What's the single best metric for the health of an economy? Conventionally it's GDP growth, and there's nothing really wrong with that.
But if I had to choose one thing it would be median income. In particular, market income before taxes or government benefits. Here it is:
Compared to GDP, income is a better measure of what actually matters to people. Compared to per capita, median is a better measure of how the economy is working for the average person, not millionaires. And compared to other measures of earnings, market income is the best measure of how the underlying economy is really doing.
Now, it may be that we're better off allowing market income to grow slowly for the middle classes and then making up for it with government transfers. But I've always thought that was a distant second best. An economy that's really working should produce strong direct growth in wages instead of trying to make up for lopsided growth with unpopular welfare programs. Maybe someday we'll figure out how to do that.
TECHNICAL NOTE: Market income is regularly calculated by the Congressional Budget Office, but they don't actually produce a median. However, they do produce an average of the middle three quintiles, which is very close to the same thing. That's what I used here.
I wish it wasn't so hard to find median individual income information. The median income stats are almost always for households, which means they might incorporate two incomes instead of just one.
Although I think income quintiles are even better than median, since you can then track how the economy is working broadly for everyone. A raise above inflation across all five quintiles is a big deal in that scenario.
Agree. Though until the bottom four quintiles catch up to productivity growth since, oh, 1980, the highest-income folks can tread water.
Why do you think the bottom four quintiles SHOULD catch up to productivity growth?
This would make sense if productivity growth was driven by workers working harder or smarter (ie. increased education levels). However, I think we all know that productivity growth is actually driven by technology and by capital investments.
Given this, don't you think that most of the return from productivity growth should go to those who created the technology (investors and innovators) and to those who made the investments to deploy the technology (investors again)?
As a simple example, let's say I run a burger restaurant. One hamburger flipper makes 500 burgers a day and gets paid $120 per 8 hour day.
Now an investor invests $10,000 in my business which I use to buy a machine that lets that same hamburger flipper make 2,000 hamburgers per day with no significant upskilling. The hamburger flipper is now 4 times as productive. Does he deserve a 4X increase in salary? Why if he is not having to work harder or smarter? Shouldn't the vast majority of the return from that new machine go to the investor who invested the funds to buy it? Why not?
Why don't you answer your own questions for a change instead of demanding that other people do so followed up with your inevitable "I'm not convinced schtick"?
I think my answer is pretty obvious.
The majority of the return from productivity gains should go to those responsible for those gains.
If productivity gains come from better educated workers then we expect the return to go to the workers. If they come from capital and innovation then we expect the return to go to capital and the innvators.
Nope, you weren't. Nowhere did I see you back up your assumptions. If you call a tail a leg, how many legs does a horse have? Answer: Four, of course. Calling a tail a leg does not make it a leg.
Now answer the damn question instead of your usual tedious shuck and jive;, it's yours, after all.
Shrug. This is common knowledgeable among all those who keep abreast of economics, but if you need a source see https://www.bea.gov/news/blog/2021-04-12/new-data-sources-economic-growth.
From 1987 through 2019, growth in value added, or gross domestic product, for the total economy averaged 2.44 percent per year. The data show that half of that growth, 1.22 percentage points, can be attributed to growth in capital inputs; 0.77 percentage point can be attributed to growth in labor inputs; and the remaining 0.45 percentage point is attributed to multifactor productivity. Multifactor productivity, or MFP, is change in productivity beyond the change in measured inputs, for example, gains that might come from more efficient technology or better management.
As you can see, less than a third of growth is attributable to increase in labor inputs ACS oat of that is due to increased population of workers, not increased quality of labor input.
You may be more productive and more valuable by all available measurements, and let's ignore your new skill of operating this fancy machine (because its MINE! and you dont count), so in conclusion I decided you are neither smarter nor harder working!
Morally you are undeserving! Neener-neener, you lose! THIS IS SCIENCE!! PROVE MY OPINION WRONG!
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lol, so dumb.
Well, if the original burger flipper was a high school drop out and the person operating the new machine is still a high school drop out then it appears using the new machine does not require higher skills and his salary probably should not change much.
On the other hand, if the new machine requires an operator who has a Masters Degree in Burgerology then obviously it requires higher skills and we would expect a significant part of the return from productivity gains to go to the new operator.
Which of these two examples better describes productivity gains over the last 20 years?
I know high school dropouts who can wire a house, glaze a window, drive a tractor, etc. who have done quite well for themselves. You don't live in the real world, otherwise you'd know that 'burger flippers', as you call them, short order chefs to the rest of us, have skills you so obviously lack and take a while to acquire. Finally, if the owner could have replaced workers with machinery and made more profit, they already would have ... dumbass.
In fact, given your obvious lack of education, I have no choice but to conclude that you yourself are a high school dropout and to date you haven't demonstrated any saleable skills whatsoever.
Smarter trolls please.
This is the typical arrogance of white collar types with little association with or knowledge of blue collar workers.
