Don’t worry folks, this is a family-friendly blog. The issue is that Steven Pearlstein takes great offense at the possibility that people are manipulating the stock price of a biotech company by shorting its stock on a massive basis. Pearlstein is right to be angered about stock manipulation, he is wrong to imagine it bears any direct connection to shorting stock.
The issue here is that short sellers of Northwest Biotherapeutics (people betting against the company’s stock) are supposedly spreading rumors to push down its price. This could be true, and if so, the perps should be nailed and jailed. But people often spread false stories to push up the price of stocks as well. This is every bit as pernicious. It means that suckers could pay high prices for stock that may have little or no value. This could deprive people of large portions of their savings. It also diverts capital from companies that may actually have worthwhile products to companies that don’t.
It is much easier to manipulate the stock price of a small company than a large company, but this is true on both the short and long side. Shorts can serve a valuable function. Imagine that the investment banks had been shorted in a massive way in 2004 just as the housing bubble was really going crazy. It might have stopped the bubble in its tracks. There is nothing inherently pernicious about shorts. It is wrong to make an automatic connection between shorts and stock manipulation. There is none.
Don’t worry folks, this is a family-friendly blog. The issue is that Steven Pearlstein takes great offense at the possibility that people are manipulating the stock price of a biotech company by shorting its stock on a massive basis. Pearlstein is right to be angered about stock manipulation, he is wrong to imagine it bears any direct connection to shorting stock.
The issue here is that short sellers of Northwest Biotherapeutics (people betting against the company’s stock) are supposedly spreading rumors to push down its price. This could be true, and if so, the perps should be nailed and jailed. But people often spread false stories to push up the price of stocks as well. This is every bit as pernicious. It means that suckers could pay high prices for stock that may have little or no value. This could deprive people of large portions of their savings. It also diverts capital from companies that may actually have worthwhile products to companies that don’t.
It is much easier to manipulate the stock price of a small company than a large company, but this is true on both the short and long side. Shorts can serve a valuable function. Imagine that the investment banks had been shorted in a massive way in 2004 just as the housing bubble was really going crazy. It might have stopped the bubble in its tracks. There is nothing inherently pernicious about shorts. It is wrong to make an automatic connection between shorts and stock manipulation. There is none.
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Neil Irwin has a useful piece reporting on a journal article by Pavlina Tcherneva documenting the increased share of income growth going to the top 10 percent and especially the top 1 percent. While there can be little doubt about the basic patterns, it is worth noting that the data include capital gains income. This is important because by this measure the change in income shown in any given year will be hugely influenced by the movement in stock prices in the recent past.
For example, if stock prices stay more or less at their current level for the next two years and then we compared the income growth of the top 1 percent in 2016 with the growth in 2012 (after three years of sharp price increases) our numbers would show a sharp fall in the income of the top 1 percent even if nothing else in the economy had changed. While it is worth noting changes in wealth and capital gains, it is useful to examine income with gains (or losses) excluded. If the stock market stabilizes at its current level and the pattern of income distribution has otherwise not changed, the country will not have become more equal.
Neil Irwin has a useful piece reporting on a journal article by Pavlina Tcherneva documenting the increased share of income growth going to the top 10 percent and especially the top 1 percent. While there can be little doubt about the basic patterns, it is worth noting that the data include capital gains income. This is important because by this measure the change in income shown in any given year will be hugely influenced by the movement in stock prices in the recent past.
For example, if stock prices stay more or less at their current level for the next two years and then we compared the income growth of the top 1 percent in 2016 with the growth in 2012 (after three years of sharp price increases) our numbers would show a sharp fall in the income of the top 1 percent even if nothing else in the economy had changed. While it is worth noting changes in wealth and capital gains, it is useful to examine income with gains (or losses) excluded. If the stock market stabilizes at its current level and the pattern of income distribution has otherwise not changed, the country will not have become more equal.
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Justin Wolfers is trying to sell gross domestic income (GDI) as a more accurate measure of growth than GDP. He notes that gross domestic income grew at a 2.2 percent annual rate in the first half of 2014 and says that this “more accurate” measure of the economy should be taken over the 1.2 percent annual rate shown by the more widely used GDP measure.
In principle GDI and GDP should show the same growth. GDI measures the economy by measuring the incomes generated in production (e.g. wages, profits, interest, and rents). GDP measures the economy by counting the goods and services sold (consumption, investment, government, net exports, and inventories). In principle they should show the exact same number, but due to errors in measurement they always differ and sometimes by a large amount. (The gap is defined as the statistical discrepancy, which is GDP minus GDI.)
