The American economy is growing. It’s not roaring, but it’s growing, and at a good pace.
According to the latest figures from the Bureau of Economic Analysis, real US gross domestic product (GDP) rose at an annualized rate of 2.8% in the third quarter of 2013, which covered July through September.
For comparison, the long-term trend rate in US GDP growth is about 2% per year.
This year’s fast GDP growth underlines one of the great myths of economic statistics: the myth that growth benefits everyone, or at least most people.
Under the great economics assumption of “ceteris paribus” growth does benefit everyone. “Ceteris paribus” is Latin for “everything else the same.”
If the overall structure of the economy remains the same, then higher GDP means more income for everyone.
Unfortunately, the overall structure of the economy has been changing rapidly in recent years, and not for the better.
Corporate revenues may be increasing slowly as the economy grows by two or three percent per year, but corporate profits are exploding. So are executive salaries and bonuses.
We are witnessing a massive shift in the structure of the economy away from benefits for ordinary workers and retirees in favor of a small number of relatively rich and powerful people.
The latest economic statistics illustrate this. The Bureau of Economic Analysis doesn’t collect data on income distribution (why not?) but it does collect data on after-tax disposable income.
After-tax disposable income has been rising at a rate of around 4.5% this year, or about 3.5% after adjusting for inflation.
Yet we know from Census Bureau data that the median income — the income of the typical person — has not increased at all for several years. In fact, real median income is still more than 7% below 2007 levels. That’s despite the fact that the economy as a whole has now bounced back to well above 2007 output levels.
Economic growth? Yes. Ceteris paribus? No. Everything else has not remained the same. The economy is bigger than it was in 2007, but it’s a different economy.
And let’s remember: the 2007 economy was nothing to write home about. In fact, the 2000s were already one of the worst decades in economic history before the recession hit. We only forget that because the 2010s are shaping up to be even worse.
But the US economy is growing. It’s been growing all along. Growth is not the problem.
Economic structure is the problem. Or in a word: inequality. Ordinary Americans haven’t had a raise (in real, inflation-adjusted terms) since 1972. Instead, all of America’s economic growth for forty years has gone to an elite minority.
The myths of economic statistics all come down to the fact that the purpose of the economy isn’t to generate profit. The purpose of the economy is to serve the people who depend on it. When it doesn’t, maybe it’s time to consider a different kind of economy. One that works for everyone.