Most of the jobs you describe are skilled work. For example, you talk about wiring a house. See https://www.indeed.com/career-advice/finding-a-job/what-degree-does-electrician-need and https://www.nextinsurance.com/blog/electrician-licensing-requirements/. This is not a job for high school drop outs. If you are doing the job yourself rather than under the direct supervision of a more experienced electrician you will almost certainly have a high school degree, will likely have at least a two year college degree, and will have thousands of hours of course work and on the job training.
You also will not be the type of person whose income is lagging productivity growth. Electrical work is not automated, there is no machine that makes it doable by high school drop outs, and as home electronics gets more complicated the skill requirements for electricians go up in sync.
https://www.bls.gov/oes/current/oes472111.htm
As you can see, electricians are not minimum wage workers. Throw in a bit of OT and they make a good wage to support their families.
Finally, yes. When owners can automate they do. For example, the automated ordering kiosks at McDonalds replace large numbers of low wage cashiers with a much smaller number of higher paid tech workers who design and mange the systems, manufacturing workers who make them, and maintenance workers who install and maintain them. All of those people make more money than cashiers, but there are far fewer of them.
Hahaha, my sweet summer child. You think “innovators” get rich?
Not unless they found their own company or give up science or engineering for the C-suite.
You might be surprised. For example, software engineers at Google make from 200K to 2.5MM. That is without founding their own company or entering the C-suite.
https://www.levels.fyi/companies/google/salaries/software-engineer?country=254
MF - in your example, yes I agree the inventor and purchaser of the technology, rather than the user of the technology, achieved the productivity gain.
Rather, one could take your statement to imply that class mobility is not common or, perhaps, likely.
A person, say in the bottom 25% of the income distribution, could not materially change their economic outcome. Rather, the creation of new technology is often not from top income earners....
If someone from a bottom quintile family wants to move up to a higher quintile there is a simple recipe:
1. Get educated - graduated from high school, attend a trade school, get a college degree, a masters, etc. and preferably in a STEM subject.
2. Do not abuse drugs or alcohol
3. Get married and do not have children outside of marriage.
4. Do not commit crimes or at least do not get caught committing crimes (but best way to do that is not to commit crimes).
Addendum to 1.: take out a $80-$100k loan with $7k yearly interest payments.
With those numbers that would be 7k including principal repayment on an amortizing loan.
If you complete a STEM degree at any decent school you increase your annual income more than that. The people hurting are the ones who take out loans for majors like theatre and social work.
One thing we do need to do is cut off loans to schools and majors who's graduates are frequently unable to repay.
No, it's not hard to find individual income - get it from the BLS or the FRED site of the FED. See my comment below.
Strongly agree that government transfers are second-best; the first choice is a living wage for every full-time employed person. Anyone who thinks that the ‘47%’ ought to pay income taxes, well, make sure they earn enough to cross the threshold for tax liability. Then we can talk about a guaranteed basic income.
If you think the market can be made to ensure a livable wage for everybody, then you don't understand what the market is. It just doesn't work that way. And of course many people cannot be provided for by the market even if it did (for a whole host of different reasons). Really, a UBI is the best solution for a whole of reasons, perhaps the easiest to understand is: that because of fine print holes that anybody who has ever dealt with insurance will recognize, the best programs are universal.
And a guaranteed basic income (i.e. a means tested top-up) is a lousy idea, not least because it will always somewhere along the line create perverse incentives.
There is no such thing as The Market. It does not exist as some magical entity separate from the culture in which it operates. The culture sets the laws and practices under which the market operates. If someone tells you that an invisible hand pulls the strings and there is nothing we can do about it, they are trying to distract you from the fact that they are actively tilting the playing field toward their own open mouths.
Yes, but it doesn't change the fact that if somebody cannot employ you at a living wage and make a profit from employing you, they won't. Don't expect market wages to reflect your cost of living. It is far better not to have to depend on the market to save you from starving.
I think "make a profit" is the important point here. How much is enough? Is a PE firm buying a company and looting it for cash a useful economic outcome?
Broad based income growth is going to get harder and harder to deliver for any developed economy government.
The trend for the last 50 years has been towards a winner take all economy.
For example, 100 years ago many people made decent livings as musicians. They played in clubs, in bars, in hotel lobbies, you name it. Today, most of those jobs are gone. Most of these venues play muzak or top 40 songs are something like that. They pay an organization like ASCAP and the vast majority of what they pay goes to the top 1,000 artists worldwide and their supporting organizations (managers, producers, etc.)
Almost every industry is heading in this direction. For example, in 20 years (probably less) millions of professional drivers will be replaced by autonomous vehicles. The money that used to be allocated to those millions of drivers will be split between their former employers and a few tens of thousands of people building, maintaining, and managing autonomous driving systems.
The end result is going to be a larger and larger share of national income captured by the top quintile.
EU comparators rather show this to be excessive doomism
Cite please. World Bank says you are wrong. https://pubdocs.worldbank.org/en/319381520461242480/EU-IG-Report-Understanding-changes-in-Inequality.pdf
Living wage is a slogan with the leading undefined term.
Government programs need actionable definitions.
Guaranteed basic income is a nice Lefty dream but no country after examing including the dear Finns have seen it as actually actionable in budgetary terms.