While Wolfers tells readers that the GDI measure is more accurate the good folks at the Bureau of Economic Analysis generally say that the GDP numbers provide a better measure. The data (Table 1.17.6) show that GDI is far more erratic than GDP. For example, if we believe the GDI measure then the economy grew at a 7.2 percent annual rate in the 2nd quarter of 2012 and then slowed to a 0.6 percent rate in the third quarter. The GDI data also show the recovery barely budged in the second half of 2009 even as the stimulus kicked in, growing at just a 1.1 percent annual rate. Growth then surged to a 5.7 percent annual rate in the first quarter of 2010 before falling back to a 0.5 percent rate in the second quarter.
If that doesn’t sound like the economy you remember there is an alternative explanation for the erratic movements in GDI. David Rosnick and I did a paper regressing the changes in the statistical discrepancy against lagged measures of capital gains. We found a strong relationship with the GDI becoming a larger negative number (GDI rises relative to GDP) following periods of strong capital gains.
For this to be plausible we would need a story whereby some amount of capital gains income shows up as ordinary income. (Capital gains income is not supposed to be counting in GDI.) Since one of the sources for GDI is tax returns, this seems plausible. While long-term capital gains are taxed at a lower rate than ordinary income, short-term gains (assets held less than one year) are taxed at the same rate. This means that people filing tax returns have no particular reason to distinguish between capital gains income and ordinary income.
If we hypothesize that some amount of capital gains income always shows up as ordinary income, then we would expect that the amount of capital gains income showing up as ordinary income would be higher when people have lots of capital gains income. This means that when there is a big run-up in asset prices, we would expect the statistical discrepancy to become a larger negative number, as the data show. See, economics is simple and fun.
Justin Wolfers is trying to sell gross domestic income (GDI) as a more accurate measure of growth than GDP. He notes that gross domestic income grew at a 2.2 percent annual rate in the first half of 2014 and says that this “more accurate” measure of the economy should be taken over the 1.2 percent annual rate shown by the more widely used GDP measure.
In principle GDI and GDP should show the same growth. GDI measures the economy by measuring the incomes generated in production (e.g. wages, profits, interest, and rents). GDP measures the economy by counting the goods and services sold (consumption, investment, government, net exports, and inventories). In principle they should show the exact same number, but due to errors in measurement they always differ and sometimes by a large amount. (The gap is defined as the statistical discrepancy, which is GDP minus GDI.)
While Wolfers tells readers that the GDI measure is more accurate the good folks at the Bureau of Economic Analysis generally say that the GDP numbers provide a better measure. The data (Table 1.17.6) show that GDI is far more erratic than GDP. For example, if we believe the GDI measure then the economy grew at a 7.2 percent annual rate in the 2nd quarter of 2012 and then slowed to a 0.6 percent rate in the third quarter. The GDI data also show the recovery barely budged in the second half of 2009 even as the stimulus kicked in, growing at just a 1.1 percent annual rate. Growth then surged to a 5.7 percent annual rate in the first quarter of 2010 before falling back to a 0.5 percent rate in the second quarter.
If that doesn’t sound like the economy you remember there is an alternative explanation for the erratic movements in GDI. David Rosnick and I did a paper regressing the changes in the statistical discrepancy against lagged measures of capital gains. We found a strong relationship with the GDI becoming a larger negative number (GDI rises relative to GDP) following periods of strong capital gains.
For this to be plausible we would need a story whereby some amount of capital gains income shows up as ordinary income. (Capital gains income is not supposed to be counting in GDI.) Since one of the sources for GDI is tax returns, this seems plausible. While long-term capital gains are taxed at a lower rate than ordinary income, short-term gains (assets held less than one year) are taxed at the same rate. This means that people filing tax returns have no particular reason to distinguish between capital gains income and ordinary income.
If we hypothesize that some amount of capital gains income always shows up as ordinary income, then we would expect that the amount of capital gains income showing up as ordinary income would be higher when people have lots of capital gains income. This means that when there is a big run-up in asset prices, we would expect the statistical discrepancy to become a larger negative number, as the data show. See, economics is simple and fun.
