Friday, July 26, 2013

Juicy Juice: Growth and Inequality

Growth and Inequality: Thinking About the Middle-Out Hypothesis by Jared Bernstein

Interesting to think of this in terms of Krugman's objections.

In the period after World War II, a growing middle class was the engine of our prosperity. Whether you owned a company, swept its floors, or worked anywhere in between, this country offered you a basic bargain – a sense that your hard work would be rewarded with fair wages and benefits, the chance to buy a home, to save for retirement, and, above all, to hand down a better life for your kids. 
But over time, that engine began to stall. That bargain began to fray. Technology made some jobs obsolete. Global competition sent others overseas. It became harder for unions to fight for the middle class. Washington doled out bigger tax cuts to the rich and smaller minimum wage increases for the working poor. The link between higher productivity and people’s wages and salaries was severed – the income of the top 1% nearly quadrupled from 1979 to 2007, while the typical family’s barely budged. 
Towards the end of those three decades, a housing bubble, credit cards, and a churning financial sector kept the economy artificially juiced up. But by the time I took office in 2009, the bubble had burst, costing millions of Americans their jobs, their homes, and their savings. The decades-long erosion of middle-class security was laid bare for all to see and feel.
What happened? The bargain begin to fray? Impersonal forces like technology, globalization and the decline of unions? Washington policy skewed in favor of the rich. "The link between higher productivity and people’s wages and salaries was severed." After 3 decades the economy was growing as much as it was because of an "artificial juicing." 

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