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Are you better off than 4 years ago?

Kai Ryssdal Apr 9, 2008

Are you better off than 4 years ago?

Kai Ryssdal Apr 9, 2008


KAI RYSSDAL: Seeing as how this is a political year, how’s this for a question to introduce a story? Are you better off now than you were four years ago? The Pew Research Center released a survey today that said for most Americans in the middle class, the answer’s no, and not necessarily for anything having to do with presidential politics. David Leonhardt’s an economics columnist for the New York Times. Good to have you with us.

DAVID LEONHARDT: It’s good to be here.

RYSSDAL: As we stand back and survey the boom that was, that ended last year at some point, it’s becoming clear now that it was different in many, many ways from previous booms. One of which was that not everybody really kept up, right?

LEONHARDT: That’s right. I mean for most people, it wasn’t really a boom worthy of the name. Essentially, for as long as we have records, when there have been economic expansions people have gotten raises, which is to say their pay has increased more quickly than inflation; their buying power has grown. That’s happened in every economic expansion since World War II, until the current one, or the now past one. Between 2000 and 2007, the typical family did not actually get a raise. Median family income was $61,000, adjusted for inflation in 2000, and it’s a little less than that right now, and that’s really remarkable.

RYSSDAL: What happened?

LEONHARDT: Well, a lot of things happened. It’s hard to draw one direct line between cause and effect, but starting in about the 1970s, the economy seems to have changed. People typically date it to the oil shock of the early to mid-70s, 1973, and all sorts of things started to change. For one thing, oil made the price of everyday living more expensive, and then we had these revolutions in technology and in globalization, and they brought a lot of benefits, but they also made it harder for many workers to get raises. They essentially reduced the bargaining power of large numbers of workers because it was easier for them to be replaced by a machine or easier for their job to go somewhere else.

RYSSDAL: Is it people falling out of the middle class?

LEONHARDT: Well, that’s not quite right, meaning incomes are not falling. It’s just that they’re not rising, and so, while there are certainly some number of people falling out of the middle class, there seem to be a roughly equal number of people coming into the middle class. The problem really now is that we’re not growing the middle class in the way we want to be. The way we want to grow the middle class is have people from what we might consider below the middle class, move into it, and it seems that we’re not doing that, and for as long as we’ve had records, that’s never been true.

RYSSDAL: Is it a case of us having set the bar too high? I mean, for 50 years, every year, people have been doing better and better and better.

LEONHARDT: Yeah, that’s a fair question. I think it’s important not necessarily to say that we want to have the same kind of income gains that we had in the 1950s and 60s, which was a somewhat closed and in many ways false economy, but I do think that to say that we want living standards to rise, I don’t think that’s too high a bar, and the reason is that the economy is still growing, and when the economy is still growing, by definition the whole pie is growing. The problem is, is that the number of people who are benefiting from it is now very, very narrow. It’s seems to be something like roughly the top 5 percent of the income distribution, and that just doesn’t quite seem right.

RYSSDAL: You pointed out in your column in the paper today that it really doesn’t matter who’s been in the White House, this trend of ever-increasing standards has continued. Question I have to leave you with then is, what happens with the next president? What’s the fix?

LEONHARDT: Well, we often like to think of the United States economy as this laissez-faire economy, and relative to some of the economies of continental Europe, we are much more open, and that has had numerous benefits, but we are not just a free market economy. We built the interstate highway system. We built the internet. These are all government intervention in the economy, and it seems that we are going to need some kind of new government intervention, whether it’s smarter, better funding of schools, not just more funding, but smarter funding, whether it’s something like a huge alternative energy project that tries to create more middle-class jobs. Something isn’t working right now, and it’s been going on long enough that I don’t think we should fool ourselves into thinking that it’s just a blip.

RYSSDAL: David Leonhardt writes the Economic Scene column for the New York Times. David, thanks a lot for your time.

LEONHARDT: Thanks for having me.

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