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The NYT ran an article celebrating the recent run-up in the dollar. The headline is “buoyant dollar recovers its luster, underlines rebound in U.S. economy.” The headline could have with at least as much accuracy substituted “undermines” for “underlines.” While the piece attributes the rise in the dollar to all sorts of good things about the U.S. economy, there actually is a much simpler explanation. Interest rates are higher in the United States than elsewhere.
Relative interest rates determine where investors choose to park their money. They are not assigning gold stars to economies for good behavior. There is some relationship between interest rates and growth, but it is the former that matters for investors, not the latter.
The piece gets many other points wrong. For example, after the dollar has risen, investment in developing countries becomes more attractive, not less attractive. But the big point left out of this story is that the over-valued dollar is the main cause of what has become known as “secular stagnation.”
Fans of national income accounting everywhere (i.e. anyone who knows economics) know that a trade deficit creates a gap in demand that must be filled through some other source. Currently the trade deficit is running at more than a $500 billion annual pace or around 3.0 percent of GDP. For the economy to be at its potential, this gap in demand must be fill by higher consumption, investment, housing, or government spending.
The reason the economy is still more than $600 billion below its potential level of output is that it doesn’t have a source of demand to fill this gap. It is not easy to make any of the other components of GDP rise, with the exception of government spending, but that is ruled out for political reasons. We could do it with a stock or housing bubble, but those stories don’t have happy endings.
So the rise in the dollar translates into slower growth and fewer jobs. Goldman Sachs estimates that the 3.0 percent rise in the dollar we have seen to date will shave 0.1 to 0.15 percentage points off GDP growth in each of the next two years (sorry, no link). That is a pretty good size hit in an economy that is only growing at a 2.0 percent annual rate.
It also translates into lost jobs. If the economy is 0.25 percent smaller in 2016 due to the higher dollar that would imply a loss of roughly 350,000 jobs. So, does the NYT have any more good news for us today?
The NYT ran an article celebrating the recent run-up in the dollar. The headline is “buoyant dollar recovers its luster, underlines rebound in U.S. economy.” The headline could have with at least as much accuracy substituted “undermines” for “underlines.” While the piece attributes the rise in the dollar to all sorts of good things about the U.S. economy, there actually is a much simpler explanation. Interest rates are higher in the United States than elsewhere.
Relative interest rates determine where investors choose to park their money. They are not assigning gold stars to economies for good behavior. There is some relationship between interest rates and growth, but it is the former that matters for investors, not the latter.
The piece gets many other points wrong. For example, after the dollar has risen, investment in developing countries becomes more attractive, not less attractive. But the big point left out of this story is that the over-valued dollar is the main cause of what has become known as “secular stagnation.”
Fans of national income accounting everywhere (i.e. anyone who knows economics) know that a trade deficit creates a gap in demand that must be filled through some other source. Currently the trade deficit is running at more than a $500 billion annual pace or around 3.0 percent of GDP. For the economy to be at its potential, this gap in demand must be fill by higher consumption, investment, housing, or government spending.
The reason the economy is still more than $600 billion below its potential level of output is that it doesn’t have a source of demand to fill this gap. It is not easy to make any of the other components of GDP rise, with the exception of government spending, but that is ruled out for political reasons. We could do it with a stock or housing bubble, but those stories don’t have happy endings.
So the rise in the dollar translates into slower growth and fewer jobs. Goldman Sachs estimates that the 3.0 percent rise in the dollar we have seen to date will shave 0.1 to 0.15 percentage points off GDP growth in each of the next two years (sorry, no link). That is a pretty good size hit in an economy that is only growing at a 2.0 percent annual rate.
It also translates into lost jobs. If the economy is 0.25 percent smaller in 2016 due to the higher dollar that would imply a loss of roughly 350,000 jobs. So, does the NYT have any more good news for us today?
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The NYT had a fascinating article on innovations in the financial sector. The piece reports on devices installed in cars purchased with subprime loans that will block a car from starting. According to the piece lenders often block a car from starting after borrowers are just a few days late on their payments. It also reports on cases where borrowers claim they were current on their loans when their cars were blocked from starting. Apparently state rules regulating repossessions, such as providing notice, do not apply to this technology, which largely has the same effect as repossessing a car.
The NYT had a fascinating article on innovations in the financial sector. The piece reports on devices installed in cars purchased with subprime loans that will block a car from starting. According to the piece lenders often block a car from starting after borrowers are just a few days late on their payments. It also reports on cases where borrowers claim they were current on their loans when their cars were blocked from starting. Apparently state rules regulating repossessions, such as providing notice, do not apply to this technology, which largely has the same effect as repossessing a car.
