Who Gains From Growth? Let’s Get a Better Answer
(The Bloomberg View) -- Judging from the official data, the U.S. is in the midst of an extended period of prosperity: In inflation-adjusted terms, the economy has grown more than 20 percent since it last hit bottom in 2009. But who is really benefiting? Are the gains broadly shared, or are they going mainly to a privileged few?
These questions need better answers.
The U.S. has long produced some of the world’s most detailed and reliable economic data. It’s a tradition that harks back to the Great Depression of the 1930s, when the Commerce Department, aiming to understand what was going on, commissioned the economist Simon Kuznets to produce the country’s first comprehensive estimates of national income. To this day, a variation of that measure — gross domestic product — serves as the primary gauge by which countries around the world compare their performance.
Even in 1934, though, Kuznets recognized that such aggregate measures of economic output were incomplete. At best, they could be used to calculate average income per person, which offers no insight into the experience of individuals. If Warren Buffett walks into a soup kitchen, the room’s average income will shoot up, but nobody will be better off. The quality of economic growth matters as much as the quantity — and the quality depends in part on how its benefits are spread.
The 2008 financial crisis drove the point home. The economic growth of the 2000s failed to benefit millions of Americans who’d gone deep into debt to make up for their stagnant incomes. That was bad in its own right, but worse was to come. The pattern of growth helped turn a housing slump into a much larger disaster — proof that the distribution of income matters not only as a matter of fairness, but also because the wrong kind of growth can be self-defeating.
Since the crisis, academic interest in inequality has surged, and governments are increasingly engaged. A report commissioned by the French government recommended that official data give more prominence to the distribution of income, and an expert group at the Organization for Economic Cooperation and Development developed a methodology for doing so. Australia has published national accounts that break income down across fifths of the population. It found that all groups were experiencing pretty similar growth, thanks in part to social assistance for the poor.
The picture appears to be very different in the U.S. One recent paper — by the economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman — finds that the inflation-adjusted, pre-tax income of the poorest 50 percent of Americans failed to rise between 1980 and 2014, while the income of the top one percent tripled. As a result, the share of total income received by the bottom half fell from about 20 percent to just 12.5 percent — a decline that government redistribution did little to mitigate.
To provide a fuller picture, and to grant the issue the prominence it deserves, the government should publish distributional accounts on a regular basis. The numbers ought to include both pre-tax and post-tax distributions, to show the effect of government policies. The Bureau of Economic Analysis has the technical capability, and has done some test runs. What it needs now are resources — and easier access to Internal Revenue Service records.
A group of senators recently proposed a bill instructing the BEA to report income distribution along with its quarterly GDP numbers, and allocating the necessary funds. This would be an excellent first step. Legislators should put the bill on the president’s desk. Reasonable people can disagree about how to address disparities in income and wealth, but not on the need for data to show what’s going on.
Editorials are written by the Bloomberg View editorial board.
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