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A public policy blog from AEI
In 1776, America set off to unleash human potential by combining market economics, the rule of law, and equality of opportunity. This foundation was an act of genius that in only 241 years converted our original villages and prairies into $96 trillion of wealth.
The Oracle of Omaha goes on to describes the power of greater innovation and faster productivity on American life. Much of today’s middle-class now enjoy a lifestyle reserved for the wealthy in Buffett’s birth year of 1930. And even if the US economy only grows 2% annually from here forward — versus more than 3% since World War Two — that’s really not so bad on a per capita basis given slower population growth. Buffett: “In 25 years — a single generation — 1.2% annual [per capital GDP] growth boosts our current $59,000 of GDP per capita to $79,000. This $20,000 increase guarantees a far better life for our children.”
Of course that assumes average growth is similar to median growth. So distribution is an issue. And I am not sure that so-so pace of growth is fast enough to be felt as progress. Indeed, as Stanford University’s Charles Jones has noted, “For nearly 150 years, GDP per person in the US economy has grown at a remarkably steady average rate of around 2% per year.” So I think that should remain our goal, one I believe is achievable.
Now one bit of Buffett’s essay I question is his assertion that the middle class has stagnated since the early 1980s. I raised this issue with AEI visiting scholar Bruce Meyer in a recent interview:
Pethokoukis: When people talk about inequality, usually in the next breath they’ll say, “Listen, that top 1% is now getting a lot of the income, and at the same time, incomes for the middle class have been stagnant for 30, 40, maybe 50 years.” Those two facts are used together, I think, to show a relationship between the two. Is that right? Because to me it seems intuitively, how could that possibly be right that the median American is no better off than he was sometime in the 1960s?
Meyer: I think you’re right to not believe it, I think that statistic is wrong. If you look at the consumption of the median household, it’s gone up a lot over the last 30 years. Part of the explanation for the difference between what I am saying and some of the conventional statistics that you might see from the census bureau is that we often use a way of adjusting for price changes that overstates the extent of inflation. So it makes it look like we are not doing well in the middle of the distribution even when we are.
There are very tangible things that you can look at to see that people in the middle of the distribution are better off than they were 20, 30 years ago. For example, if you look at the share of people in the middle of the income distribution that have central air conditioning, or maybe only a couple of room air conditioners, or have a dishwasher, or a washer and a dryer in their house or apartment — those numbers for the middle look like the numbers for the top 20% as of 20 or 30 years ago. So there’s been quite dramatic improvements if you look at tangible things like what kinds of appliances have in the house. You can also look at the size of people’s houses or apartments — square footage, number of rooms — those things have gone up quite sharply for people in the middle of the distribution.
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