American living standards aren't declining. It's simply that data used to support that claim are incomplete and misleading, according to a new study from the National Center for Policy Analysis. Total employee compensation has risen -- not fallen -- over the past two decades, according to Dallas Federal Reserve economists Michael Cox and Beverly Fox, the authors of the study.
Consider these factors which are usually overlooked:
While some analysts have claimed that household income has edged down 0.1 percent per year, it should be noted that:
As for the supposed growing gap between capital and labor, both wages and returns to capital have dropped as a share of personal income during the past 20 years due to the growth of transfer payments. Meanwhile, Social Secuity and welfare grew to nearly 17 percent of personal income in 1994, versus 11.6 percent in 1973.
Finally, statistics show that the family that wants to get ahead should emphasize education.
The data suggest that tax cuts and school reform should be major elements on the American agenda -- the cuts to promote growth, educational reform to boost income.
Source: Perspective, "Are the Good Times Gone?" Investor's Business Daily, February 6, 1996.
Month by month, the evidence grows that the U.S. economy is headed for trouble. Massive corporate layoffs are in the headlines, and an insufficient number of jobs is being created to satisfy employment demands.
Many economists believe these braking effects are the result of President Clinton's 1993 tax increases. They blame a tax system that inhibits job creation, punishes hard work and success, and even taxes savings, investment and dividends.The Clinton administration blames recent job losses on the January snowstorm. Critics point out that America's job-creating machine has been slowing down for months.
Source: Donald Lambro, "Job Despair...and the Growth Message," Washington Times, February , 1996.
Analysis of the Census Bureau's 1995 Current Population Survey shows that in recent years the elderly have received an increasing percentage of their incomes from Social Security, pensions and annuities, while the percentage of their incomes from employment and assets has declined.
The average income for an individual age 65 or over in 1994 was $16,049, up from $12,239 in 1974, in inflation-adjusted 1994 dollars.
The lower an individual's total income, the higher the percentage of it that comes from Social Security. In 1994, Social Security accounted for 84.8 percent of the total income of the elderly in the lowest income quintile, compared with 23.2 percent of income for those in the highest income quintile.
Source: "Income of the Elderly," Facts from EBRI, January 1996, Employee Benefit Research Institute, 2121 K Street, Suite 600, Washington, DC 20037, (202) 775-6342.
The headlines of dramatic lay-offs within American corporations may cause many Americans greater concern than is actually warranted. As the downsizing picture has been described, the pace of lay-offs is rising, blue collar and hourly workers are being hit hardest, finding a new position takes unemployed workers a long time and no one is safe anymore.
But the facts are otherwise:
Data show that announced lay-offs are still confined chiefly to the aerospace, oil, computer and telecommunications industries. And East coast firms are still doing most of the cutting.
Source: Paul Sperry, "Downsizing Myths," Investor's Business Daily, February 13,
Most economists believe that wages tend to rise in line with productivity. Until recently, it looked like the rate of productivity growth had increased during the 1990s -- while wages were languishing. But new statistics released last week by the Labor Department show productivity growth has not accelerated so far this decade.
Then why are wages falling? Because:
Source: Bill Montague, "Sluggish Productivity Gains Hold Wages Down," USA Today, February 15, 1996.
The announcement by AT&T that it would reduce its work force by laying off more than 40,000 employees seems to have confirmed in many reporters' minds that corporations are racking up record profits for wealthy shareholders while laying off millions of workers.
However, the real story is a bit different.
Actually, "big corporations" are a relatively small part of the American economy, and most new jobs are created by small and middle-sized firms.
Source: "Focus on Fortune 500 Misses Real Trends: Lamenting Layoffs, Ignoring Job Rise," MediaNomics, Vol. 4, Issue 1, January 1996, Media Research Center, 113 S. West Street, 2nd Floor, Alexandria, VA 22314, (703) 683-9733.
Economists are concerned by the troublesome decline in the rate of real economic growth in the U.S.
Productivity can be increased by 1) education and training of the work force, 2) by investing in private equipment and structures, and public infrastructure, and 3) improving efficiency.
Economists believe that growth slows as the ratio of government spending on goods and services to gross domestic product (GDP) increases. It is also slowed as political instability and distortions in the markets increase.
