Two British think tanks are calling for a cap on the compensation that goes to corporate chiefs.
Why do so many Americans deeply distrust government? One part of the reason, two top economists suggested to a key congressional committee this week, just might be the most basic — and familiar — of the economic statistics the federal government produces.
That stat — gross domestic product, or GDP — “measures the market value of the goods, services, and structures produced by the nation’s economy,” as calculated by the federal Bureau of Economic Analysis. The Bureau generates new GDP figures for every quarter of the year, and the release of these figures regularly makes headlines. Are we heading for a recession? Is the economy booming? Reporters and pundits scour the GDP stats for clues to our future, and presidents and lawmakers rush to hail a rising GDP as proof their policies are working.
But these journalists and pols are all ignoring the most basic of questions: Working for whom?
A half-century ago, in an America much more equal than the nation we have now, this distributional question seldom came up. Back then, average Americans shared in the nation’s economic growth. If the GDP figures had the national economy growing nicely, economist Heather Boushey told the congressional Joint Economic Committee yesterday, most Americans saw their personal incomes growing nicely as well.
In our strikingly unequal contemporary economy, notes Boushey, this linkage no longer holds. GDP growth has become “decoupled from the fortunes of most Americans.” Growth is benefiting “only those at the very top of the economic ladder.”
“Incomes for the working class and the middle class have grown slowly for decades,” explains Boushey, the co-founder of the Washington Center for Equitable Growth, “while incomes at the very top have exploded.”
Today’s GDP numbers don’t capture any of this reality. As an aggregate figure, GDP fudges the difference between our economy’s winners and losers. You can drown, the old quip puts it, in a lake with an average depth of six inches. By the same token, you and your neighbors can be taking it on the chin in an economy with a rapidly rising GDP.
And average Americans have been taking it on the chin. Our rising GDP numbers are masking the chronic economic insecurity that huge swatches of the American people have been living.
In 1980, University of California at Berkeley economist Gabriel Zucman told this week’s Joint Economic Committee hearing, Americans in the bottom half of the nation’s income distribution averaged $18,000 in income, in today’s dollars. Our GDP numbers have shown enormous economic growth since then. But Americans in the nation’s poorer half have seen precious little of it. Their average income today: only $18,500.
By contrast, America’s most affluent 10 percent have seen their incomes double over the same period, with top 1 percent incomes up an even heftier 162 percent.
With headlines trumpeting GDP figures showing a “high growth that does not reflect” the economic lives average Americans are living, adds Heather Boushey, we shouldn’t need to wonder why so many Americans are “feeling alienated.”
And we shouldn’t need to depend on academics with limited resources — like Zucman and his colleagues Emmanuel Saez and Thomas Piketty — to give us the data we need to see how unequally distributed the benefits from America’s economic growth have become.
Zucman and his colleagues have worked diligently over recent years to “disaggregate” the official “National Income and Product Accounts” reports behind the GDP calculations, in an inspired effort to show just who exactly is prospering from the nation’s growth and who isn’t.
The resulting “Distributional National Accounts” that the Zucman team has come up with trace who’s been benefiting from America’s economic growth since 1962. But the economists involved take pains to emphasize that their work offers just a prototype of the work that ought to be done. The Distributional National Accounts they’ve developed, Zucman is hoping, “will eventually be taken over by government, improved, and published as part of the official toolkit of government statistics.”
Rep. Carolyn Maloney, the New York Democrat who serves as the vice chair of the Joint Economic Committee, is hoping that, too. She has introduced legislation — the Measuring Real Income Growth Act — that directs the Bureau of Economic Analysis to report GDP growth by income decile and the top 1 percent.
Taking this step, says Rep. Maloney, “will help us understand not just how fast the economy is growing but who is benefiting from that growth.”
The Center for Equitable Growth’s Boushey is calling the new metrics that Rep. Maloney’s legislation seeks “GDP 2.0.” Putting these metrics in place, she posits, will focus public and policy maker attention on what matters most, the economic well-being of American families up and down the income spectrum.
Even better, stresses Boushey, “these metrics will allow citizens to hold their elected representatives accountable to delivering an economy that works for all.”
In a government that delivers that economy, trust can start rebuilding.
Sam Pizzigati co-edits Inequality.org. His latest book: The Case for a Maximum Wage. Among his other books on maldistributed income and wealth: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970 and Greed and Good: Understanding and Overcoming the Inequality that Limits Our Lives. Follow him at @Too_Much_Online.