By some measures, the U.S. economy has done a decent job of enduring the tax increases and spending cuts imposed earlier this year. We now know, for example, that gross domestic product has been expanding at about the same rate in the first half of this year as it has since mid-2010. This supports the argument that the Federal Reserve’s stimulus actions have managed to offset the impact of fiscal tightening.
This doesn’t mean that all is well. For one thing, growth is still too anemic to return the U.S. economy to anything resembling full employment for several more years, even under the most optimistic assumptions. At the same time, new evidence from the U.S. Bureau of Economic Analysis, which released its monthly personal income and spending report today, indicates that most of the modest growth has gone to the small share of the population that owns the vast majority of the country’s assets.
Since the beginning of 2013, total personal income has increased by about $323.3 billion, while total employee compensation has increased by just $112.5 billion. People who get their income from renting out real estate, from dividends on stocks and from interest payments on bonds got an additional $186.7 billion. (The rest of the growth came from Social Security, Medicare, Medicaid, and veterans’ benefits.) Put another way, workers only got about a third of the economic growth generated so far this year. That’s significantly less than their average share of income growth since the beginning of 2010, which was closer to about half.
This might not be so bad if the higher returns on assets encouraged new business investment, which in turn would create more jobs and lead to a broader recovery. So far, this hasn’t happened. Instead, we have seen disproportionate employment growth in low-paying services industries, even though most of the jobs that were lost in the recession paid wages closer to the median income. Since current government policies aren't working very well, maybe it’s time to try something new.
(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)