When will incomes return to their 2006 level?

June 9, 2011

What happens if, instead of measuring GDP by adding up all the money spent in the country, you measure it by adding up all the money earned in the country? Theoretically, the two measures are identical, but in practice, there can be differences. Justin Wolfers has this chart:


The red line, here, is a more reliable measure of national income than the blue line, which is the official GDP number. And it gives a sobering indication of just how devastating the Great Recession was: a drop of more than 7% in real GDP per capita between the end of 2006 and the end of 2009, with most of that decline taking place before the collapse of Lehman Brothers and the subsequent financial crisis.

Writes Wolfers:

It’s going to take a long while to return to where we were back in 2006. Most forecasters are expecting GDP to grow by around 3 percent, implying per-capita growth closer to two percent. At those rates, average incomes in 2013 will (finally!) be back around the levels of 2006.

I’d note that “average”, here, refers to the mean, not the median. The effect of Ben Bernanke’s monetary policy has been to funnel large amounts of income to bankers and plutocrats, even as the employment situation remains woeful, so you can be sure that median incomes are going to take significantly longer to return to their 2006 level than mean incomes. They’ll get there eventually, I’m sure. But it could take a decade.


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