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The NYT had a bizarre article on India’s projected path of greenhouse gas emissions, noting that its emissions are likely to continue to rise at least through 2030. The piece notes that India is likely to pass both the United States and China as the world’s leading emitter of greenhouse gases. The piece presents India’s situation as providing a real moral dilemma since the country still has so many people living in poverty and it needs to increase energy production to sustain its growth and lift people out of poverty.
The moral dilemma is actually much simpler than the piece implies. The comments reported as assertions by Indian political figures happen to be true. Global warming would not be a problem if the United States and other rich countries had not been spewing large amounts of greenhouse gases into the atmosphere for many decades. For this reason, asking India to reduce its greenhouse gas emissions when they are still less than one quarter as high on a per capita basis as U.S. emissions (a fact that was not mentioned in the piece) might not seem terribly fair.
The obvious way around this problem is to have the United States and other rich countries pay poor countries like India to reduce their emissions. This is actually a very simple thing to do. In fact, given the weakness of demand in the U.S. and Europe, paying these countries to reduce emissions would actually increase employment and growth in the wealthy countries.
It might be hard for politicians to suggest something like making payments to poor countries to ensure that our children live on a decent planet, just like many politicians find it difficult to say they believe in evolution, but it really shouldn’t be difficult for a newspaper to discuss these issues in a serious manner.
The NYT had a bizarre article on India’s projected path of greenhouse gas emissions, noting that its emissions are likely to continue to rise at least through 2030. The piece notes that India is likely to pass both the United States and China as the world’s leading emitter of greenhouse gases. The piece presents India’s situation as providing a real moral dilemma since the country still has so many people living in poverty and it needs to increase energy production to sustain its growth and lift people out of poverty.
The moral dilemma is actually much simpler than the piece implies. The comments reported as assertions by Indian political figures happen to be true. Global warming would not be a problem if the United States and other rich countries had not been spewing large amounts of greenhouse gases into the atmosphere for many decades. For this reason, asking India to reduce its greenhouse gas emissions when they are still less than one quarter as high on a per capita basis as U.S. emissions (a fact that was not mentioned in the piece) might not seem terribly fair.
The obvious way around this problem is to have the United States and other rich countries pay poor countries like India to reduce their emissions. This is actually a very simple thing to do. In fact, given the weakness of demand in the U.S. and Europe, paying these countries to reduce emissions would actually increase employment and growth in the wealthy countries.
It might be hard for politicians to suggest something like making payments to poor countries to ensure that our children live on a decent planet, just like many politicians find it difficult to say they believe in evolution, but it really shouldn’t be difficult for a newspaper to discuss these issues in a serious manner.
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It’s often said that the economy is far too simple for economists to understand. There is probably no better example of this problem that the invention of the “balance sheet” recession. The story is that because households have large amount of debt (generally mortgage debt), they cut back on consumption, thereby reducing demand and growth. In Wonkblog today, Matt O’Brien tells us that falling house prices in China may cause the country to face such a balance sheet recession.
The problem with the debt issue is largely secondary. The point is that people cut back consumption because they lose wealth. This is a straightforward, and old, economic concept.
To see the point, imagine someone has a home on which they owe $200,000 and is worth $250,000. Imagine that it rises in value to $350,000. We would typically expect that people would spend more money based on this additional wealth. The usual estimates on the size of this effect are on the order of 5-7 cents on the dollar, implying that this homeowner would spent an additional $5,000 to $7,000 a year based on her increased wealth. Now if the house price plunged back to $250,000 we would expect to see spending to fall back by roughly this amount.
Now let’s do this with debt. Suppose the person borrows an additional $100,000 when the house price goes up to $350,000. They would then owe $300,000 on the house. When the price plunges, she would then owe $50,000 more than the value of the house. In this case we would also expect to see a drop in her annual consumption of $5,000 to $7,000. We could blame debt (she owes $50,000 more than the value of the house), but the main point is that she lost the wealth that was driving her consumption, not the fact that she is now in debt. Focusing on the debt in this story is simply an unnecessary complication.
Of course people are not identical. Many people will not increase their spending at all as a result of the increase in their housing wealth. These people will then not reduce their consumption when their house price falls. The people who did increase their consumption are the ones most likely to find themselves in debt, but that doesn’t change the fact that the story is really one of a wealth effect, not debt.
