Matthew Yglesias » Recovery FAIL

Sep 21st, 2009 at 2:28 pm

Recovery FAIL

What’s so striking about this chart from CBPP is that not only is the current recession bad, but we never even regained the heights of the previous economic peak:

This is basically without precedent in U.S. history. And it’s worth noting that even though the general ups and downs of the economy are largely a global phenomenon, this specific issue isn’t. The UK is now mired in a recession and Labour will almost certainly lose the next election. But during the expansion, inequality declined in Britain and Labour took a huge chunk out of child poverty. Both countries floated up and then down on the strength of a finance bubble, but Britain put its boom years to good use. In the U.S., even the boom was not very favorable to most people.

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34

Filed under: Economy, UK,

34 Responses to “Recovery FAIL”

ron Says:
September 21st, 2009 at 2:37 pm
OK. Much better topic than merit pay for teachers or the complexities of legislation.
daveNYC Says:
September 21st, 2009 at 2:43 pm
OK. Much better topic than merit pay for teachers or the complexities of legislation.

Just wait until Mixner shows up complaining that median income is a worthless stat because it doesn’t take into account the free sodas in the break room.
Stefan Says:
September 21st, 2009 at 2:45 pm
In the U.S., even the boom was not very favorable to most people.

I guess we can call it the Bush Boom then….
Brad Says:
September 21st, 2009 at 2:48 pm
But wait – at the same time, Matt will complain about policies (such as tarriffs) which attempt to protect average workers and their median incomes against competition from third world workers making 10% or less.

I am completely with Matt on the unfair economic system, I just wish he were consistent and realized that you cannot have a society where the bottom 80% work menial jobs and you make up for it by taxing the wealthy and redistributing their incomes. It will not work.

At some point, you need good paying jobs, even low skilled labor jobs.
Anthony Damiani Says:
September 21st, 2009 at 2:54 pm
My first reaction was: wait, this is news?
My second reaction was: Oh, right, I suppose it’s less glaringly obvious outside of Michigan.
q Says:
September 21st, 2009 at 2:58 pm
we DID TOO put the recovery to good use! we built a whole lot of houses! that LOWERED THE SIZE of the average household, making household income a bogus stat! and we got the brits to pay for it!
sp6r=underrated Says:
September 21st, 2009 at 3:06 pm
Great post Brad

I am completely with Matt on the unfair economic system, I just wish he were consistent and realized that you cannot have a society where the bottom 80% work menial jobs and you make up for it by taxing the wealthy and redistributing their incomes. It will not work.
Go, Sestak! Says:
September 21st, 2009 at 3:08 pm
C’mon — look at the important numbers: How did the Banksters do??
DTM Says:
September 21st, 2009 at 3:26 pm
But wait – at the same time, Matt will complain about policies (such as tarriffs) which attempt to protect average workers and their median incomes against competition from third world workers making 10% or less.

This is only a notable point if those attempts would actually prove successful at protecting median wages, and there is not much reason to believe they would.

At some point, you need good paying jobs, even low skilled labor jobs.

OK, but what are the determinants of median pay? We’ve had a growing mismatch between labor productivity and median wages, about 1.4% a year from 1980-2005 (specifically, median real hourly wages averaged a compound 0.33% increase in this time, whereas real output per hour averaged a compound 1.73% increase in this time).

So the problem really isn’t that the jobs available aren’t productive enough. Rather, the problem is that an increasingly large share of the fruits of that production have gone somewhere else besides median wages.

And it turns out that has mostly been the result of a combination of increasing inequality of pay within firms and a decreasing share of GDP going to labor (a combined 62% or so of the effect), followed by a gap between the GDP deflator and CPI (23%), and finally some transfer of compensation to other forms (12%). So that is the real list of issues that needs to be addressed.
Bob Roddis Says:
September 21st, 2009 at 3:28 pm
As the Yglesiastic commenters always tell me when I point out that the Fed has destroyed 4/5 of the value of the dollar since 1971 (and caused the boom/bust cycle and totally screwed up the investment/capital structure of the economy):

Hey, so what about that 4/5 loss in value. The economy has done great since 1971!

