The 2010s demonstrate something very important about the U.S. economy: Its capacity to generate broad-based income gains is still intact. In recent decades, many have come to believe U.S. economic growth only benefits the wealthy. But per capita GDP only grew by about 9.4% total between 2014 and 2019. That means the typical American household’s income actually outpaced the economy itself. And this all happened with slower-than-usual growth in government transfer payments.
In other words, economic growth can still generate prosperity for middle-class and poor Americans. But the circumstances have to be right. Most importantly, the country has to avoid being buffeted by the cruel winds of macroeconomics. Like a well-running car that keeps driving over potholes, the U.S. economy has been hit by the tech bust of 2000, the housing crash of 2008, and the coronavirus disaster of 2020.
It’s not clear the Federal Reserve has the power to prevent or even substantially delay episodes like these, but it should try. The priority should be to keep expansions going for as long as possible — to avoid “taking away the punch bowl” unless inflation is running rampant. The longer the boom, the more of the benefits go to the middle class and poor. Congress can help by tempering its instinct toward fiscal austerity.
Finally, the U.S. government should try to minimize the impact of episodes like the China Shock and coronavirus. Pushing back against Chinese currency undervaluation in the ‘00s might have helped ameliorate wage declines. And wise management of the pandemic would have mitigated the current economic crisis.
Fundamentally, though, the 2010s expansion suggests a vast overhaul of the U.S. economy might not be as necessary as more radical reformers believe. Racial income gaps need to be compressed, inequality needs to be reduced, and threats such as climate change must be averted. But there is much that is right in the U.S. economic system.
This article was provided by Bloomberg News.