This point can be easily seen if we look at the macro data. The consumption share of disposable income is actually quite high now, contrary to what is often reported. In other words, given their income levels, people are spending more on average than they did at any point in the post-war period, except the peaks of the stock and housing bubbles. This means that debt is not keeping people in aggregate from spending more, the reduction in wealth is what is keeping people from spending at their bubble peaks.
The debt story creates an unnecessary complication. It perhaps is a useful excuse for economists who somehow missed the importance of the largest asset bubble in the history of the world, but the real story is and was very simple. Economists had all the tools needed to see the problem at the time, they were just not willing to use them.
It’s often said that the economy is far too simple for economists to understand. There is probably no better example of this problem that the invention of the “balance sheet” recession. The story is that because households have large amount of debt (generally mortgage debt), they cut back on consumption, thereby reducing demand and growth. In Wonkblog today, Matt O’Brien tells us that falling house prices in China may cause the country to face such a balance sheet recession.
The problem with the debt issue is largely secondary. The point is that people cut back consumption because they lose wealth. This is a straightforward, and old, economic concept.
To see the point, imagine someone has a home on which they owe $200,000 and is worth $250,000. Imagine that it rises in value to $350,000. We would typically expect that people would spend more money based on this additional wealth. The usual estimates on the size of this effect are on the order of 5-7 cents on the dollar, implying that this homeowner would spent an additional $5,000 to $7,000 a year based on her increased wealth. Now if the house price plunged back to $250,000 we would expect to see spending to fall back by roughly this amount.
Now let’s do this with debt. Suppose the person borrows an additional $100,000 when the house price goes up to $350,000. They would then owe $300,000 on the house. When the price plunges, she would then owe $50,000 more than the value of the house. In this case we would also expect to see a drop in her annual consumption of $5,000 to $7,000. We could blame debt (she owes $50,000 more than the value of the house), but the main point is that she lost the wealth that was driving her consumption, not the fact that she is now in debt. Focusing on the debt in this story is simply an unnecessary complication.
Of course people are not identical. Many people will not increase their spending at all as a result of the increase in their housing wealth. These people will then not reduce their consumption when their house price falls. The people who did increase their consumption are the ones most likely to find themselves in debt, but that doesn’t change the fact that the story is really one of a wealth effect, not debt.
This point can be easily seen if we look at the macro data. The consumption share of disposable income is actually quite high now, contrary to what is often reported. In other words, given their income levels, people are spending more on average than they did at any point in the post-war period, except the peaks of the stock and housing bubbles. This means that debt is not keeping people in aggregate from spending more, the reduction in wealth is what is keeping people from spending at their bubble peaks.
The debt story creates an unnecessary complication. It perhaps is a useful excuse for economists who somehow missed the importance of the largest asset bubble in the history of the world, but the real story is and was very simple. Economists had all the tools needed to see the problem at the time, they were just not willing to use them.
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Jonathan Chait took a few swipes at Paul Ryan for his budget work and economic forecasts in a piece headlined “Paul Ryan Declares War Against Math.” Most of Chait’s shots are well-deserved, for example he notes Ryan’s claims that the Obama deficits would lead to a surge in inflation and that Obamacare would cause health care costs to soar.
However one of the Chait’s shots is definitely in the cheap seats. He tells readers:
“‘Reality’ [a sarcastic reference to Ryan’s world view] is Ryan’s description for a world in which Bill Clinton’s punishing tax hikes on the rich hindered the economy, which was restored to health when George W. Bush cut taxes.”
Actually in the reality where most of us reside, George W. Bush’s tax cuts almost certainly did provide a boost to the economy. At the time the economy was experiencing a recession due to the collapse of the stock bubble (the cause of the Clinton budget surpluses). The economy desperately needed a source of demand to replace the demand generated by the collapse of the stock bubble. This is a point that is now acknowledged even by Larry Summers, President Clinton’s last Treasury Secretary. The Fed was approaching the zero lower bound with its interest rate policy, as the federal funds rate was lowered to 1.0 percent in the summer of 2002.
This meant that fiscal policy was badly needed to provide a boost to the economy. In that context, the Bush tax cuts were almost certainly a positive for the economy, leading to more consumption and therefore more demand and employment than if there had been no expansionary fiscal policy. Of course the same amount of money would have provided more stimulus if it had gone to support infrastructure, education, or other forms of spending. It would have also given the economy more of a boost if it was less tilted towards those at the top end of the income distribution.