So, which is it?
New York City Personal Injury Lawyer Says:
September 21st, 2009 at 3:39 pm
The chart certainly shows some interesting numbers.
fostert Says:
September 21st, 2009 at 3:50 pm
“I point out that the Fed has destroyed 4/5 of the value of the dollar since 1971″

How do you arrive at that number? The dollar has done the worst against the yen, losing about 75%. But it gone up against the pound. And its held pretty steady against the Canadian dollar. The euro doesn’t go back that far, but the dollar certainly has lost that much against the major European currencies. Maybe against gold it has, but that’s because gold has risen in value against nearly every currency in the world.
fostert Says:
September 21st, 2009 at 3:51 pm
“the dollar certainly has lost that much”

Oops- the dollar certainly HASN’T lost that much
Benny Lava Says:
September 21st, 2009 at 3:59 pm
So, can everyone agree that cutting taxes and raising spending in an economic boom is a bad idea? Does this vindicate the Keynesians then?
Mark Byron Says:
September 21st, 2009 at 4:10 pm
Interesting graphs, but might household income be a problematic stat since the size of households have gone down?
Hello Says:
September 21st, 2009 at 4:15 pm
Anyone who has even a slight clue of what Keynesian policy is about knows that military spending oversees and tax cuts for the super wealth isn’t Keynesian policy.
Bob Roddis Says:
September 21st, 2009 at 4:17 pm
Re: Cutting taxes and raising spending.

Raising spending is ALWAYS a bad idea, especially in a boom. Cutting taxes is ALWAYS a good idea, especially in a boom. Or in a recession.

Therefore, cutting taxes while raising spending is bad compared to cutting taxes AND cutting spending. In a recession, boom or otherwise.

Somehow, I don’t think we agree.

Re: Loss of 4/5 value of the dollar.

I used the inflation calculator.

While cruising on Woodward in May 1971, gas was 16.9 cents a gallon. The expensive station with full service was an outrageous 24.9 cents a gallon.

In 1972, my college roommate bought a brand new Plymouth Duster for $2200.

Somehow I think inflation has been under-reported.
bob mcmanus Says:
September 21st, 2009 at 4:29 pm
Okay, I wrote it and deleted it, but Roddis insists. Funny how Austrian ans Post-Keynesians have similar analyses that lead to opposite policies.

Cutting taxes is always a bad idea.
Increasing gov’t spending is always a bad idea.
Print, spend, tax to support the currency.
Tax away inflation.

“While cruising on Woodward in May 1971, gas was 16.9 cents a gallon. The expensive station with full service was an outrageous 24.9 cents a gallon.

In 1972, my college roommate bought a brand new Plymouth Duster for $2200.”

Roddis receals himself. Using the fuel-derived inflator of around 10.5, you reach a vehicle price of around 34,000 dollars. And for that price you can get something much much better than the 1972 Duster.

Fact is, we have been in price deflation for decades, which has shown up in the decline in wages and the increasing inequality. Deflation makes the rich richer.
along Says:
September 21st, 2009 at 4:30 pm
I don’t think these stats are particularly striking.
1. We already know this Great Recession is BAD. Job numbers, you know.
2. The previous income peak was fueled by solid GDP growth through the Clinton years + the tech bubble. Both of those events were unique in the past 30 years. In fact, the previous all-time median income high, in 1989, was only about $44,000.
3. Benny Lava at 14. rightly points out that after Clinton, we did a complete 180 and started driving into a ditch, while keeping our eyes affixed to a nice, shiny finance bubble. Then while in the ditch, the bubble burst all over us, making it doubly hard to get out.

