American Wellbeing Since 1979

BERKELEY – The story goes like this: Since 1979 – the peak of the last business cycle before the inauguration of Ronald Reagan as President – economic growth in the United States has been overwhelmingly a rich-only phenomenon. Real (inflation-adjusted) wages, incomes, and living standards for America’s poor and middle-class households are at best only trivially higher. While annual real GDP per capita has grown 72%, from $29,000 to $50,000 (in 2009 prices), almost all of this growth has gone to those who now occupy the highest tier of the US income distribution.

All of this is true, but there are a few important caveats. One is found in the Distribution of Household Income and Federal Taxes, published by the US Congressional Budget Office (CBO) last year. After-tax real income for the lowest quintile of US households was 49% higher in 2010 than in 1979, growing at an average rate of 1.3% annually. After-tax income for the middle three quintiles in 2010 was 40% higher – equivalent to 1.1% average annual growth.

To be sure, households in the 81st to 99th percentiles gained 64% in after-tax income, with the top 1% up by 201%, representing an average annual growth rate of 3.6% – far ahead of any other income group. And, by now, with the recovery concentrated among the rich as well, the top 1% of Americans are highly likely to be approaching a cumulative 300% gain since 1979.

But real income gains of 1.3% per year for the middle quintiles and 1.1% for the bottom are not exactly chopped liver, are they? The gap with 1.6% average annual growth rate for per capita GDP is small, isn’t it?