But given a choice between the Bush tax cuts and doing nothing, the Bush tax cuts were almost certainly the better way to go. They may not have been sufficient to offset the damage caused by the collapse of the stock bubble, but they were a step in the right direction.
Note: Jonathan Chait’s name was originally misspelled as “Chiat.”
Jonathan Chait took a few swipes at Paul Ryan for his budget work and economic forecasts in a piece headlined “Paul Ryan Declares War Against Math.” Most of Chait’s shots are well-deserved, for example he notes Ryan’s claims that the Obama deficits would lead to a surge in inflation and that Obamacare would cause health care costs to soar.
However one of the Chait’s shots is definitely in the cheap seats. He tells readers:
“‘Reality’ [a sarcastic reference to Ryan’s world view] is Ryan’s description for a world in which Bill Clinton’s punishing tax hikes on the rich hindered the economy, which was restored to health when George W. Bush cut taxes.”
Actually in the reality where most of us reside, George W. Bush’s tax cuts almost certainly did provide a boost to the economy. At the time the economy was experiencing a recession due to the collapse of the stock bubble (the cause of the Clinton budget surpluses). The economy desperately needed a source of demand to replace the demand generated by the collapse of the stock bubble. This is a point that is now acknowledged even by Larry Summers, President Clinton’s last Treasury Secretary. The Fed was approaching the zero lower bound with its interest rate policy, as the federal funds rate was lowered to 1.0 percent in the summer of 2002.
This meant that fiscal policy was badly needed to provide a boost to the economy. In that context, the Bush tax cuts were almost certainly a positive for the economy, leading to more consumption and therefore more demand and employment than if there had been no expansionary fiscal policy. Of course the same amount of money would have provided more stimulus if it had gone to support infrastructure, education, or other forms of spending. It would have also given the economy more of a boost if it was less tilted towards those at the top end of the income distribution.
But given a choice between the Bush tax cuts and doing nothing, the Bush tax cuts were almost certainly the better way to go. They may not have been sufficient to offset the damage caused by the collapse of the stock bubble, but they were a step in the right direction.
Note: Jonathan Chait’s name was originally misspelled as “Chiat.”
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Thomas Edsall has a good discussion of the shift of income from labor to capital in the years since 2000. His piece puts the blame largely on the way the United States has structured global trade to put downward pressure on the wages of ordinary workers.
While Edsall’s discussion of the period since 2000 is largely on target (it does miss the impact of macroeconomic fluctuations and the fact that we have been well below full employment for most of this period), it errs in telling readers:
“Until 1999, median household income (as distinct from wealth) rose in tandem with national economic growth. That year, household income abruptly stopped keeping pace with economic growth and has fallen steadily behind then.”
While median household income did keep pace with economic growth from 1993 to 1999, it actually lagged far behind in the years from 1978 to 1993. Over this period real per capital income rose by 30.0 percent, while median household income barely changed. This divergence of median income from growth was associated with an upward redistribution of wage income, with high end earners (e.g. Wall Street types, CEOs, and doctors) gaining at the expense of most workers.
In this period, most college graduates (@ 25 percent of the workforce at the time) were among the winners. By contrast, in the period since 2000 only workers at the very top of the income distribution and owners of capital have been winners.
Thomas Edsall has a good discussion of the shift of income from labor to capital in the years since 2000. His piece puts the blame largely on the way the United States has structured global trade to put downward pressure on the wages of ordinary workers.
While Edsall’s discussion of the period since 2000 is largely on target (it does miss the impact of macroeconomic fluctuations and the fact that we have been well below full employment for most of this period), it errs in telling readers:
“Until 1999, median household income (as distinct from wealth) rose in tandem with national economic growth. That year, household income abruptly stopped keeping pace with economic growth and has fallen steadily behind then.”
While median household income did keep pace with economic growth from 1993 to 1999, it actually lagged far behind in the years from 1978 to 1993. Over this period real per capital income rose by 30.0 percent, while median household income barely changed. This divergence of median income from growth was associated with an upward redistribution of wage income, with high end earners (e.g. Wall Street types, CEOs, and doctors) gaining at the expense of most workers.
In this period, most college graduates (@ 25 percent of the workforce at the time) were among the winners. By contrast, in the period since 2000 only workers at the very top of the income distribution and owners of capital have been winners.
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