It is bad, and this year will undoubtedly be worse. But we should not be startled at the data.
bob mcmanus Says:
September 21st, 2009 at 4:30 pm
Bah 18 corrected

Increasing gov’t spending is always a good idea.
fostert Says:
September 21st, 2009 at 4:35 pm
“Somehow I think inflation has been under-reported.”

Hardly. In fact, far to much press has been given to the few economists who are worried about inflation during a recession. And Fed policy has been primarily concerned with avoiding inflation since the 1970s. And that’s been the Fed’s biggest drawback. They allow other problems to crop up because inflation is their only concern. We had inflation in the US long before we had the Federal Reserve. As did every other country in the world. The mythical zero inflation economy has never existed. Trying to get to one is simply delusional.
bob mcmanus Says:
September 21st, 2009 at 4:40 pm
16:Well, Military Keynesianism used to be part of the toolkit, and was a lot of what inspired Hyman Minsky to rebel in the 60s and 70s.

I might submit that the bases and troops in Europe after 1945 did quite a bit to help both the American andEuropean economies more than, say, the Interstate Highways.

There are complicated questions about the deflationary trends of rising productivity and technology that argue for wasteful, inefficient, unproductive government spending.
bob mcmanus Says:
September 21st, 2009 at 4:43 pm
When you really understand Keynes (and Minsky’s) parable of burying money in a hole and paying people to dig it up, you are on your way to understanding economics.
bob mcmanus Says:
September 21st, 2009 at 4:51 pm
23:Anybody remember Malthus’s solution to the “General Glut” in his arguments with Ricardo? Malthus said the answer was letting the rich destroy production overcapacity, gambling and racehorses, because only the useless class could destroy value.
Keynes went back past Marshall to Malthus.

Steve Keen, the Australian economist, is calling for a jubilee, a debt destruction. An actual jubilee.

Like I said, Austrian and Post-Keynesian economics has a lot in common. We just differ on who should suffer in the re-allocations. Well, other stuff.
Jimbo Says:
September 21st, 2009 at 4:57 pm
While I respect a lot of his work, Steve Keen is not quite a Post-Keynesian. He has mental block about money that leads him down some blind alleys. For an Australian economist who really “gets it”, check out Bill Mitchell:

http://bilbo.economicoutlook.net/blog/
Bob Roddis Says:
September 21st, 2009 at 5:29 pm
When you really understand Keynes (and Minsky’s) parable of burying money in a hole and paying people to dig it up, you are on your way to understanding economics.

You are well on your way to the totalitarian ant-hill.

As Keynes da man himself said about THE GENERAL THEORY:

The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire.
Jasper Says:
September 21st, 2009 at 5:54 pm
but we never even regained the heights of the previous economic peak:

The chart Matt provides under-reports the damage, I suspect, by failing to fully account for the increased burden of health insurance. Sure, the price of health insurance is taken into account when ascertaining accumulated inflation, but there’s also the issue of declining employer subsidies. In short, after health insurance deductions, I bet most American households are even worse off in comparison to the beginning of the decade than these numbers indicate — at least if they don’t access their health benefits in a major way (if they do, I suppose you could make the argument that those increased premiums are paying for 2009’s medical science improvements over 2000’s). But if you’re a relatively healthy person who has, say, 50% of the cost of premiums explicitly deducted from your paycheck, as opposed to 25% in 1999, you’ve got less to live on. Hecuva job, W.
JonF Says:
September 21st, 2009 at 6:29 pm
Re: This is basically without precedent in U.S. history.

Actually, no. The “Long Depression” of the late 1800s featured a similar pattern: anemic recovery followed by another downturn.

Re: But if you’re a relatively healthy person who has, say, 50% of the cost of premiums explicitly deducted from your paycheck, as opposed to 25% in 1999, you’ve got less to live on.

