Was Phil Gramm right?

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I'm not sure I would have chosen Phil Gramm's wording, but it is true that we are not (at least yet) in a recession, and overall, times are better than they've ever been. Incomes continue to grow, though more slowly than we'd like. Housing prices are down, which is a great boon to first-time home buyers -- and I'm optimistic they'll fall further. Gas prices are up, but given the widespread opposition to drilling in the Arctic, it seems as if nobody really minds this very much. More people are losing their jobs, and that's painful. Still, on average, it's taking out-of-work Americans only about 10 weeks to find a new job.

That's worse than it was a couple of months ago, but still not bad by historical standards.

The subprime crisis has cost some bankers a lot of money, but that's the cost of making bad investments. It may also cost the taxpayers a lot of money in government bailouts, but that's a problem with the political system, not the economy.

You might also say that the subprime mess has cost a lot of people their homes, but it would more accurate to say that the subprime market allowed a lot of people to live beyond their means for a few years. Those people are understandably disappointed that those years are over, but, having lived in nice houses for a while, they're still net winners.

Meanwhile, you can get a decent computer for $500, your cellphone probably does tricks you'd never have imagined a phone could do, the quality of home video equipment is improving as fast as the price is falling, and you'll have longer to enjoy all this because life expectancy continues to grow.

It remains to be seen whether we'll move into an actual recession. If we do, we'll recover as we always have. At worst, it will set our incomes back to where they were a couple of years ago. We have gotten so used to perpetual income growth that it's tempting to think of a two-year setback as some kind of disaster. It's not; it's a two-year setback (and that's probably a worst-case scenario).

The big story remains economic growth. Unless your circumstances are extremely unusual, you are richer than your parents could ever have imagined, and your children will be richer than you can imagine today. The great tragedy would be to fight the short-term pain of real or imagined recessions with policies that retard our long-run progress.

Steven E. Landsburg is a professor of economics at the University of Rochester, a columnist for Slate and the author, most recently, of "More Sex Is Safer Sex: The Unconventional Wisdom of Economics."

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Times are better than they've ever been -- but for whom?

The average U.S. household's real income in 2006 was 2% below its 1999 level. We don't have more recent figures, but they're almost certainly flat to down, as the job market has sagged and inflation has accelerated. That's a dismal performance after what was, on paper, a mild recession following a long-term economic expansion. And some longer-term measures are rather depressing: The average hourly wage in the U.S., adjusted for inflation, is almost 12% below where it was in 1973; the only time it's risen strongly for any length of time was for a few years in the late 1990s.

If you look beneath the averages, the distributional picture answers the "for whom" question very well. During the most recent expansion, which probably ended late last year or in early 2008, the job market turned in its weakest performance of any period of growth since the end of World War II. Still, corporate profits soared more than three times as rapidly as labor income from the end of 2001 through the end of 2007, a far more lopsided record than ever before. But that's only the most extreme version of a trend that began in the 1980s, as each successive expansion set a new record for lopsided wealth distribution.

And the personal income figures reveal an even more extreme skew. According to research by the economists Thomas Piketty and Emmanuel Saez (spreadsheet), the average inflation-adjusted income for the bottom 90% of the U.S. population (households with incomes below $100,000) peaked in 1978 and is down 5% since. Over the same period, the income of the top 0.01% (incomes of $10,000,000 or more in 2005) rose by 240%. The gains are less spectacular as you descend from the mega-rich down through the very rich and toward the upper-middle class. Times are pretty good for tenured professors and economic pundits -- maybe not as good as they've been for the titans of private equity, but still a lot better than they've been for teachers, hairdressers and computer programmers. Sure, the economy has grown over the last five, 10 or 30 years, but that has not translated into growing paychecks for most Americans. Is that what we call "long-run progress"?

Sure, cellphones get snazzier and cheaper all the time; ditto for computers and video cameras. But it would be nice if you could say the same about health insurance, child care, housing and college tuition. (OK, housing is getting cheaper now, but not in a very pleasant way.) And yes, life expectancy is growing on average, but even by that measure, our society is getting far more polarized.

Research by the Social Security Administration and the Congressional Budget Office (pdf) shows that while the rich have always lived longer than the poor, that gap is getting wider. In 1977, a 65-year-old in the top half of the earnings distribution could expect to live about eight months longer than someone in the bottom half. Now the gap has widened to more than five years.

All these trends of polarization and rising economic stress have been ripening for more than three decades. It's no wonder that polls find Americans in such a sour mood -- and the last thing they want to hear is a well-off economist telling them that it's all in their heads.

Doug Henwood edits the Left Business Observer and is the host of "Behind the News," a weekly radio show in New York and Berkeley. His latest book is "After the New Economy" (New Press, 2004).

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