Economic Problem: Incomes Are Stagnant, Even with 2-Earner Families

By Friedman, Benjamin M. | Nieman Reports, Fall 1995 | Go to article overview

Economic Problem: Incomes Are Stagnant, Even with 2-Earner Families


Friedman, Benjamin M., Nieman Reports


There are two major difficulties in trying to understand current U.S. economic policy. The first is that so many people with half a mind to talk about the subject go ahead and do so anyway. The second is that such a very large fraction turn out to occupy major positions of public responsibility. Our belief in progress notwithstanding, I think this is as true today as ever.

We do have a serious economic policy problem in the United States. And while our political leaders may not be aware of that problem, it's obvious that the voters, both in 1992 and in 1994, were very much aware. The voters behaved like the man who comes home and says to his wife, "Dear, I've had it. I can't take it any more. I'm leaving." After his wife regains her composure, she asks, "Is there somebody else?" And the husband immediately answers, "There's got to be." American voters have the view that there has got to be something else.

What, then, is the problem? After all, for the past three years, we've had a very vigorous economic expansion. We've enjoyed very rapid job creation-- 3.5 million new jobs last year alone. This spring, our reported unemployment was the lowest in two decades. Most of our companies are enjoying strong economic growth and profits. We are forming new businesses at record rate. Moreover, we've been doing all of this with the lowest rate of inflation in a quarter of a century. So what exactly is it that our policy makers are supposed to worry about?

Put simply, the problem is that, for the majority of Americans, economic growth in the United States stopped 20 years ago. In 1973, the weekly wage of the average worker in American private business was $474 a week, stated in terms of today's dollars. Today, that weekly wage is $385 a week. That's a loss of 19 percent over 21 years. Moreover, it's not just as if, within the last year or two, we've suddenly lost all this ground. There has been a steady decline throughout.

As a result, family incomes are absolutely stagnant, despite the fact that we have an increased number of two-earner families. As Juliet Schor has just shown, we have ever more people working ever longer hours. In 1973, the median family income in the United States (in today's dollars) was $36,800; today, it's still only $37,800.

As an exercise in arithmetic, ask what it means to have a stagnant average income, when we also know that black/ white differentials are narrowing and male/female differentials are narrowing. If those two differentials are narrowing at the same time that the average income is stagnant, it must be the case that white male workers' incomes are going down. And indeed they have gone down, steadily, over the course of the last 20 years. The income of a fulltime employed white male worker in 1973 was $35,000 in today's dollars; in 1979 it was $34,000; in 1989 it was $33,000; and, last year, it dipped under $32,000. Can anybody be surprised that the voters who are angriest, as all the polls show, are, in fact, white males?

If this is the problem, and everybody outside of our government recognizes it, what are we doing? The good news is that the 1993 Clinton budget plan was modestly ambitious, and, moreover, worked. Objections of the critics notwithstanding, federal spending has slowed; the cuts were real. Objections of the critics also notwithstanding, individuals facing higher tax rates are actually paying higher taxes, not simply dodging them; tax revenues are sharply up. Best of all, critics notwithstanding once again, the higher tax rates have not caused the collapse of the American economy. Instead, we've had a very fine economy in the last year or two. Last year in particular, real growth overall was 4 percent. Best of all, in terms of what we need to restore our productivity growth and competitiveness and raise our standard of living, new investment in factories and machinery was up 12 percent last year.

As a result of the strong economy, together with Mr. …

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