Debunking the pessimism about the U.S. economy

November 22, 2006

Free Market Foundation

The gains from America’s recent economic growth have been widely shared throughout society, as low- and middle-income families not just the wealthy have seen their standards of living improve dramatically, says James Sherk, a policy analyst with the Heritage Foundation.

But despite the facts, some still claim that few Americans have benefited from the growing economy. Their analysis is based on four specific claims, says Sherk:

The share of income earned by the wealthiest Americans has risen, and these are the only Americans whose standards of living have improved.

Inflation-adjusted wages have not risen for most Americans.

Wages have not kept pace with rising productivity.

Wages and salaries, as a share of the economy, have fallen in recent years, while corporate profits have risen.

But a closer look at the data reveals that most Americans have shared in the rising prosperity. Consider:

Between 1979 and 2004, the proportion of Americans with inflation-adjusted incomes below $75,000 fell by 10.1 percentage points.

The largest portion of the decrease came from households earning less than $35,000.

Workers total compensation wages plus benefits have risen by 3 per cent since 2003 and 9 per cent since 2000, after adjusting for inflation.

Net worth of the median American family rose from $70,800 in 1995 to $93,100 in 2004.

And beyond rising incomes, Americans have also seen dramatic improvements in their standard of living. For example:

Newly built homes in terms of square feet almost doubled from 1979 to 2004.

Medical advances have improved the health and quality of life of all Americans, raising the life expectancy from 73.7 years in 1980 to 77.9 years today.

Between 1997 and 2003, the proportion of Americans with computers at home went from 37 per cent to 62 per cent; and internet access leapt from 18 per cent to 55 per cent.

Source: James Sherk, Shared Prosperity: Debunking Pessimistic Claims About Wages, Profits, and Wealth, Heritage Foundation, Backgrounder 1978, October 16, 2006.

For text: http://www.heritage.org/Research/Economy/bg1978.cfm

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

FMF Policy Bulletin/ 14 November 2006