FacebookTwitterGoogle+RedditEmail

The Growth Stealers

by DEAN BAKER

The Wall Street crew has been in high gear trying to convince the public that our children’s well-being is going to be threatened by their parents’ and grandparents’ Social Security. This story would be laughable except that it is endlessly repeated by people in positions of power and responsibility. For this reason it is worth going over the basic numbers yet again so that everyone knows that the people making these assertions are either ignorant or dishonest.

The basic point is that the economy gets more productive through time. This has been true for hundreds of years and no one has any good stories as to why it should not continue to be true long into the future.

Our measures of productivity growth are not very good for the years prior to World War II, but according to the Bureau of Labor Statistics in the 65 years since 1947 productivity growth has averaged 2.2 percent annually. There have been periods of more and less rapid growth.

The strongest growth was in the quarter century after the war when productivity growth averaged 2.9 percent annually. We then had a slowdown in the years from 1973 to 1995 when growth averaged just 1.3 percent annually. Since 1995 productivity growth has averaged 2.3 percent.

These numbers should be well known to everyone involved in economic policy and budget debates. Productivity is the measure of the value of the goods and services that workers produce in an hour of work. When productivity rises through time it means that workers are producing more value through time. If workers get their share of the gains of productivity growth then they will be getting richer through time.

These gains would have a dramatic effect on living standards over time. Suppose that we continued to see productivity grow at a 2.3 percent annual rate over the next quarter century, the same pace that we have seen over the last 15 years. If workers got their share of this growth, wages would be on average more than 75 percent higher than they are today. Just to be clear, this adjusts for any inflation over this period; in 2038 a typical worker would be able to buy 75 percent more goods and services than a typical worker today.

Even in a more pessimistic productivity story there would still be room for large improvements in living standards. If productivity growth fell to the 1.3 percent rate of the slowdown years, a typical worker in 2038 would still have a wage that is 38 percent higher than the average wage today. In short, even in a worst-case scenario, where productivity falls back to the slowest pace we have seen in the last 70 years, workers will on average be much wealthier than workers are today.

Now let’s bring in the deficit hawks who are screaming about demographics and the burdens of Social Security and Medicare. Imagine the case where we raise the Social Security and Medicare taxes by a total of 5 percentage points over the next quarter century. This is highly unlikely since there are many other ways to deal with the projected shortfalls in these programs, but since the Wall Street folks have put up so much money to push their agenda, let’s give them an extreme case.

In the case where productivity growth continues at its recent 2.3 percent annual rate, in a quarter century after-tax wages would still be more than 65 percent higher than they are today. Even if productivity growth falls back to the rate of the slowdown years, after-tax wages would still be 30 percent higher in 2038 than today.

It is also important to remember that after 2038 the demographics barely change but productivity keeps growing. This means that our children and grandchildren will continue to grow richer through time without any negative impact from an increasing population of retirees.

In reality there are some complications in converting productivity growth to wage growth, so the rise in wages would be somewhat less than these calculations imply; but the basic story is not debatable. All plausible projections of productivity growth show that average wage growth will swamp any negative impact on workers’ living standards from a growing burden of retirees.

At this point everyone should be screaming that workers have not been seeing the gains of productivity growth in the last three decades. This is exactly right. The wages of most workers have barely risen since 1980 because the vast majority of the gains from growth have gone to those at the top of the income distribution.

This is worth repeating a few hundred million times. Most workers have seen little benefit from growth because the gains have gone to those at the top.

This is why the yapping about the burden of Social Security and Medicare is so pernicious. If workers share in the gains of economic growth then there is no way that the cost of these programs will impose a serious burden on their living standards. In fact, workers’ living standards rose rapidly in the past in spite of large increases in the payroll taxes used to support these programs.

It will matter far more to our children and grandchildren whether they share in the gains of economic growth than if they have to pay higher tax rates for Social Security and Medicare. The rich, with the full complicity of the media, are doing their best to keep national policy focused on the cost of Social Security and Medicare. But the arithmetic says that the upward redistribution to the wealthy is the far more important issue for future living standards.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared on Al Jazeera.

 

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

February 22, 2017
Mike Whitney
Liberals Beware: Lie Down With Dogs, Get Up With Fleas
John Grant
On Killers and Bullshitters*
Peter Linebaugh
Catherine Despard, Abolitionist
Patrick Cockburn
The Bitter Battle for Mosul
Ted Rall
Sue the Bastards? It’s Harder Than You Think
Yoav Litvin
The Emergence of the Just Jew
Kim Scipes
Strategic Thinking and Organizing Resistance
Norman Pollack
Mar-a-Lago, Ideological Refuge: Berchtesgaden, II
Fred Donner
Nixon and the Chennault Affair: From Vietnam to Watergate
Carl Kandutsch
Podesta vs. Trump
Ike Nahem
To the Memory of Malcolm X: Fifty Years After His Assassination
Jesse Jackson
Trump’s Tough Talk Won’t Fix Chicago
Paul Donnelly
Betsy DeVos and the War on Public Education
Ebony Slaughter-Johnson
The End of an Alliance for Police Reform
Richard Lawless
Wall Street Demanded the Nuclear Option and the Congress Delivered
Liaquat Ali Khan
Yes, Real Donald Trump is a Muslim!
Ryan LaMothe
“Fire” and Free Speech
CounterPunch News Service
Bloody Buffalo Billboards
February 21, 2017
Sharmini Peries - Michael Hudson
Finance as Warfare: the IMF Lent to Greece Knowing It Could Never Pay Back Debt
CJ Hopkins
Goose-stepping Our Way Toward Pink Revolution
John Wight
Firestarter: the Unwelcome Return of Tony Blair
Roger Harris
Lenin Wins: Pink Tide Surges in Ecuador…For Now
Shepherd Bliss
Japanese American Internment Remembered, as Trump Rounds Up Immigrants
Boris Kagarlitsky
Trump and the Contradictions of Capitalism
Robert Fisk
The Perils of Trump Addiction
Deepak Tripathi
Theresa May: Walking the Kingdom Down a Dark Alley
Sarah Anderson
To Save Main Street, Tax Wall Street
Howard Lisnoff
Those Who Plan and Enjoy Murder
Franklin Lamb
The Life and Death Struggle of the Children of Syria
Binoy Kampmark
A Tale of Two Realities: Trump and Israel
Kim C. Domenico
Body and Soul: Becoming Men & Women in a Post-Gender Age
Mel Gurtov
Trump, Europe, and Chaos
Stephen Cooper
Steinbeck’s Road Map For Resisting Donald Trump
February 20, 2017
Bruce E. Levine
Humiliation Porn: Trump’s Gift to His Faithful…and Now the Blowback
Melvin Goodman
“Wag the Dog,” Revisited
Robert Hunziker
Fukushima: a Lurking Global Catastrophe?
David Smith-Ferri
Resistance and Resolve in Russia: Memorial HRC
Kenneth Surin
Global India?
Norman Pollack
Fascistization Crashing Down: Driving the Cleaver into Social Welfare
Patrick Cockburn
Trump v. the Media: a Fight to the Death
Susan Babbitt
Shooting Arrows at Heaven: Why is There Debate About Battle Imagery in Health?
Matt Peppe
New York Times Openly Promotes Formal Apartheid Regime By Israel
David Swanson
Understanding Robert E. Lee Supporters
Michael Brenner
The Narcissism of Donald Trump
Martin Billheimer
Capital of Pain
FacebookTwitterGoogle+RedditEmail