Is American capitalism broken? That question has been percolating through U.S. politics lately, and more and more people are answering in the affirmative. But our economy still has plenty of defenders. And if you take this moment in time as a snapshot, the case for capitalism looks pretty good.
As the American Enterprise Institute’s Robert Doar recently noted, wages are rising faster now than at any point since the Great Recession, and they’re rising faster for the bottom half of Americans than the top. Productivity growth appears to be returning to its post-WWII average, and Americans making more than $100,000 are a bigger chunk of the population than they’ve ever been. GDP growth has picked up, and unemployment is shockingly low.
Certainly, the current economy looks good compared to the last few years. But snapshots can be deceiving. Should this one moment be how we judge the health of our economic system? If we gaze back across the last half century or so, the current moment doesn’t look as impressive. And even more striking are the deep, frequent ditches U.S. capitalism has driven itself into over the last few decades.
Yes, unemployment is currently below four percent. But the last time that happened was almost two decades ago, in the late 1990s boom. The previous dip below four percent barely lasted a year; the current one has made it about a year and a half. Prior to the late 1990s, unemployment hadn’t gotten below that threshold since 1970. Unemployment under four percent would be a testament to American capitalism’s virtues if it was a regular occurrence, but not when it’s merely a brief tease that comes once every 20 years.
The same goes for wage growth, which did indeed reach a welcome 3.4 percent earlier this year. The thing is, business cycle peaks have usually boasted wage growth of four percent or a bit better. We got there in both the late 1990s before the dot-com bust, and again in 2007 before the Great Recession hit. A decade out from that last collapse, we have yet to get back to that peak. The four percent peak is also just what we’ve been reaching since 1980 or so. In the decades immediately following World War II, income growth regularly got even higher.
Of course, in between each of those peaks, wage growth dropped precipitously, with the latest fall having ground on for an especially long time.
As you might have guessed by now, the same problem applies to wage growth for less privileged Americans. Wages for the bottom 10 percent (the blue line below), the bottom 20 percent (the orange line) and the bottom 50 percent (the grey line) suddenly picked up a little steam in the last two years or so, after a long period of stagnation. But the last time they did that was, again, for three or four years in the late 1990s boom. In between, wages for these …read more
Source:: The Week – Business