In a longer piece for the Breakthrough Institute, Brookings’ Scott Winship pushes back against nostalgia for the economy of the ‘50s and ‘60s, and makes the case for optimism about the long-term prospects for rising prosperity in the U.S.
Winship’s key insight is that the slowing rates of growth in Americans’ incomes don’t mean that living standards aren’t increasing as fast as they have in the past. It’s a matter of simple math: small percentage changes from a large base can be large absolute changes. And the level of U.S. wealth is a large base.
One graph Winship includes in his piece is helpful for illustrating what’s happened in the U.S. economy since the ‘50s. Although growth in productivity – GDP divided by the number of hours worked by Americans – has trended down, absolute gains in productivity have been higher over the past decade than they were in the ‘50s and ‘60s:
For all the talk about stagnant growth, you’d have a hard time divining it from looking at the material circumstances in which most Americans live. Even after the Great Recession, we live in larger houses and own more cars than previous generations. Our homes are cluttered with all manner of gadgets, electronics, and appliances. Air-conditioning and air travel, once considered luxuries, are now available to virtually all of us.
If our obvious material affluence seems difficult to square with various narratives of economic decline, that’s because it doesn’t. What has declined is the rate of improvement in our lives. From 1947 to 1979, average family income grew by 2.4 percent per year, while it grew by half that from 1979 to 2007. But the lower growth rate since 1979 masks impressive absolute gains. The annual increase in average family income was $860 in today’s dollars, not all that much less than the $970 annual increase from 1947 to 1979, despite the lower rates. And even this comparison understates the gains that we can expect in the future because we are at the point where we will soon be rich enough as a society that annual gains will be permanently higher than they have ever been, even if growth rates remain low.
Of course, the popular narratives that the U.S. is experiencing a broad stagnation or that the middle class is hollowing out don’t fit well with this argument. Winship suggests those ideas are dangerous misinterpretations of the data, and proposes a re-thinking of policy priorities for the U.S. Read the whole article.