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The Perils of Economic Boosterism

Beneath every sign of recovery breathlessly touted by political elites lies a long-term trend of grave concern to ordinary Americans.

Drew Angerer/Getty Images

One of my earliest memories of economic babble was President Gerald R. Ford, in 1976, boasting that there were more Americans working than ever before. I hadn’t yet taken up the study of economics (I obtained a bachelor’s degree in English Literature in 1971), but I knew enough to be suspicious. After all, in a continuously growing economy, there will always be more Americans working than ever before, almost every year. The same can be said for the “stock market records” repeatedly touted by President Donald Trump. The lengthy market recovery after 2008, which is indeed remarkable, means there are opportunities to set “records” on a weekly basis. Even better, should the market turn down a tick today and rebound by two ticks tomorrow, bingo: There’s another new record to celebrate.

Economic boosters tend to play two basic angles. The first involves the question of responsibility: Who or what deserves credit for good news or the blame for bad? The second takes up the matter of just how good is good. That is to say, how seriously should we take the short-term fluctuations in the statistics that inspire breathless headlines, such as the gross domestic product, monthly increases in jobs, and the unemployment rate? Presidents are usually afforded more credit or blame than they actually deserve. The party holding the White House has a vested interest in magnifying the role of the president when it comes to good news, and the opposition has an incentive to emphasize the role the president played whenever bad news emerges.

Boosterism provides a crutch to the party in power but it creates a boomerang effect when that party goes into opposition. The same opportunism once used to exploit economic trends beyond your control in order to gain a narrow political advantage is subsequently deployed against you. This is happening now, to the benefit of Donald Trump. The broader trends may have something to do with longer-term Republican ascendance and the attenuation of traditional white working-class allegiance to the Democratic Party, or they may not. Regardless, Barack Obama’s share of the post-2008 recovery seems to have been insufficient to put Hillary Clinton in the White House.

Either way, from a longer-term perspective, there is less there than meets the eye. Obama deserves credit for his response to the 2008 meltdown, but the lengthy recovery that followed is no more his than it is Donald Trump’s. To get past partisan wrangling, we should call it the Obama-Trump Recovery. Everything bad about Trump’s economy applies equally to Obama’s, and everything good about Obama’s tenure applies to Trump’s. But even the perspective that a 10-year window provides often misses bigger changes in the economy. Others can grasp for trivial factoids that compare Trump to Obama. Our interest lies in the state of capitalism in the twenty-first century.

The basic problem with aggregates and averages is that they gloss over the underlying structural changes to the economy that pertain profoundly to the well-being of ordinary Americans. Our principal sources of economic news derive from changes in the GDP, national employment, the unemployment rate, and the stock market. This is the real fake news: Each of these conceals a world of countervailing considerations. For example, from 2008 to 2019, the GDP, adjusted for inflation, grew by 25 percent. But in the case of GDP, a leading ancillary concern is not just total income growth, but its distribution. Among other things, the total obscures outliers—and in the United States, we have a lot of outliers: They’re called the superrich and the desperately poor.

At the high end, we could look at changes in the distribution of income. Since 2008, the share of income for most quintiles (20 percent slices) of U.S. households decreased. Only for the top quintile did it increase. Moreover, most of that increase went to the top 5 percent. What’s more, within the top 1 percent, income gains were disproportionately stacked to the top .01 percent. As Howard Gold noted in the Chicago Booth Review,The 1 percent, it turns out, have their own 1 percent.

The raw votes of the rich don’t add up to much: That top .01 percent only accounts for approximately 16,000 families. But the political clout their money can buy certainly makes up for their lack of numbers. Moreover, thanks to popular media and the self-promotion of the rich themselves, the unrich are acutely aware of the rich. Perceptions of just and unjust deserts could be presumed to affect voting behavior.

Meanwhile on the poor side of town, we can observe that during the Obama-Trump recovery, the poverty rate clearly decreased, as it ought to have. Once again, however, a longer view is pertinent. In 1980, the poverty rate was 13 percent. In the latest year reported, 2018, it is just a hair under 12 percent, notwithstanding 40 years of economic growth.

That was the top and bottom, but what about the middle? The median income level is unaffected by outliers and is thus a better gauge of where most people are found. Median household income has certainly increased since the depths of the recession, but from a longer perspective, it has only risen to approximately where it was in 1999. The rising tide did not lift all boats.

