coddling of finance, and the deregulation of industry as completely unresponsive to what ails them. Many on the left view the liberal establishment agenda as uncomfortably similar to the above, without the tax cuts for the rich and leavened with a smattering of redistribution.
Even leaving aside the racial dimension of the moment, this is still complex stuff, and while I don’t want to try to reduce it to one thing, I actually think there’s something that cuts through a lot of it: Low and middle-income people want and need better jobs with better paychecks that more reliably rise with overall growth. There’s nothing wrong with America that a lot more, good jobs couldn’t at least partially solve.
This would dampen some — not all — of the anger about both trade and immigration. It would offset inequality and draw those lines in the figure above closer together. It would reduce poverty (at least among the able-bodied), the blight of jobless, opportunity-less neighborhoods, and lift the life chances, health and even the longevity of its beneficiaries.
How to get there — the Reconnection Agenda most likely to deliver the full-employment economy that has been mostly absent over the years that this anger has been building — is surely one of the most important things we should be listening for in this election season, over and above a lot of deeply fractious and click-bait product that is set to rain upon us. A summary of the jobs agenda will be the topic of my next few columns.