The Great Stagnation Myth
How We Have Grown Richer But Feel Poorer
The last decade was a lost one for the American middle class. It came on the heels of three decades of frozen wages. We have entered the Great Stagnation.
So goes the drumbeat. But when you look around, everyone seems richer. "If our obvious material affluence seems difficult to square with various narratives of economic decline," writes Brookings economist Scott Winship in a major new essay for Breakthrough Journal, "that's because it doesn't."
The truth is that Americans of all classes have grown materially richer every decade since the postwar era, Winship explains. "Even after the Great Recession we live in larger houses and own more cars than previous generations. Our homes are cluttered with all manner of gadgets, electronics, and appliances. Air-conditioning and air travel, once considered luxuries, are now available to virtually all of us."
The crux of the argument for economic pessimism lies in comparing today's low growth rates to the higher growth rates of the 50s and 60s. This is fallacious, Winship argues. Lower growth rates are a function of the slower metabolism of large economies, not the stagnation of American capitalism.
Look at the facts. We have still been growing — with gains in absolute wealth that are similar to those of the 1960s — only at slower rates. "To fixate on the diminished rate of growth," Winship writes, "is to jealously compare ourselves not to Americans in the 1960s, who were poorer than we are and whose living standards improved less than ours did, but to Americans living today in some parallel universe, where growth rates did not decline."
Why does any of this matter? Because the discourse of economic decay risks undermining efforts to meet the needs of the poorest among us. It stokes worker anxiety and is "as likely to inspire selfishness as generosity among voters," he writes. "Perhaps most troubling, the focus on growth rates misdirects our attention from the minority who are struggling to the broad majority who are doing well."
Over the last two years, in a series of tightly argued (and hotly debated) essays and reports, Winship has established himself as a powerfully transgressive young economist. Winship's view is "deeply unattractive to the Right and the Left as it implies that a large set of Americans (the middle class as well as top earners) ought to make greater sacrifices to ameliorate the phenomenon of stickiness at the bottom, i.e., the relative lack of absolute upward mobility from those born into the poorest income quintile," wrote Reihan Salam about "The Affluent Economy."
Already, Tyler Cowen, the author of The Great Stagnation, has responded, "People one hundred years out would be much worse off, relative to exponential growth, and their ability to fix the environment or elevate poor countries to wealth, also will be much lower. In essence economics would be surrendering the gain it won from the victory over Malthus."
One can safely predict that neither Cowen nor Winship's words will be the final ones on the matter of what, if anything, is fundamentally wrong with the American economy. Responses are invited and will be published in a Breakthrough Debate. Winship's essay can be bought as part of the Breakthrough Journal's e-book, Wicked Polarization.