Assuming you are still making the same wage/salary you made in 1999. Few people are. In 1999 I paid $0 for health insurance (my employer paid 100% of the premium; I was also single so did not need to insure anyone else under my policy). But my salary was 40K. Today I pay c. $300 a month for a policy for myself and domestic partner (and also pay all taxes on half the premium my employer pays). But my salary is 60K, so I come out ahead still, even with the extra taxation. That’s probably true of a lot of individuals- key word “individual” because while individuals see their wages and salaries go up as they age and gain skills and experience, it is certainly possible for income to stagnate for the work force as a whole.
Jasper Says:
September 21st, 2009 at 6:52 pm
But my salary is 60K, so I come out ahead still, even with the extra taxation. That’s probably true of a lot of individuals-

There’s no “probably” about it. Of course it’s true for a lot of individuals. How could it not be? The country’s home to over 300 million individuals. There’s “a lot” of just about every situation. The point is, the chart, if it’s numbers are to be believed, says the real median income for households is smaller now than it was in 1998. That’s mighty abysmal, and means more than half of the country’s households are poorer now than then. I was simply making the point that, in general, the employer-paid portion of health insurance has tended (at least I’m pretty sure it has, though I didn’t look it up) to get smaller, so that’s salt in the wound.
JonF Says:
September 21st, 2009 at 9:38 pm
Re: The point is, the chart, if it’s numbers are to be believed, says the real median income for households is smaller now than it was in 1998.

I don’t doubt that, but I suspect most people individuially have not exerienced that (I am excepting those now laid of of course). That’s why there isn’t more of an outcry, becauesepeople are not individually experiencing this stagnation: as they grow older their wages and salaries go up just as mine have. The trouble is at the macro level, not the micro level: Many people are not quite doing as well as their parents did at a similar age, even though they are doing better than they did ten years ago. In effect what we are seeing is that new young workers are entering the workforce at lower wages than their cohort did in the past and while they move up over time, they start from a lower base than was formerly true: all those erstwhile entry level factory jobs are no longer there. And at the opposite end of the age spectrum those who replace the retirees are not quite making the same that the people they replaced made. This is how the median can stagnate (or even decline) without large numbers of people noticing it in their own immediate life.
Justus Says:
September 21st, 2009 at 9:39 pm
might household income be a problematic stat since the size of households have gone down?

Most of the change in size of household is related to having fewer children and later in life. Why would that affect median income? What you would want to measure is median number of earners per dwelling or something like that.
Jose Padilla Says:
September 22nd, 2009 at 9:53 am
This chart cannot possibly be right for in 2001 we passed a giant tax cut for the rich and that must have trickled down by now.
Jasper Says:
September 22nd, 2009 at 1:21 pm
Most of the change in size of household is related to having fewer children and later in life. Why would that affect median income?

It wouldn’t very much. But it’s still a relevant data-point for living standards, since obviously the number of people who need to be supported by a household’s income has a bearing on how far said income will go. Household size has mostly been shrinking over time, so that’s something that helps fight the living standard-reducing nature of household income declines. But I doubt there’s been much of a drop over the last ten years (certainly not enough to do any good). In fact I wouldn’t be surprised if average household size has actually increased over the last three or four years, because a weak economy tends to reduce the formation of new households, as people consolidate living arrangements to save money.
Mark Says:
September 22nd, 2009 at 8:54 pm
Free market capitalism doing what it is supposed to do – as the textbooks say it will do.

move labor costs to where it is cheapest

it is moving productive assets out of the US and to the cheaper countries…same for UK. Why are people surprised? Ross Perot said this would happen nearly 20 years ago.

Bottom 1/3rd of this entry shows where the job dislocations have happened by sector
manufacturing has lost 6M jobs
replaced by govt and healthcare

http://www.fundmymutualfund.com/2009/08/no-new-normal-say-some-economists.html

2 things that are bloated and being funded by Ponzi scheme
borrowing against grandchildren to pay for today

You can see how this will eventually end
lower standards of living in formerly rich countries

Matt Yglesias

Recovery FAIL

34 Responses to “Recovery FAIL”

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