The End of Progress in the Developed World
For hundreds of millions of people in the U.S. and Europe, the past decade has been absolutely without any advance in incomes. This could be the start of an entire generation that never sees its living standards progress.
A new report from McKinsey finds that in developed economies (primarily Western, first-world nations), a staggering two-thirds of households experienced “flat or falling” incomes over the past decade, from 2005-2014. In the U.S., the portion was even worse: 81%. This, in a very real way, is evidence of the death of the American dream. No, Timmy and Susie, you won’t live a better life than your parents did.
“While the recession and slow recovery after the 2008 global financial crisis were a significant contributor to this lack of income advancement, other long-run factors played a role—and will continue to do so,” McKinsey notes. “They include demographic trends of aging and shrinking household sizes as well as labor-market shifts such as the falling wage share of GDP.” Here, from the report, is an illustration of how the share of GDP that goes to worker wages has been falling:
Here is another factor:
(For context, McKinsey writes that “In Sweden, a country with a long tradition of social democracy where 68 percent of workers are represented by unions, the median household received a greater share of output that went to wages—and received more of the gains from output growth than households in Sweden’s top and bottom income deciles.)
This—the triumph of capital over labor, the triumph of investors over workers, the triumph of the rich over the middle and poor—is the story of our lifetimes. This is the macro trend that is driving political sentiment around the developed world. This is the fruit of economic inequality. The vast majority of people have seen their earnings stagnate, or worse. This is the other significant portion of U.S. earners who escaped the fate of stagnation, via the Wall Street Journal:
In the U.S., households from the 80th to 95th percentile gained, underscoring the extent to which America’s upper middle class has thrived. Households from the 60th to 80th percentile were little changed. Households in the bottom 60% lost ground, as did those at the very top. To be sure, these households earn dramatically more than those at the median, but most of those gains occurred before the recession, and hadn’t been fully regained as of 2014 by this measure.
Over a slightly longer time frame, the top decile has done extremely well also. Transfers of wealth enacted by governments are essentially the only thing mitigating the trends of inequality.
The majority of Americans are economically losing and the only ones winning are those at the top. That is the story. Whether or not we change it depends mostly on our own political decisions. If you trust wealthy Republicans to make those necessary political changes, you are a fool.