Distortion in the markets is of prime importance to supply-siders who believe the potential growth rate of GDP is limited by the marginal tax rate. They include in this tax rate all government intervention in economic activity -- taxes, regulations, compliance costs and subsidies.
Source: Peter K. Pfabe, "If Only Politicians Knew How," Investor's Business Daily, February 20, 1996.
Economists point to a host of reasons for not increasing the minimum wage by 90 cents an hour as the president wants to do. But two major arguments stand out.
Increases in the minimum wage destroy jobs, as has been demonstrated in countless studies including one from the national Center for Policy Analysis, which found that increases worsened unemployment in the recession of 1973-74.
Some further data:
So while the poor are not the chief beneficiaries of the increases, they are still the chief victims of the job losses.
Source: Doug Bandow (Cato Institute), "Wages of Faulty Policy," Washington Times, February 18, 1996.
Part of the budget struggle between President Clinton and Congress has been whether the economy will grow at 2.3 percent or at 2.5 percent annually. At one time, liberals liked growth, as did both Republican and Democratic presidents.
What happened to make economic growth projections unwelcome? Environmental hysteria connecting growth with pollution took a toll, as did the rising inflation that accompanied growth in the 1970s.
However, among macroeconomists, the cooled passion for growth may have reflected the change in the way it was being pursued.
Liberals no longer claim government spending can grow the economy; instead they de-emphasize growth. They argue that regardless of policy, the economy cannot grow any faster than its long-term average of 2.5 percent annually. Thus, they say, the debate should be over a "fair" distribution of income, rather than increasing incomes.
Yet from 1982 to 1989, the U.S. economy grew at an average annual rate of 3.7 percent. Voters liked it, and the Washington policy makers who took it away are history.
Source: Paul Craig Roberts, "Why is the U.S. Settling for Stunted Growth?" Business Week, January 8, 1996.
Americans' standard of living has changed utterly and completely over the decades of the Twentieth Century. Comparing such elements as poverty levels, unemployment rates, productivity, real rates of pay and even life expectancy offers an astonishing picture of progress and prosperity.
Tremendous increases in life expectancy together with changes in U. S. fertility patterns have very nearly brought an end to the tragedy of orphanhood.
In 1992, a hypothetical family of four in financial need who received welfare assistance received a total of about $22,000 per year. This is roughly equivalent in purchasing power to $2,300 in 1929. A family receiving and spending that amount in 1929 would have been considered very well off, indeed.
Source: Nicholas Eberstadt (American Enterprise Institute), "The Modern-Day Paradox of Poverty," Washington Times, February 26, 1996.
It is often said that Americans aren't putting enough aside in savings. Well, it depends on how one defines "savings."
If one defines savings as the proportion of disposable personal income individuals set aside, then Americans are saving less now than they used to.
But if one uses a broader gauge to define savings -- including net investment in owner-occupied housing, increases in financial assets such as stocks, purchases of consumer durables and net reduction in household debt -- then the numbers paint a somewhat less gloomy picture.
When one adds in "involuntary savings" -- personal and employer taxes paid to fund Social Security, Medicaid and Medicare, and employer contributions for health and pension benefits -- the numbers tell another story.
The clear implication is that the growth of taxes has impeded the rate of personal savings. According to tax researchers, the federal tax system is almost designed to keep people from saving.
Their research shows that for most businesses and individuals, there has to be an incentive to postpone consumption, and that incentive comes from the after-tax return on capital:
Punitive taxation placed on personal income -- through social insurance and higher income taxes, along with the capital gains tax -- are the source of the low savings rate. The prospect of higher taxes makes people simply spend their money or put it in unproductive tax shelters.
Source: Perspective, "Taxing and Saving," Investor's Business Daily, February 28, 1996.
The optimal level of spending by the federal government is about 17.6 percent of Gross Domestic Product (GDP), according to the Joint Economic Committee of Congress. Beyond this point, according to a report from the committee, the resources consumed by government impose more costs on the economy than benefits. At current levels:
Thus for any given year, for every $100 billion of projected federal spending growth curtailed, the economy would grow by an additional $38 billion, increasing economic output in the following years as long as the policy remained in effect.
Source: Lowell Gallaway and Richard Vedder, "The Impact of the Welfare State on the American Economy," December 1995, Joint Economic Committee of Congress, Washington, D.C.