In the 60 years after World War II, the United States built the world's greatest middle class economy, then unbuilt it. And if you want a single snapshot that captures the broad sweep of that transformation, you could do much worse than this graph from a new Pew report, which tracks how average family incomes have changed at each rung of the economic ladder from 1950 through 2010.
Here's the arc it captures: In the immediate postwar period, America's rapid growth favored the middle and lower classes. The poorest fifth of all households, in fact, fared best. Then, in the 1970s, amid two oil crises and awful inflation, things ground to a halt. The country backed off the postwar, center-left consensus -- captured by Richard Nixon's comment that "we're all Keynesians now" -- and tried Reaganism instead. We cut taxes. Technology and competition from abroad started whittling away at blue collar jobs and pay. The stock market took off. And so when growth returned, it favored the investment class -- the top 20 percent, and especially the top 5 percent (and, though it's not on this chart, the top 1 percent more than anybody).Let's hope the economy of the United States is not heading in the direction of Japan's. (Read more about the Japan's economic stagnation and its impact on Japan's younger generation.)
And then it all fell apart. The aughts were a lost decade for families, and it's not clear how much better they'll fare in the next.
None of this is new history. But it's helpful to have a crisp layout of what's changed.
For more on how the US economy may have undergone some profound changes recently, listen to this podcast between Lee Ohanian and Russ Roberts on The Great Recession and the Labor Market.
Lee Ohanian of UCLA talks with EconTalk host Russ Roberts about the recession, the recovery, and the state of labor market. Ohanian describes the unusual aspects of this recession and recovery in the United States as shown by the labor market and the unusual performance of hours worked, productivity, and wages. He also discusses the behavior of business investment and speculates as to why this recession and the recovery has been so different in the United States. The conversation closes with a discussion of the role of the foreclosure process in encouraging unemployment.Below is a list of links to related articles mentioned in the podcast:
- "The Economic Crisis from a Neoclassical Perspective," by Lee Ohanian. Journal of Economic Perspectives, Fall 2010, pp. 45-66.
- "Foreclosure Delay and U.S. Unemployment," by Kyle F. Herkenhoff and Lee E. Ohanian. Working Paper 2012-017A, June 2012, Federal Reserve Bank of St. Louis. Pdf file.
- "Recessions and the Cost of Job Loss," by Steven J. Davis and Von Wachter, Till, (December 2011). NBER Working Paper No. w17638.
- "Earnings Losses of Displaced Workers," by Louis Jacobson, Robert LaLonde, and Daniel Sullivan, American Economic Review, September, 1993.
- "Long-term changes in labor supply and taxes: Evidence from OECD countries, 1956-2004," by Lee Ohanian, Andrea Raffo, and Richard Rogerson, Journal of Monetary Economics, November, 2008.
- "New Deal Policies and the Persistence of the Great Depression," by Harold Cole and Lee Ohanian, Journal of Political Economy, August 2004.
- "The Supply Price of Labor During the Great Depression," by Curtis Simon, Journal of Economic History, December 2001.
- "Lessons From the New Deal," by Lee Ohanian, Testimony Prepared for the U.S. Senate Committee on Banking, Housing, and Urban Affairs, March 31, 2009, Revised, April 4, 2009. Pdf file.
- Productivity, by Alexander J. Field. Concise Encyclopedia of Economics.
- Unemployment, by Lawrence H. Summers. Concise Encyclopedia of Economics.
- New Classical Macroeconomics, by Kevin D. Hoover. Concise Encyclopedia of Economics.
- Business Cycles, by Christina D. Romer. Concise Encyclopedia of Economics.
- Creative Destruction, by W. Michael Cox and Richard Alm. Concise Encyclopedia of Economics.
- Finn Kydland. Biography. Concise Encyclopedia of Economics.
- Edward Prescott. Biography. Concise Encyclopedia of Economics.
(HT Tyler Cowen)