It’s the ur-talking point for modern liberals: The 30-year, free-market tilt of U.S. economic policy has been a failure. Tax cuts failed. Deregulation failed. Free trade failed. President Ronald Reagan failed.
Their so-called evidence: U.S. incomes and the American standard of living have been flat for a generation. The rich got richer, the poor got poorer.
Except they didn’t. The rich did richer, but so did everyone else, it seems. That moldy, left-wing talking point is based on a very narrow estimate of income – one that does not take into account household size, taxes or benefits. When you make that adjustment, a very different picture emerges. This chart displays the findings of economists Dr. Richard V. Burkhauser of Cornell University, Dr. Jeff Larrimore of the Joint Committee on Taxation and Dr. Kosali Simon of Indiana University:
Instead of the income of the average American being flat (+3.2 percent) from 1979-2007, it actually rose 37 percent. And all quintiles scored gains. Here’s what one of the economists told The Daily Caller:
The bottom line is [conventional wisdom] asks what’s been happening to private personal income over time and they are right if you look at that for tax units, things do not look very good for the middle class. … But if you take other things into account, the reason the country has not gotten in a civil war is because things are not that bad. In fact everybody has done better. … This isn’t a zero sum game, where one group wins at the expense of others. The growth in productivity of Americans in the top twenty percent of tax units increased the size of the economic pie sufficiently to register major gains across the entire distribution of after-tax income.
Also, let me refer to something I wrote awhile back:
From another vantage point, a study by the Federal Reserve Bank of Minneapolis finds that wages for the median worker went up by 20 percent between 1975 and 2005. What’s more, critics of the economy tend to ignore benefits when figuring how well or poorly workers are being paid. By that measure, according to the Fed bank, total compensation has gone up by 28 percent. Apparently up is the new flat.
If the standard of living of the average American really had not improved for more than three decades, wouldn’t there have been a tremendous political backlash by now? Wouldn’t the Democratic Party have fully mutated into a full-scale social democratic party—nationalized healthcare, a return to superhigh tax rates—rather than moving right over the past three decades? Would centrist or right-wing candidates have won six of the past seven elections? I think not.
I wonder if this new study were to be recalculated with better inflation estimates, what the numbers might be.
And consider this: Back in 1979, American elites from Wall Street to Washington to Hollywood were convinced America’s best days were behind it and the start of a long decline was in full swing. If they had been shown this new data, they would have thought it described a fantastically optimistic scenario. Keep that in mind when you hear predictions that the 21st Century will be something other than the American Century. With the right free-market policies that enable entrepreneurial capitalism, America can continue to have the Indispensable Economy.