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A Smaller Slice of a Bigger Pie

February 1, 2013 by John Prestbo

My art teacher has a dark view of the U.S. socioeconomic situation. “I see a growing wall between the haves and have-nots,” he said, explaining why he is trying to expand his art-school enterprise so that his daughters “won’t end up on the wrong side.” His comment got me to thinking: Is accelerating our nation’s economic growth all that desirable if it divides us more deeply? The parameters of the problem were laid out a few days after this conversation in a pair of New York Times articles under the umbrella title, “Our Economic Pickle.” Some of the points have been addressed before in this blog space, but here is the gist:

  • Wages now are at a record low as a share of America’s gross domestic product, falling to 43.5% last year from 49% in 2001 and more than 50% percent in 1975.
  • From 2000 to 2011, median income for working-age households (headed by someone under age 65) slid 12.4%, to $55,640, while the U.S. economy grew more than 18%, despite two recessions.
  • According to one study, the top-earning 1% of households snagged 65% of all the nation’s income growth from 2002 to 2007, when the latest recession hit. Another study found that one-third of the overall increase in income going to the richest 1% has resulted from surging corporate profits.

The article succinctly summarizes the forces producing these results: “Corporate America’s push to outsource jobs — whether call-center jobs to India or factory jobs to China — has fattened corporate earnings, while holding down wages at home. New technologies have raised productivity and profits, while enabling companies to shed workers and slice payroll. Computers have replaced workers who tabulated numbers; robots have pushed aside many factory workers.” Erik Brynjolfsson, an economics professor at the Massachusetts Institute of Technology, is quoted: “There is no economic law that says technological progress has to benefit everybody or even most people. It’s possible that productivity can go up and the economic pie gets bigger, but the majority of people don’t share in that gain.” This economic inequality frays and strains society and its politics. The accompanying Times article suggests that current slow growth drives the intransigence in Washington. “We could be stuck in a perverse equilibrium in which our absence of growth is delivering political paralysis, and the political paralysis preserves the absence of growth,” Benjamin Friedman, a Harvard economist, is quoted as saying. Untangling this mess won’t be easy. Among other things it will require raised consciousness of “the 1%” that America’s strength and greatness — upon which their status depends — is not sustainable on this current course toward have/have-not polarity. And for workers it will require an ardent commitment to quality in support of their renewed share of economic expansion. As to the question posed at the beginning, I believe accelerating our growth will ease the task, though by itself it won’t make the problem go away. We will need to look deep within ourselves as we reinvent the American Dream for the 21st century.


Author

John Prestbo
John Prestbo

2012 Economic Growth Fellow

John Prestbo is retired as editor and executive director of Dow Jones Indexes. Previously he was markets editor at The Wall Street Journal. He has co-authored or edited several books over the past 30 years. The most recent is “The Market’s Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average,” published in 1999 by Dow Jones Indexes. His column, Indexed Investor, appears on the highly regarded “MarketWatch” business and finance website. He received his bachelor's and master's degrees from Northwestern University.

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