Scene-Setting for the Policy Discussion: The American Economy Stumbles (Brad DeLong)

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http://equitablegrowth.org/2015/01/16/scene-setting-policy-discussion-american-economy-stumbles/

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The American economy has done badly over the past generation or so.

This is not to say other economies have done better: The American economy remains among the richest in the world. However, given the economic lead America had a generation ago, it really ought to still be well ahead of the North Atlantic pack, and it no longer is.

Moreover, across most of the income distribution Americans today are little if any better off than their predecessors back in 1979, at the business-cycle peak in the Jimmy Carter presidency. Yes, today Americans have remarkable access to incredibly cheap electronic toys. But those are a small part of expenditure, and the costs of securing the standard indicia of middle-class life–a home in a safe neighborhood with good schools and a short commute, college for the children, assurance that a major illness will not lead to bankruptcy, a secure and reasonably-sized pension–have all become more costly relative to incomes. This shift is astonishing: For 150 years before 1979 Americans had confidently expected that each generation would live roughly twice as well in a material sense as its predecessor, not find itself struggling against the current to stay in the same place.

If you want a single set of numbers to keep in the front of your mind to understand America’s relative position today, you cannot do better than those in the figure below, copied from the Credit Suisse Global Wealth Report1:

[img]http://delong.typepad.com/.a/6a00e551f08003883401a3fd332c22970b-pi[/img]

The median American has only about $45,000 to his or her name, and wealth inequality as measured by the gap between the average and the median wealth is greater by far than in the typical rich country–only Sweden comes close. A generation ago it would have been ridiculous to even consider that the typical middle-class or working-class American might not lose if switched with the typical inhabitant of Australia or Italy or Japan or Finland or Singapore. It is not so ridiculous at all today. But America’s rich remain rich indeed: as Tahmi Lubby writes, with 4.3% of the world’s population America has half of those with over $50 million, and two-fifths of all millionaires.

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