Another statistic regularly cited in the news is the change in national employment, reported at the beginning of the month by the Bureau of Labor Statistics. On those occasions, the media typically hypes a number that’s usually in the hundreds of thousands. As with GDP, there is less there than meets the eye.

The past decade, from 2010 to the present, brackets most of the administration of Barack Obama and all of Donald Trump. During that time, national employment increased by nearly 16 percent. The monthly increase in jobs reported in the BLS’s “Employment Situation” press release invariably makes the news, if only briefly. More jobs are always better, right? Sure, but this excludes a host of pertinent considerations that should be included in this snapshot.

For one thing, the net change masks the extent of “churning” in the labor market—the number of people who switch jobs—which is much greater than the net gain or loss in employment. For instance, in 2013 the “churn rate” was 68 percent. For some occupations, it exceeded 100 percent. A job switch can be either a gain or a loss for the worker involved, but the net aggregate change tells you nothing about that.

A more revealing gauge of job market health than the net change in total jobs is whether increases in employment are keeping pace with increases in population. To the extent they do not, jobs have become scarcer relative to the likely number of workers. The ratio of employment to population, or EPOP for short, has certainly risen since 2008, but it remains lower than it was before the past three recessions, going all the way back to 1990. One common explanation for this phenomenon is the aging of the population. An older population will have more retirees, giving rise to a decline in the ratio. The problem is, if one confines the measurement to those between the ages of 25 and 54, we also observe a deficit, compared to the business-cycle peak in June 2000.

The EPOP has a major advantage over its more popular cousin, the unemployment rate. The latter fails to include those who respond to surveys that they are no longer looking for work. There are some good reasons an individual may choose this response. She may be attending or returning to college. He may be going on disability or retiring. But there is no good reason why, over an extended period, the EPOP for the nonelderly should trend downward. And yet it does.

Even if we grant that any increase in the number of jobs is a boon to the economy, we ought to inquire: Just how great are those jobs? How well do they pay? Growth in pay, in the form of average hourly earnings, is positive for the entire spectrum since 2010, but that growth over the long run has fallen far short of the growth in productivity.

Pay is one thing, job quality is another. The benefits of hourly wages depend in part on the extent of work available and on the stability of work schedules. Some researchers have constructed a “Job Quality Index” or JQI, which we could also consider an “economic anxiety index.” In the JQI context, the benefits of employment growth are much more ambiguous. The biggest underlying change is the growth of the service sector over the past five decades. There has been some pickup in manufacturing in recent years, but it happens to be due to growth in food, the lowest-paid manufacturing component. For all the talk about the “gig economy,” multiple jobholding, and self-employment, the JQI research cited above does not find these to loom large in the overall trend in job quality. The new bosses are the same as the old bosses.

Finally, we have the stock market. Up is good, down is bad. Many have ownership of at least a little stock, through their stakes in retirement accounts. What is not controversial is the extent to which ownership of stock, or wealth in general, is concentrated—mostly in the hands of an elite few.

Does anyone care about the wealth of others, rather than just their own? We could hypothesize that what sets people off is not their absolute level of wealth or income  but the gap between their own level and what they think it should be. The latter could have some basis in how others are doing, not least because some of them are inclined to flaunt their good fortune. This resentment would naturally be magnified to the extent a person’s own lack of wealth puts them at some risk of insolvency, possibly putting higher education or home ownership out of reach.

While news, punditry, and politics are preoccupied with the statistical analysis of short-term fluctuations in economic data, less consideration is lent to longer-term trends. It is possible to find ridiculous patterns within the blizzard of short-term data sets, such as the correlation between people who drown in swimming pools and Nicholas Cage movies. The problem is that there aren’t many long terms to rely on for an adequate sample. If you have a consistent 20-year trend, you don’t have 20 data points. You just have one.

Relating long-term trends is as much a literary exercise as a statistical one, a matter for historians and poets. The short-term fluctuations lend themselves to horse-race political punditry and suggest an illusory precision. In a nation grasping for answers, the preoccupation with short-run economic changes can fill a vacuum for a time and become a football for partisan interests. The long run remains a picture of burgeoning inequality of income and wealth, slow wage growth, declining job quality, and persistent poverty. When the bill comes due, the political economy cannot fail to be affected. It’s small wonder we are often so surprised at the turn of events. But then, we seldom look past our noses.