Why the Roller Coaster Only Goes One Way: Down : Economy: For the United States, as far as earnings are concerned, it has been downhill since 1973. That’s when real wages started falling.
Economists and weathermen are often compared to one another. Weathermen say it’s unfair. Meteorologists may not agree on what weather we’ll have tomorrow, but economists cannot agree on what the economy was doing yesterday, much less what will happen tomorrow.
Take the current recession. Some economists say it began last summer; others put the starting date in the fall. Some say the current recession is a mild one; others say it is deep. Some say it is already ending, some that we haven’t yet turned the corner.
Weathermen like to point out that they can, at least, agree what the temperature is, and if it’s raining.
But this comparison isn’t quite fair. The United States is a big place, and the economy, like the weather, is perfectly capable of doing different things on the same day. Seattle can boom while Los Angeles slumps. Stock markets can set new records even as the gross national product falls. Some people lose their jobs while others get promotions.
For the last nine months, commentators have been discussing the recession: whether it was coming, how bad it would be and when it would end. This is certainly a gripping topic for all those people who fear for their jobs or their businesses in the generally negative climate of the last few months.
But from the standpoint of policy, obsessing about the recession is not productive. Recessions--people used to call them depressions but decided that the word was too, well, depressing--have been with us since the birth of modern capitalism. Fortunately, over the long run, the recessions have not been as big as the expansions. The result is that, over time, the economy grows and living standards rise.
More significant is the long-term trend--not whether every wave runs higher up the beach than the one before, but whether the economic tide, over time, is coming in or going out. After World War II, the American tide came in with a roar: In inflation-adjusted 1982 dollars, the average weekly wage of workers in the private sector rose from $196 in 1947 to $315 in 1973. Some of those years were recessionary, and some were expansionary, but, over time, the rising tide was lifting the boats.
Then something happened. Wages stopped keeping pace with inflation. From 1973 to 1990, the average weekly wage in the United States fell--back to $258 at the end of last year, wiping out half the progress U.S. workers had made since World War II. Since 1973, real wages have fallen more rapidly during recessions, and less rapidly during expansions--but both good years and bad years alike have been, on balance, bad years for the American paycheck.
There are other signs of long-term trouble. Some, like the inexorably rising budget deficits, and the crises in the financial system are well known. The ‘80s added more red ink to the national debt than all the other decades combined since the Revolutionary War. Forget the savings-and-loan meltdown: More banks failed in the last two years than failed between the Depression and 1980.
Other signs of decay get less attention. Capacity utilization, for example, is the government’s measure for the rate at which U.S. factories and other facilities are working. Measured from decade to decade, capacity utilization in the United States has been falling since the 1960s, and there are no signs of a turnaround.
Productivity growth is the engine of higher living standards and here the deterioration is reaching crisis proportions. In the 1980s, productivity grew at only one-third the rate it reached in the ‘60s.
Unemployment is also getting dramatically worse. The average unemployment rate in the ‘80s--more than 7%--was higher than the annual rate in all but two of the years between 1950 and 1979. A generation ago, 5% unemployment was considered a sign of recession; today, it is the sign of a boom. During the economic expansion of the 1980s, unemployment never fell below 5% of the work force.
GNP growth has also declined. In the 1960s, GNP roared ahead at more than 45% for the decade; the ‘70s were worse, and the ‘80s worse still--at less than 30%, GNP growth was at a lower rate than in any decade since the Depression.
These are ugly trends. If they continue, unemployment in the ‘90s will average more than 8%, while the year 2000 will find many Americans working for lower real wages than their grandparents received in 1950.
Not all the economic news is bad. Many families have kept ahead of inflation--often because more married women are working, and working more hours. Wage comparisons over time can be misleading. Americans can buy goods today, like home computers and VCRs, that weren’t available 20 years ago. Rising real-estate values and high interest rates on their savings made the 1980s a good decade for many.
But if not all the news is bad, there are enough signs of trouble that we need to take stock of the long-term economic situation. It is unfortunate that debate in the United States focuses only on short-term questions of economic management. At the moment, the Republicans are running around saying the recession will be short and, anyway, it is the fault of the Federal Reserve, not the President. The Democrats say the recession is terrible, and it is all George Bush’s fault.
No doubt this discussion is fun for those participating in it--but the national interest would be better served by thoughtful debate over the long-term trend. This debate doesn’t need to be a political football. Both parties have held power during the years of stagnation; Democrats might like to blame Ronald Reagan and Bush, but Jimmy Carter was President during some of the worst years in recent history. The classic Keynesian approach to stagnation--massive budget deficits--had its chance in the 1980s; so have the conservative prescriptions of deregulation and tax cuts.
We must have done something right in the ‘80s: We had the longest peacetime expansion in the 20th Century. But we must have done something wrong, too. Even with this expansion, growth, productivity and wages were down, while unemployment was up. The dirty little secret about the 1980s is: In economic terms, it was America’s worst decade since World War II.
The ‘90s could be worse. The earning power of married women--more women working longer hours--has protected family incomes from the effects of falling wages. But with a record percentage of women in the labor force now, the cushion is wearing dangerously thin. Recession or no, the ‘90s could become the first decade since the Great Depression in which a majority of American families suffer declining real incomes.
Without a return to the more robust economic conditions of the last generation, Washington is unlikely to bring the deficit under control, or maintain important social services, or make necessary investments in education, infrastructure, or in protecting the environment.
Washington, a city of ostriches, has responded to evidence of long-term decline with a yawn--and an obsession with the short-term politics of recession. Our children and grandchildren will not care whether the current recession ends in the second or fourth quarter of the present fiscal year; they will ask, instead, what did we do to end a generation of economic decline? So far, the answer is: nothing.
