How Strong is the Economy?
Bush41 thinks it’s very strong:
Former President George Bush said Tuesday that although he believes the U.S. economy is strong, he’s worried that the average citizen might not be getting that message. Speaking at a restaurant industry conference in Dallas, Mr. Bush pointed to third-quarter earnings gains, robust growth in the gross domestic product and “unemployment that has fallen to good levels.” “The unmistakable picture that those statistics mean to me is that the economy is strong,” the 41st president told attendees of the Multi-Unit Foodservice Operators conference, who gave him a standing ovation when he entered the room. “There is a concerted effort to make it appear that the economy is bad,” said Mr. Bush, the father of President George W. Bush.
Kash has lots of charts and analysis to support this statement:
the US economy has not, in fact, been that great from the point of view of average Americans.
But has overall growth been great? Sure we have had some pretty decent growth rates since mid-2003 but this is no surprise given the weak real GDP growth from mid-2000 to mid-2003. Real GDP in 2006QII was only 15.64% higher than it was in 2000QII. That translates into an average annual growth rate equal to 2.45%. And yes, the unemployment rate today is higher than it was six years ago.
Update: An AB reader directs us to something from James Sherk of the Heritage Foundation entitled Shared Prosperity: Debunking Pessimistic Claims About Wages, Profits, and Wealth. One might think – based on this title – that Mr. Sherk would be rebutting what Kash said, but look more carefully at his evidence:
To these critics, America has all but returned to a new era of corporate Robber Barons, with entrenched inequality and opportunity only for a fortunate few. The only problem with this seemingly compelling argument is that it is not true. The critics’ statistics, while usually accurate, are also incomplete and out of context, and so give a misleading impression of the state of the economy. A comprehensive look at the data reveals that most Americans have shared in the United States’ rising prosperity and that America remains the land of opportunity … The facts, however, show otherwise. Economic growth has benefited more than a small minority of Americans. Chart 1 shows the percentage of Amer¬ican households who reside within each of five dif¬ferent income brackets. Between 1979 and 2004, the proportion of American households with infla¬tion-adjusted incomes below $75,000 fell by 10.1 percentage points, with the largest drop coming in the number of households earning less than $35,000.
If one looks at the period from 1979 to 2000, the proportion of American households whose real income was less than $35,000 did decline, but since 2000, this proportion has been increasing.
Shrek uses the same trick to suggest the average American has more wealth:
the evidence shows that American households are worth more than ever. After adjusting for inflation, the net worth (assets minus liabilities) of the median American family rose from $70,800 in 1995 to $93,100 in 2004.
Net worth for the median family in 2001 was indeed higher than it was in 1995, but compare 2004 to 2001 and you see virtually no increase. Shrek is a little more candid about wages:
The most straightforward mea¬sure of Americans’ economic well-being is their earnings. By this measure, the pessimists appear to have a point because the statistics tell an unpleasant tale. The government measures average hourly earnings for non-supervisory workers, which (after adjusting for inflation) rose during and immedi¬ately after the tech bubble but have fallen slightly since 2003. Similarly, the median wage fell by 2 percent between 2003 and 2006. By this mea¬sure, it would appear that American workers are at best treading water. However, these discouraging statistics do not tell the whole story. Taken alone, they portray workers’ living standards in the most negative light possible by ignoring almost a third of what workers earn. Benefits are an increasingly large component of worker compensation and now account for 30 percent of workers’ pay—and this proportion has risen sharply in recent years … Strong growth in total compensation means that workers are better-off today than three years ago and much better-off than they were at the height of the tech bubble. One government mea¬sure of total compensation, called “Employer Costs for Employee Compensation,” shows that total compensation has risen by 3 percent since 2003 and 9 percent since 2000 after adjusting for inflation.
Real compensation growth was strong in 2001 in part because real wages continued to grow. Notice that Shrek has to admit the real compensation growth has averaged a mere 1% per year over the past three years – even though the economy has been inching back to full employment. Now before you go looking for some of Kash’s old Angrybear posts about the rise in the cost of health insurance tempering Shrek’s claim that we are getting greater fringe benefits, he’s beaten you to the punch with these assertions:
Some critics respond that higher benefits leave workers no better off because the increases merely reflect the higher cost of health care and not an increase in actual earnings. This argument fails on both fronts. Even after excluding what employers spend on health care, worker com¬pensation has increased; and even after accounting for the rapid rise in the cost of health care, employee health benefits have still grown. Employers are providing their work¬ers with more benefits and are not just keeping pace with health care inflation.
Employers are providing more health benefits? Huh? But the real winner in this spin comes from his discussion of workers’ share of income:
Some critics respond that higher benefits leave workers no better off because the increases merely reflect the higher cost of health care and not an increase in actual earnings. This argument fails on both fronts. Even after excluding what employers spend on health care, worker com¬pensation has increased; and even after accounting for the rapid rise in the cost of health care, employee health benefits have still grown. Employers are providing their work¬ers with more benefits and are not just keeping pace with health care inflation … A better basis for comparison is national income, which accounts for depreciation as well as statistical dis¬crepancies between the way the gov¬ernment measures the components of GDP and components of income. By this measure, workers’ share of income has varied normally in recent years. Since the mid-1960s, the employee share of national income has fluctuated between 69 percent and 73 percent, and movements since 2000 have remained largely within these bounds. Though workers’ share of income fell in 2006, it is still well above the lows it hit in the mid-1980s and mid-1990s. In 2005, workers’ share of income actually hit a 25-year high.
But look at his chart and notice that the 2005 figure was a bit of an aberration. Actually, this spike was for the third quarter of 2005 when reported national income fell because of a temporary dip in corporate profits. For most of the post 2000 period, labor’s share was down from its 2000 level even using Shrek’s dubious assumption that proprietor’s income should be seen as being about 70% labor and 30% capital income.