Elizabeth Warren on why
you should read State of Working America too many American families are struggling to get ahead
People are buzzing about former President Clinton’s speech to the Democratic convention last night. And the man clearly knows how to communicate ideas about economic policy. But for my money, it was Elizabeth Warren who got it spot-on:
“I’m here tonight to talk about hard-working people: people who get up early, stay up late, cook dinner and help out with homework; people who can be counted on to help their kids, their parents, their neighbors, and the lady down the street whose car broke down; people who work their hearts out but are up against a hard truth—the game is rigged against them… It wasn’t always this way.”
This isn’t just a good translation of policy analysis into English—it could also pretty much serve as the press release for a book EPI is officially releasing next week: The State of Working America, 12th edition.
The State of Working America (SWA, around here) is the comprehensive reference tracking trends in wages, incomes, and wealth of American families, and it focuses particular attention on low- and middle-income workers and their families—the same group Warren was talking about last night. We’ve never intended SWA to be a policy manifesto—it has always instead been a “just the facts” kind of project. But this year, we decided to connect some awfully obvious dots:
- The primary barrier to low and middle-income families seeing acceptable rates of income growth was the simple fact that households at the very top claimed a vastly disproportionate share of overall growth.
- This upward redistribution of income wasn’t just a sad accident, instead it happened because the already-rich and well-connected too often controlled the levers of economic policy and made sure they were put in the service of giving themselves more bargaining power and more income.
How do we define “acceptable” rates of income growth? Pretty wonkily, I guess, but also pretty reasonably: We think the incomes of low- and middle-income workers and their families should at least match the rate of overall productivity growth in the economy.1 Productivity is a measure of economic output per hour worked, so it’s a very useful proxy for the economy’s potential for doling out living standards improvements. Note that besides being slightly wonky, our definition of acceptable growth is also probably overly modest; if families up and down the income spectrum all rise at the same rate going forward from today, this means that today’s sky-high levels of inequality will be preserved. But, even this inequality-preserving growth rate would be a mammoth improvement for these low- and middle-income families.
In the overview chapter of SWA, we try to match up specific policy actions to unequal outcomes. And the conclusions seem pretty clear to us: The U.S. economy is so much less equal today than in 1979 largely because policy was increasingly and intentionally put in service of funneling income upwards.2
“The game is rigged against them” is tough language. It’s also completely supported by the evidence compiled in SWA. See for yourself when it’s released next week.
1. No, it’s not quite that simple. There are technical reasons why there should be slight differences between productivity growth and wages growth—like some measured productivity growth that often doesn’t boost family incomes simply because of differences in price deflators. And, if low- and middle-income families start seeing hourly wage increases that rise with productivity and decide to cash-in some of this benefit by voluntarily working fewer total hours over the year (and they sure work a lot now, so that’d be understandable), then we’d be fine with this as well. But, growth in typical families’ incomes that is much closer to matching overall productivity growth in the economy seems to us perfectly reasonable as a rough-and-ready target.
2. Why 1979? We tend to measure income trends from business cycle peak to business cycle peak, to make sure we’re getting a good look at the underlying trend rather than just picking up short-term, cyclical changes. And 1979 is the last business cycle peak before the obvious trend in rising inequality manifested.
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