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December 03, 2007

Making The Bad Kind of History

Important stuff from Jared Bernstein, who notes that the current economic troubles are all being reported from the perspective of financial markets, not paychecks. But there's reason to worry about paychecks, too. "This," he says, "could be the first recovery on record wherein the real (inflation-adjusted) median family income fails to regain the ground it lost since the last business-cycle peak in 2000."

Generally speaking, each business cycle deposits the median American a bit further ahead than the last one. But as a possible recession begins, we're still seeing the median American's income below its 2000 peak by about $1,000 -- an extraordinary finding that dramatizes how deeply skewed the economy has become, how unequally the gains from its growth are distributed. In 1980, Reagan could ask voters if they were better off than they were four years ago. Now, Democrats can ask if they're better off than they were seven years ago. And the answer is a pretty unambiguous "no."

December 3, 2007 | Permalink

Comments

Not for Wall St., where average compensation has gone up 40% in four years to an average of $17,000 per week. The talent required to gin up these fraudulent financial instruments does not come cheap.

Why aren't the Democrats making hay out of this very Republican scandal?

Posted by: bob h | Dec 3, 2007 10:26:35 AM

Bob H:
Because Wall Street loves Hillary?

Posted by: Joe Klein's conscience | Dec 3, 2007 10:56:11 AM

That's definitely got to be one part of the Democrats' attack next year, and put it in just those words. That was a potent slogan for Reagan in '80 for two reasons. First, in an era of 10% inflation, workers received weekly reminders of rising prices, while raises for most came once a year, so it was easy to believe they were falling behind. Second, because taxes weren't indexed for inflation, many workers really were falling behind after taxes if their raises were only equal to inflation or were a percent or two more than inflation. And because gas lines were a very recent memory in large parts of the country, the slogan tapped into a feeling that things weren't quite right.

Posted by: Don K | Dec 3, 2007 11:21:32 AM

I don't think coverage of finance these days is quite so conclusive - we may be heading towards recession, or we may be able to avoid it... no one seems to have a good answer, and as Bernstein notes, the evidence on all of this is mixed. That's true from paycheck perspective and from market perspective. I am inclined to say that the problem here is that the subprime mess doesn't look exactly like anything anyone's familiar with, and so prognosticating becomes really hard; and add to that the fact that what markets like least is uncertainty, I think you have the recipe for bewilderment that's about right now, and markets that zig and zag without a clear sense of direction (and why markets, not personal issues, are driving the business story - we need a sense of direction before we can know quite what it means). Myself, I think we're heading for more than a recession, and government, no matter who's President, can't save us now. But I'm an economic pessimist like that, and perhaps people like Larry Kudlow are right that the Fed can steer the banks out of the crisis and the economy can continue to hum along. I doubt it, and I think either way, average people will suffer. But if we have a severe economic downturn, I think we've got bigger problems than just paycheck problems, and I'd like to rule out that possibility first, if at all possible.

Posted by: weboy | Dec 3, 2007 11:22:58 AM

Now, Democrats can ask if they're better off than they were seven years ago. And the answer is a pretty unambiguous "no."

And Republicans can answer that Americans are better off than they were 6 years ago. Median real household income in 2006 was higher than in 2001 (the year Bush took office), and has increased for the last two years. Bush has turned around the economic slowdown he inherited from Clinton.

Jared Bernstein has about as much credibility on economics as Fidel Castro. He will always cherry pick dates and numbers to try and spin a story that supports his ideological preferences.

Posted by: JasonR | Dec 3, 2007 12:48:24 PM

I keep seeing flawed assumptions like the above. Most of these figures are based on IRS data. IRS only knows what people claim on their taxes. In case you missed it we are moving from a manufacturing economy to a service economy. Service industry receives a large portion of their income via tips which are not reported 100%. The IRS even has a program called TIPS, I think, where participants can agree to having an artificially low amount of taxes deducted from their checks and in return are safe from audit. They knowingly tax a fraction of true income so they are guaranteed a portion of it. When you factor in people selling on Ebay and other part time “jobs” income is much higher then the old stats reflect. If you look at 401K savings they have skyrocketed.

Posted by: Nate O | Dec 3, 2007 12:55:37 PM

These are not IRS data--they come from the Census Bureau and include all families, pretax data.

Re the 2001-06 comparison, that's comparing a recession year to a (probably) near-peak. The point of the post was that a) real median income falls in recessions, and b) you've got to go peak-to-peak to compare like-to-like.

Posted by: Jared Bernstein | Dec 5, 2007 9:27:13 AM

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