A similar disconnect between overall growth and individual experience seems to lie behind the public’s lack of enthusiasm for the current state of the economy and its disdain for the 2017 tax cut.
What is in a name” asked Shakespeare. But hey, I’m an economist, so let me ask a somewhat different question: What’s in a number? Quite a lot, suggest Senators Chuck Schumer and Martin Heinrich. This week they introduced a bill that would direct the Bureau of Economic Analysis, which produces estimates of gross domestic product, to produce estimates telling us who benefits from growth—for example, how much is going to the middle class. This is a really good idea. Now, I’m not one of those people who think GDP is a terribly flawed or useless statistic. It is a number we need for many purposes. But, on its own, it isn’t an adequate measure of economic success.
There are a number of reasons this is true, but one key issue is that it tells you only what is happening to average income, which isn’t always relevant to how most people live. If Jeff Bezos walks into a bar, the average wealth of the bar’s patrons suddenly shoots up to several billion dollars—but none of the non-Bezos drinkers have gotten any richer. There was a time when asking who benefits from economic growth didn’t seem urgent, because income was rising steadily for just about everyone. Since the 1970s, however, the link between overall growth and individual incomes seems to have been broken for many Americans. On one side, wages have stagnated for many; adjusted for inflation, the median male worker earns less now than he did in 1979. On the other side, some have seen their incomes grow much faster than the income of the nation as a whole. Thus CEOs at the largest companies now make 270 times as much as the average worker, up from 27 times as much in 1980.
A similar disconnect between overall growth and individual experience seems to lie behind the public’s lack of enthusiasm for the current state of the economy and its disdain for the 2017 tax cut. GDP numbers have been good in recent quarters, but much of the growth has gone to soaring corporate profits, while median real wages have gone nowhere. But how do facts like these fit into the overall story of economic growth? To answer this question, we need “distributional national accounts” that track how growth is allocated among different segments of the population.
Producing such accounts is hard but not impossible. In fact, the economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman have already produced estimated accounts with considerable detail over the past half century. The main message is one of growth going disproportionately to the top and not shared with the bottom half of the population, but there are also some surprises in the other direction. For example, the middle class, while still lagging, has done better than some common measures indicated thanks to fringe benefits.
But, there is a big difference between estimates produced by independent economists and regular reports from the US government, both because the government has the resources to do the job more easily, and because people (and politicians) will pay more attention. That is why the Washington Centre for Equitable Growth, a progressive think tank, has been campaigning for something like the Schumer-Heinrich bill. So why not do this?
Some might argue that creating distributional accounts is tricky, that it requires making some educated guesses about how to pool different sources of information. But, that is true of the process used to create existing national accounts, including estimates of GDP, too! Economic numbers don’t have to be perfect or above all criticism to be extremely useful.
In a reasonable world, then, something like the Schumer-Heinrich bill would become law in the near future. In the real world, of course, the proposal will go nowhere for the time being—because Republicans don’t want anyone to know what distributional national accounts might reveal.
By now, everyone knows that conservatives routinely yell “socialist” whenever anyone proposes doing something to help less fortunate members of our society—which is a key reason so many Americans now think favorably of socialism: If guaranteed health care is socialism, bring it on. But the right doesn’t just cry foul at any attempt to limit inequality; it does the same thing whenever anyone tries to talk about economic class, or measure how different classes are faring.
My favorite example here is still former senator Rick Santorum, who denounced the term “middle class” as “Marxism talk”. But that was just an especially ludicrous version of a general attempt on the right to suppress talk about and research into where the economy’s money goes. The GOP’s basic position is that what you don’t know can’t hurt it. And to be fair, progressives like the idea of distributional accounts in part because they believe that more knowledge in this area would help their own cause. But, here is the thing: Knowledge is objectively better than ignorance. And in modern America, knowing who actually benefits from economic growth is really, truly important. So let’s make finding that out, and disseminating the results, part of the government’s job.
By- Paul Krugman, NYT