For progressives, the economy of the mid-20th century constitutes a kind of paradise lost. Between 1947 and 1973, mean family income doubled, rising as much among the poor as among the rich. By contrast, from 1973 to 2007, income growth was half as great. While growth was less equally distributed than in the earlier “Golden Age,” it slowed across the board, with all but the top 1 percent seeing declines in annual income growth. So profound and demoralizing was the change that Paul Krugman called ours the “age of diminished expectations.”
Concern over the slowdown of economic growth spans the ideological spectrum, even when it is not accompanied by worry over rising inequality. “Typical individuals in earlier generations reaped much greater gains than ours, as their living standards doubled every few decades,” wrote libertarian economist Tyler Cowen in his 2011 book, The Great Stagnation. “Life is better and we have more stuff, but the pace of change has slowed down compared to what people saw two or three generations ago.” Similarly, Northwestern University economist Robert Gordon predicts that “the rapid progress made over the past 250 years could well turn out to be a unique episode in human history.”
Indeed, the rate of economic growth has slowed, and the benefits of growth have certainly shifted toward those at the top. But these basic facts have been misinterpreted and divorced from the relevant context to paint a skewed picture of our economic circumstances. Setting aside the enormously important question of how growth is distributed, it is important to appreciate the magnitude of real economic gains that we continue to experience. The current obsession with growth rates prevents us from doing so.
Chosen excerpts by Job Market Monitor