WASHINGTON — Today’s bipartisan Cassandra caucus includes Democratic Sen. Elizabeth Warren (“the rich get richer while everyone else falls behind”) and Sen. Bernie Sanders (“our standard of living has fallen”) and Republican Sens. Marco Rubio (“we have been left with an economy and a society no one is happy with”) and Josh Hawley (“Over the last several decades, inflation-adjusted wages for the working class have barely budged”). The caucus says America’s economy is primarily producing disappointment, even misery. This narrative is largely false, yet can be self-fulfilling.
Fortunately, Michael Strain’s just-published “The American Dream Is Not Dead (But Populism Could Kill It)” is an inoculation against politically motivated misinformation. Strain, of the American Enterprise Institute, acknowledges that many towns damaged by automation and globalization are struggling, “But most towns are not former manufacturing towns.”
Since September 2010, the last month with a net job loss, the economy has added an average of about 200,000 jobs per month, and today there are more job openings than unemployed workers, which is one reason wage growth is accelerating and already is over 3%. For the bottom 10% of earners, weekly earnings have grown 20% over the past four years. The unemployment rate for workers without even high school diplomas is further below its long-term average than is the rate for college-educated workers.
Hawley says 70% of Americans — those with neither family wealth nor four-year college degrees — “haven’t seen a real wage increase in thirty years.” Wages for typical workers, Strain says, have risen 34% over the past three decades. Using the personal consumption expenditures (PCE) price index as a more accurate measure of inflation than the consumer price index (CPI), wages increased by 21% between 1973 and 2018.
In this period, Strain says, wages for the 10th percentile have increased 36%, for the 20th percentile 34%, for the 30th percentile 29%. The picture is brighter still when the focus is broadened beyond wages to include, for example, employer-provided health care, which is untaxed compensation.
The Congressional Budget Office calculates “income after taxes and government — transfers” which is income available to save and spend. Since 1990 it has increased 44% for the median household, for the bottom 20% it has increased 66%. Furthermore, Strain says, the gap between rich and poor “has stopped growing and might even be declining.”
The argument that the typical household’s and individual’s quality of life has not improved for decades, says Strain, “borders on the absurd.”
Leave aside the vast but difficult-to-quantify product quality improvements (e.g., cell phones before and after smartphones; automobiles in 1990 and 2020). Between 1983 and 2016, the median net worth for a family increased from approximately $52,000 to $97,300.
It is true, Strain says, that “employment in middle-skill, middle-wage occupations has been shrinking” as robots have replaced some manufacturing workers, ATMs have replaced bank tellers, software has replaced bookkeepers. Yes, between 1967 and 2018 the portion of households in the middle fell from 54% to 42% — but the share of low-income households (earning less than $35,000, measured in constant dollars) also fell from 36% to 28%, and the share of households earning over $100,000 has tripled, from, 10% to 30%.
Upward mobility remains real. About seven out every 100 Americans raised in the bottom 20% reach the top 20%. Seventy-three percent of Americans in their 40s have higher (inflation-adjusted) family incomes than their parents had, including those raised in the second quintile of income distribution — the principal target constituency for populists left and right. Two-thirds of children raised in the bottom quintile rise above it in their prime earning years. And more than 60% of the children raised in the top quintile do not remain there.
Strain says “the populist message of economic and social despair” causes diminished expectations: When vociferous members of both parties say Americans are helpless victims of a system rigged by elites, this enervating message dims aspirations and reduces effort in an increasingly risk-averse nation that already is showing reduced restlessness and geographic mobility.
Intellectual trends — including the idea that human agency and personal responsibility are radically attenuated in complex societies — have produced a curdled politics emphasizing victimhood and resentments.
These sour preoccupations make people susceptible to the infantilizing temptation of tantrum populism that demands the benefits of economic dynamism with none of its inevitable frictions and dislocations.
It is unfortunate that the Cassandra caucus might prosper politically by misdescribing America’s economic prosperity. It is unforgiveable that the misdescription might be self-fulfilling.