Economic Growth in the United States: A Tale of Two Countries

http://economistsview.typepad.com/economistsview/2016/12/economic-growth-in-the-united-states-a-tale-of-two-countries.html

Dec. 6, 2016
Thomas Piketty, Emmanuel Saez, Gabriel Zucman:

Economic growth in the United States: A tale of two countries, by Thomas Piketty, Emmanuel Saez, Gabriel Zucman, Equitable Growth: Overview The rise of economic inequality is one of the most hotly debated issues today in the United States and indeed in the world. Yet economists and policymakers alike face important limitations when trying to measure and understand the rise of inequality.

Our first finding—a surge in income inequality

First, our data show that the bottom half of the income distribution in the United States has been completely shut off from economic growth since the 1970s. ...

It’s a tale of two countries. For the 117 million U.S. adults in the bottom half of the income distribution, growth has been non-existent for a generation while at the top of the ladder it has been extraordinarily strong. And this stagnation of national income accruing at the bottom is not due to population aging. ...

Our second finding—policies to ameliorate income inequality fall woefully short

Our second main finding is that government redistribution has offset only a small fraction of the increase in pre-tax inequality. ...

Our third finding—comparing income inequality among countries is enlightening

Third, an advantage of our new series is that it allows us to directly compare income across countries.

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One example of the value of these efforts is to compare the average bottom 50 percent pre-tax incomes in the United States and France.8 In sharp contrast with the United States, in France the bottom 50 percent of real (inflation-adjusted) pre-tax incomes grew by 32 percent from 1980 to 2014, at approximately the same rate as national income per adult. While the bottom 50 percent of incomes were 11 percent lower in France than in the United States in 1980, they are now 16 percent higher. (See Figure 3.) ... Since the welfare state is more generous in France, the gap between the bottom 50 percent of income earners in France and the United States would be even greater after taxes and transfers.

The diverging trends in the distribution of pre-tax income across France and the United States—two advanced economies subject to the same forces of technological progress and globalization—show that working-class incomes are not bound to stagnate in Western countries. In the United States, the stagnation of bottom 50 percent of incomes and the upsurge in the top 1 percent coincided with drastically reduced progressive taxation, widespread deregulation of industries and services, particularly the financial services industry, weakened unions, and an eroding minimum wage.

[In other words, the stagnation in the U.S. coincided with the policies that Trump wants more of.]

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