Rather than dreaming of grand solutions, pragamtic revisions are better to puruse as real world achievable.
Ahem: "What's the single best metric for the health of an economy? Conventionally it's GDP growth, " - perhaps for journalists - really GDP growth is not amongst properly trained people considered "single best" - it is a convenient overall indicator for the comparable overall national economic performance as standarised etc. and also gives a decent sense over time of competiveness in economic performance, real growth. This is useful. "Single best" entirely overstates.
Like in medicine, no single number is going to be a "single best" for every analytical usage.
If one is looking at issues relative to politics, policy and outcomes, median income is of course superior as it frelects key
(typically these numbers track each other but of course distribution issues intervene so countries with poor economic mobility and oligarchic economies rather often see divergences - USA has had degrading economic mobility and that shows).
"An economy that's really working should produce strong direct growth in wages instead of trying to make up for lopsided growth with unpopular welfare programs."
This reflects the typical Democrat-Left thinking via "welfare programs" trapped in a logic of focus on poverty. It is a misframing although has truth in it.
Issues which generally economists will agree on (ex the Libertarian idealogues who are principally unfortunately for you American) are that policy that pushes against oligarchic concentration - whether oligopolistic / monopolistic company structure (state or private really) or family concentrations are wise and need for healthy economies in the medium term, and government investment that is enabling widely of economic action - infrastructure (physical and human) notably for improved productivity (broad subsidised medical care for everyone up to upper middle income brackets is quite sensible in this sense, broad education [not over focused on Universities]). The Middle Class programmes the Democrat's Left sneer at are quite sensible here (less sensible are subsidies to home ownership different than housing infra.)
You're mom called. She needs you to make a morning run for coffee filters and creamer. Hazelnut, ugh.
Ah the smell of adolescent cliques in the air...
Sadly, it's only your thinking that is adolescent; you present here as an over-forty male with no discernible skills and chip on your shoulder. Grow up.
US GDP in constant dollars is up 301% over the period 1980-2024. So the typical person in the US has captured about 1/3 of the increase.
1. You are not taking increase in working age population into account.
2. Most of the increase in GDP is due to investment in capital and tech. Those returns should go to capital and to those who produce the tech.
While income before taxes and government transfers gives the best picture of how the market economy is working, median income *after* all transfers gives a better idea how the society is functioning.
Of course median household income is better than GDP for representing general well-being, but even more representative is individual income. There are many measures of wages and salary, but the BLS category "production and non-supervisory" wages covers the majority of workers in the US. Those wages are still below what they were in 1972, corrected for inflation with the CPI:
https://www.skeptometrics.org/BLS_B8_Min_Pov.png
Household income has done better than individual income mostly because many women were entering the workforce in the decades before about 2000. Most of these women were not pursuing careers, they were just taking jobs to maintain family standard of living as real wages crashed during the 70's and 80's, including "Morning in America". Total working hours per household has increased, which is not an improvement in standard of living.
The CBO does not have its own surveys or other measures of incomes. It is probably better to look at original data from the BLS or Census, although you have to choose which surveys to use.
This and other kinds of wage data are available directly from the BLS, and also from the FRED site of the Fed.
The detachment of wages from GDP is actually a fairly recent phenomenon in US history, according to the wage index from the Economic History Project:
https://www.skeptometrics.org/WageIndex.png
It's only since the 70's that wages have consistently fallen behind. Up to the 70's there were huge improvements in real productivity, defined either as GDP/capita or as production/hour. The productivity was increased by automation or mechanization, that is replacement of humans and animals with machines. This has not resulted in greater unemployment, so it's not obvious that AI, which is a type of automation, would cause unemployment, as Kevin and others claim.
Although there have been ups and downs in economic inequality, overall the GDP/wages ratio did not change much until the 70's despite enormous increases in automation, so automation is not a good explanation for how inequality has increased since then. The real reasons are probably complex, but certainly involve political decisions.
Thanks, this sounds spot on. I think you're right that increased inequality has a complex pedigree, but my two cents on it is that we need to focus on where and why the countervailing pressures against both geographic and economic concentration and centralization have so significantly weakened since the early 1970s.
Some of that is in the nature of modern industrial production (scale, and specific changes like railroads' diesel power not needing maintenance facilities every hundred miles as steam did), and a great deal of it is in political decisions to, at the very least, not stand in the way of concentration, and I think in important ways to actively encourage it. (Not everything is intentional; interstate highways, for example, were at least partly intended to spread economic development away from cities, but they've paradoxically also helped enable concentration. But some things, like preferential tax treatment of capital, have been intentional.)
If you read Krugman's Conscience of a Liberal, he makes a persuasive case that Capitalist economies rarely if ever on their own build a strong middle class (which a high median wage is really what we are talking about). About the only way to get that is through Government intervention --- transfer payments, economical access to higher education, the whole range of stuff.
"median is a better measure of how the economy is working for the average person"
Well, strictly speaking, *average* is a better measure of how the economy is working for the average person.
I would agree though that median a better measure for a typical person.