Behind placating statistics of overall growth, our economy faces two crises: severe inequality between the top one percent and bottom 50 percent of earners, and the rise of highly concentrated markets.
On the August 23 episode of The Weeds, Ezra Klein and Matt Yglesias discuss two new white papers on the state of the US economy. Although President Donald Trump has bragged that the US has the “Highest stock market EVER, best economic numbers in years,” these papers peek behind the economy’s high numbers, spotlighting how the rich are getting richer by charging higher markups on goods and lessening competition.
The first paper, from the University of Chicago, examines the country’s extreme income inequality. The paper shows that individuals in the bottom half of the income distribution have been shut off from economic growth since the 1980s.
Here’s Klein with the study’s shocking findings: “From 1980 to 2014, the average national income per adult grew by 61 percent in the US, but the average pretax income of the bottom 50 percent of individual income earners stagnated at about $16,000 per adult, while the income at the top for the top one percent went up by 205 percent.”
The second study focuses on market concentration and market power, and Yglesias suggests that this could be the culprit for the severe income inequality experienced in the US. He explains that companies across all industries in the US are charging more for goods even though the price to produce these goods has not changed.
Merging the findings from the two papers, Klein says, “What we are seeing painted here is a picture of an economy that, on the one hand, all of the income gains are being pulled in by the rich, and the rich are able to increase their markup between what they produce and how much money they get for it. On the business side, the power is being held by big corporations and they are able to increase the amount that they take home. In both cases it does not seem to be doing the economy much good.”
Here’s Klein and Yglesias discussing the economic situations in the US versus in France for the bottom 50 percent of pretax, inflation-adjusted incomes:
KLEIN: In France the story is really, really different actually. In France, the bottom 50 percent of real, inflation-adjusted pretax incomes grew by 32 percent from 1980 to 2014. So in America the bottom 50 percent of pretax stagnated. In France it grew by 32 percent, which was approximately the same rate as national income per adult. So France has had slower growth, but if you are in the bottom 50 percent you have gotten a lot more of it. So one thing this leads to is while the bottom 50 percent of incomes were 11 percent lower in France than in the US in 1980, they are now 16 percent higher. So while France is still poorer than America, including on a per person basis, you are now better off in the bottom 50 percent of France than you are in the bottom 50 percent of America. That feels pretty damning to me.
YGLESIAS: Yes, and these guys [the authors of the paper] are French so they pull that example out, I think, to troll us, but as best we can tell France is neither the richest nor the most egalitarian European country. If you count for leisure time these things can start to take on a quite dark hue. Americans have many fewer vacation days than French people, which is a plausible social tradeoff, but you would expect Americans to have higher material living standard than people who get two months off a year. That would be the tradeoff, and we are really not getting it particularly for people at the bottom end.