Weak Economy

I listened recently to a talk that Jason Furman gave at the London School of Economics on the United States Economy. He is the Charman of President Obama’s Council of Economic Advisors.

Furman presented some interesting statistics. He explained that between 1945 and 1973, the income of the bottom 90 percent of households increased by 2.9 percent per year. With this growth, their income doubled every 24 years, which means that each generation could expect to have an income twice as good as their parents, on average.

Three things contributed to the growth: substantial increases in productivity (2.8 percent per year), diminishing inequality (as the top ten percent got a significantly reduced share), and greater labour participation as woman moved into the work force (from 33 to 50 percent of working age women).

Between 1973 and 1995, the incomes of the bottom 90 percent fell slightly on average, as productivity growth halved and inequality rose. These negatives were almost compensated by continued growth in worker participation of women (to 75 percent).

Between 1995 and 2013, the incomes of the bottom 90 percent rose very slightly. Productivity grew slightly, inequality worsened and workforce participation dropped slightly. Female particpation plateaued and male participation declined.

The change increase in inequality was significant. In 1973, the bottom 90 percent of households gained 68 percent of income. By 2013, their share had dropped to 53 percent.

No wonder many Americans feel bad about their economy. Many younger Americans are going to be worse off than their parents.

Jason Furmon had no effective solutions to offer. Nothing tried since 1973 has worked.