Americans’ feelings about the U.S. economy make sense
A common conundrum for economists is the ongoing disconnect between macroeconomic outcomes and how Americans report feeling about the economy. The U.S. economy is growing at a respectable, although lackluster, rate of 1.9 percent; the unemployment rate recently hit an 8 year low of 4.8 percent; and household incomes grew by a record 5.2 percent last year (the latest data we have). Yet public opinion polls report that 54 percent of Americans view the nation as being on the wrong track, and that in early November more people “saw the economy as getting worse than getting better.”
New York Times reporter Neil Irwin offers two alternative reasons for what’s “rotten in many people’s economic lives.” He reports that the economy is either too volatile or it’s not dynamic enough. He notes there is evidence that points in both directions. On the one hand, jobs appear to be more precarious than in the past. But on the other, the economy is creating fewer start-ups and fewer people are moving. The point Irwin is making is that these various conditions don’t show up in the regularly released data.
The assumption embedded in these explanations, however, is that it’s the pattern that matters, not the conditions themselves. If policymakers could reduce turnover among employees and increase the entry of new firms, then workers would not be so frustrated. But is there a logical reason to assume that — all else being equal — more or less employment and business dynamism would create economic stability for workers and their families?
An alternative explanation is that people simply see the U.S. economy on the wrong track because even though the economy is growing, many people don’t see any gains in their own lives. And this explanation definitely doesn’t show up in our regularly produced statistics.
A new data series on economic growth built by economists Thomas Piketty of the Paris School of Economics and Emmanuel Saez and Gabriel Zucman of the University of California-Berkeley seeks to fix this gap in our data. By matching survey data to administrative records and matching that to National Accounts data, such as gross domestic product, the three economists allow policymakers to see how income growth looks across income groups.
They find evidence for why people feel that the economy is on the wrong track. Between 1980 and 2014, average national income per adult grew by 61 percent in the United States. Yet virtually none of that economic growth accrued to those in the bottom half of the income distribution. Over that 34-year period, the average pre-tax income of the bottom half of individual income earners grew by a paltry one percent, after adjusting for inflation. Those at the top gained substantially from economic growth as their incomes rose by 121 percent for the top 10 percent, 205 percent for the top one percent, and 636 percent for the top 0.001 percent.
People aren’t oblivious to this trend. They can tell that they work hard but attaining economic security has become harder to do. If policymakers could track this data alongside the GDP data each quarter, then there would be no question why Americans feel that the economy is on the wrong track. They would learn that GDP grew by 1.9 percent but also who in the United States took home those gains. Policymakers and the public alike then would be able to understand how these gains or lack of gains look for families.
One thing economists and other social scientists know is that families up and down the income ladder struggle in ways some of those in earlier generations did not because they have less time. Many Americans lost the “silent partner” who took care of family life while one adult—typically Dad—was the breadwinner. The combination of dual-earning families and families with only one parent means that very few families—less than one in four—have that luxury today.
Of course, this doesn’t tell policymakers why the gains from growth aren’t being shared. And, so the New York Times’ Irwin’s is asking the right question. Is it that reduced job turnover also reduces a worker’s ability to bargain over the gains of growth? Or, does the stranglehold by established businesses on the entry of new businesses allow those who are already ensconced in jobs to hold on to the gains? Globalization and automation are certainly factors, but we need to know more about why these trends in the United States (but not in many of our major economic competitors) means that workers no longer gain from economic growth.