The Great Expansion
Between 1980 and 2007, the world economy experienced what I call a “Great Expansion” due largely to the free-market policies that President Obama blames for the last recession. Over those three decades, world GDP grew by about 145%, or roughly 3.4% a year, a rate comparable to the 3.5% per year growth during the golden era of 1950-1973…
[In the U.S.] fewer people live today in middle-class households with incomes between $35,000 and $105,000, while the percentage of households making less than $35,000 has remained the same. Where did the missing households go? They became richer. In the past three decades, the percentage of households making more than $105,000 in inflation-adjusted dollars doubled to 24% from 11%.
Full article by Hoover Institute Fellow Henry R. Nau in The Wall Street Journal.
Cautionary note: It’s not fully clear whether the dollar figures cited include only money wages or also benefits. I am pretty confident that they refer to money wages, having looked around Georgetown University’s Center on Education and the Workforce’s website.
In which case, the so-called “inequality” that Prof. Nau is debunking is also explained by the increasing costs of health benefits as a share of total income.
Most people receive group health benefits which, according to law, must be “non-discriminatory”, i.e. the same for all full-time employees regardless of income.
I realize that there is evidence that high-income people consume more health services than low-income people, even if covered by the same benefits.
Nevertheless, the laws governing health benefits incent low-income workers to take more of their total income as health benefits than they would if free to choose between all goods and services (because health care is surely a normal good).
As health benefits have increased faster than inflation, it naturally drives a bigger wedge between the money wages of high earners versus low earners.
Interesting.
Privatization and deregulation have been key to this, but the international Left will never admit it.
The problem with using this type of evidence in an economic argument for free markets is that opponents of free markets don’t like always like economic growth. Many progressives would gladly accept slower economic growth if: 1) income is more equal; 2) the Welfare State serves people from the cradle to the grave; and 3) resource use is lower.
Subtract out the bubble growth of the real estate markets in the 2000s. Not nearly as good as the golden era.
The left agrees that government ownership of business is bad. The big growth in the more recent era occurred in countries that still have significant government influence in the economy. The BRIC countries are hardly free market havens.
Steve