April 9, 2008
Economic Scene
For Many, a Boom That Wasn’t
By DAVID LEONHARDT

How has the United States economy gotten to this point?

It’s not just the apparent recession. Recessions happen. If you tried to build an economy immune to the human emotions that produce boom and bust, you would end up with something that looked like East Germany.

The bigger problem is that the now-finished boom was, for most Americans, nothing of the sort. In 2000, at the end of the previous economic expansion, the median American family made about $61,000, according to the Census Bureau’s inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less — about $60,500.

This has never happened before, at least not for as long as the government has been keeping records. In every other expansion since World War II, the buying power of most American families grew while the economy did. You can think of this as the most basic test of an economy’s health: does it produce ever-rising living standards for its citizens?



In the second half of the 20th century, the United States passed the test in a way that arguably no other country ever has. It became, as the cliché goes, the richest country on earth. Now, though, most families aren’t getting any richer.

“We have had expansions before where the bottom end didn’t do well,” said Lawrence F. Katz, a Harvard economist who studies the job market. “But we’ve never had an expansion in which the middle of income distribution had no wage growth.”

More than anything else — more than even the war in Iraq — the stagnation of the great American middle-class machine explains the glum national mood today. As part of a poll that will be released Wednesday, the Pew Research Center asked people how they had done over the last five years. During that time, remember, the overall economy grew every year, often at a good pace.

Yet most respondents said they had either been stuck in place or fallen backward. Pew says this is the most downbeat short-term assessment of personal progress in almost a half century of polling.

The causes of the wage slowdown have been building for a long time. They have relatively little to do with President Bush or any other individual politician (though it is true that the Bush administration has shown scant interest in addressing the problem).

The slowdown began in the 1970s, with an oil shock that raised the cost of everyday living. The technological revolution and the rise of global trade followed, reducing the bargaining power of a large section of the work force. In recent years, the cost of health care has aggravated the problem, by taking a huge bite out of most workers’ paychecks.

Real median family income more than doubled from the late 1940s to the late ’70s. It has risen less than 25 percent in the three decades since. Statistics like these are now so familiar as to be almost numbing. But the larger point is still crucial: the modern American economy distributes the fruits of its growth to a relatively narrow slice of the population. We don’t need another decade of evidence to feel confident about that conclusion.

Anxiety about the income slowdown has flared at various times over the past three decades. It seemed to crescendo in the first half of the 1990s, when voters first threw George H. W. Bush out of office, then, two years later, did the same to the Democratic leaders of Congress. Pat Buchanan went around preaching a kind of pitchfork populism during the 1996 New Hampshire Republican primary — and he won it.

Then came a technology bubble that made everything seem better, for a time. Record-low oil prices in the 1990s helped, too. So did the recent housing bubble, allowing families to supplement their incomes by taking equity out of their homes.

Now, though, we appear to be out of bubbles. It’s hard to see how the economy will get back on track without some fundamental changes. This, I think, can fairly be considered the No. 1 economic project awaiting the next president.

Fortunately, there is an obvious model waiting to be dusted off. The income gains of the postwar period didn’t just happen. They were the product of a deliberate program to build up the middle class, through the Interstate highway system, the G. I. Bill and other measures.

It’s easy enough to imagine a new version of that program, with job-creating investments in biomedical research, alternative energy, roads, railroads and education. On the campaign trail, Hillary Clinton, John McCain and Barack Obama all mention ideas like these.

But there is still a lack of strategic seriousness to the discussion, as Bruce Katz of the Brookings Institution notes. After all, the United States spends a lot of money on education already but has still lost its standing as the country with the highest college graduation rate in the world. (South Korea and a couple of other countries have passed us, while Japan, Britain and Canada are close behind.)

The same goes for public works. Spending on physical infrastructure is at a 20-year high as a share of gross domestic product, but too much of the money is spent on the inefficient pet programs championed by individual members of Congress. Pork barrel spending does not add up to a national economic strategy.

Health care and taxes will have to be part of the discussion, too. Dr. Ezekiel Emanuel of the National Institutes of Health pointed out to me that a serious effort to curtail wasteful medical spending would directly help workers. It would spare them from paying the insurance premiums and taxes that now cover that care.

The tax code, meanwhile, has become far more favorable to high-income workers at the same time that they — and they alone — have received large pretax raises. That doesn’t make much sense, does it?

It’s a pretty big to-do list. But it’s a pretty big problem. Since the economy now seems to be in recession, and since recessions inevitably bring their own pay cuts, my guess is that the problem will look even bigger by the time the next president takes office.

