Over at Gawker, writer Hamilton Nolan highlights some comparative economic analysis by money manager Jeremy Grantham. Nolan’s fine, click-bait headline offers a decent summary of Grantham’s work: “America, the Cesspool of the Developed World.” And Nolan’s takeaways:
— America’s wealth is being captured by the very rich to a greater degree than almost anywhere in the developed world.
— The average American worker has been getting screwed by corporations and the government for the past 45 years.
— We pay lower taxes than most everywhere in the developed world, and who saves the most money because of that? The rich, who by the way are also the only ones whose wages are growing at a healthy pace.
— We should raise our taxes and we should enact policies that direct economic growth towards the middle and lower classes.
Not so sure about Nolan’s detective work here, or his conclusion the US should be more like France or some such. I’m not going to reverse engineer Grantham’s numbers, but let me offer a few brief points”
1.) US median household income is far higher than France, somewhere between 25-40%.
2.) A good chunk of the advanced world’s prosperity is built upon American innovation. There is a reason the US has produced far more superrich entrepreneurs than another big economy. Might the policy changes Nolan prefers, including tax hikes, be a detriment to that? Worth considering.
3,) Within-nation inequality is rising everywhere, suggesting macroforces such as globalization and technology not US tax rates or labor policy are prime causes.
4.) The past 45 years have not been a neverending hellscape for the US middle class. As I have written:
A University of Chicago poll of top economists earlier this year found that 70 percent agreed that the Census conclusion “substantially understates how much better off people in the median American household are now economically, compared with 35 years ago.” How far off are those numbers? Maybe quite a bit. Feldstein argues that they fail to take into account shrinking household size, the rise in government benefit transfers, and changes in tax policy. They also measure inflation in a way some experts thinks overstates the true rise in living costs. He notes that when the Congressional Budget Office took all those factors into account, it found median household income had risen by 53 percent since 1980, five times as much as the narrower Census figures.
And it could be even higher. A lot higher. A growing number of economists are questioning whether our existing measures of economic growth and inflation are suited to the digital economy. A recent Goldman Sachs analysis suggests we may be understating annual economic growth by nearly a third due to our inability to accurately measure how vastly improved software and hardware are boosting productivity. Likewise, government data ignores the consumer value of free internet services like Facebook, Google, and Twitter. Put it all together, and Feldstein thinks real median household income may have risen by 2.5 percent a year over the past 30 years, not 0.3 percent. That would suggest a doubling of living standards over the past generation. And even those figures ignore welfare gains from rising life expectancy, which economists Charles Jones and Peter Klenow think could equal a full percentage point a year.
5.) Check out this CBO analysis of real, after-tax income showing all broad income groups better off (though with rising inequality, to be sure):
6.) Intriguing new research by the Manhattan Institute’s Scott Winship would suggest a notable non-screwing of American workers:
— During 1973–2007, U.S. hourly compensation rose 71 percent, while productivity rose 74 percent.
— In 1973, U.S. workers received 70 percent of the income produced by
businesses; in 2007, they received 69 percent.— For the past 70 years, labor’s share of income has fluctuated—almost without
exception—between 67 percent and 71 percent.— Since 1929, the U.S. business cycles with the highest productivity
growth have also featured the highest growth in hourly compensation.— Male and female middle-class workers saw faster growth in pay during 1989–2000 and 2000–07 than during 1973–79, when productivity
growth was slower.— Middle-class pay has not stagnated: during 1997–2011, productivity rose by 35 percent, aggregate compensation rose by 32 percent, median hourly compensation increased by 20 percent, median female pay climbed by 25 percent, and median male pay grew by 18 percent.
7.) Gallup has found that about “13% of the world’s adults — or more than 640 million people — say they would like to leave their country permanently.” And of that group, 150 million — or 23% — cite America as their first choice. So pretty good for a cesspool, I guess.
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