E-mail: leonhardt@nytimes.com

Report: Most Americans Glum on Financial Progress

By Michael A. Fletcher
Washington Post Staff Writer
Wednesday, April 9, 2008; 12:28 PM

Offering the gloomiest assessment of personal economic progress in close to half a century, a new survey has found that most Americans think they have not made economic progress over the past five years, as their incomes have stagnated and they have increasingly borrowed money to finance their lifestyles.

As many Americans struggle with declining housing values, increasing food and energy prices and growing unemployment after a long period of flat wages, well over half of respondents said they are either losing ground economically or are stuck in the same place, according to the report released today by the Pew Research Center. Only four in 10 said they have moved forward in the past five years -- a record low, Pew says, and far off the record 57 percent who in 1997 said they had moved forward in the previous five years.

The squeeze is particularly tight for those who are low-income and for the 53 percent of Americans who classify themselves as middle-class. Nearly four out of five middle-class adults say it is more difficult for people like them to maintain their standard of living. In 1986, fewer than two of three middle-class people shared that opinion.

Only two in five middle-class Americans say they "live comfortably," while one in five says he or she is just able to meet expenses. The others say they are able to meet expenses with some money left. Overall, slightly more than half said they had to "tighten their belts" to adjust to the increasing economic pressure.

The Pew report, which is based on a telephone survey of a nationally representative sample of 2,413 adults overlaid with demographic information from the Census Bureau, adds new information about how Americans feel about their economic situations in the midst of a presidential campaign in which the plight of the middle class has been at the heart of the debate.

Democratic candidates Sen. Hillary Rodham Clinton (N.Y.) and Sen. Barack Obama (Ill.) have argued that ordinary Americans are slipping backward and are more shaky economically. In response, the candidates have proposed expanding health-care coverage, increasing financial aid for college students and cutting taxes for the middle class. Presumptive Republican presidential candidate Sen. John McCain (Ariz.) also has promised to cut taxes for the middle class and to expand the availability of health care through tax incentives.

Even as they struggle, nearly two-thirds of Americans acknowledge that they are better off than their parents were when they were their age, an important marker of upward mobility. That fulfillment of the American dream has persevered even as the nation has entered a period of widening income disparities and creeping insecurity brought on by the rise in income volatility, the decline in fixed-benefit pensions and the increasing need for households to send two breadwinners to work to maintain a middle-class life.

Despite not returning to its 1999 peak, median household income increased by 41 percent between 1970 and 2006. Seven in 10 survey respondents said they have cable or satellite television as well as two or more cars. Two-thirds reported having high-speed Internet service, and 42 percent said they have a high-definition or flat-screen television, the report said, adding that the typical house is 50 percent larger and nearly twice as expensive now as it was in the mid-1980s.

But those luxuries have come at a price, as middle-class households are assuming more risk and borrowing more than ever before. Debt-to-income ratios more than doubled between 1983 and 2004, going from .45 to 1.19, the report said.

Meanwhile, more Americans have managed to move up the income ladder, particularly when they approach middle age. Between 1970 and 2006, the share of Americans whose income fell between 75 percent and 150 percent of the national median contracted from 40 to 35 percent. But the percentage who were above 150 percent of the median ticked upward from 28 to 32. The lowest income group also grew, from 31 to 33 percent, led by a sharp increase in the number of young people, aged 18 to 29, who are lower-income.

Among the groups to substantially improve their economic standing since 1970 are senior citizens, native-born Hispanics, African Americans and married couples, the report said. Meanwhile, single men and people with high school diplomas or less and immigrant Hispanics are among those who have lost ground, the report said.

Despite agreeing that it is harder to maintain a middle-class lifestyle, Americans do not agree on whom to blame for their plight. About a quarter blame the government, 15 percent blame the spiraling price of oil, 11 percent blame themselves and 8 percent blame foreign competition.

"Part of it is the natural cycle," said Vicki Cool, 61, a retired nurse who lives in Salisbury, Md., and worries whether the Social Security payments she receives from her late husband and her savings will keep her afloat through retirement. "Everybody wants to point a finger. But I'm not sure that I know enough to point fingers. I just know it's unfortunate."

I blame it on a lack of true leadership at all levels.

The executive branch is in the pockets of big business and the Israeli Lobby`s.
The White house cabinet is acting in something other that Americans best interest and holds too much power.

The U.S. Congress (voice of the American people) is spineless, except for a few like Cynthia McKinney and Ron Paul and they get blackballed and called extremist.

The judicial branch is loaded with partisan hacks and it feels free to legislate from the bench.

Yep, we are in a crisis and extreme measures are no doubt necessary.

So we didn't really have an expansion of the economy. We really just had in increase in the debt people would assume to accumulate more crap.