America's Silent Depression: A Challenge to Social Economics

Abstract

For the last 20 years the American economy has performed at a sub-normal level, especially when compared to the quarter century following World War II -- the golden years of the Age of Keynes. I have chosen to call this period a depression. It is a because its effects have been widespread, and it has lasted for such a long time. It is because, unlike a '29 style crash, its impact has been slow and insidious like a cancer, hardly noticed by either the media or policy-makers. In my remarks this morning I will stress three things. First, the nature and causes of the depression. Two, how should social economics be linked to this phenomenon. And, third, what can be done about it. The Nature of the Silent Depression The underlying rationale for my silent depression argument is that employment and unemployment are no longer adequate as basic measures for the economy's state of health. Since the appearance of Keynes's The General Theory of Employment, Interest, and Income in 1936, the level of employment -- or its counterpart, unemployment -- has been the standard macroeconomic benchmark for measuring prosperity or recession. There were good reasons for this, because at one time a strong correlation existed between jobs and the prosperity of the worker and the worker's family. This linkage no longer holds to the extent that once was the case. For example, in 1947 just after the end of World War II, the annual wage in constant dollars for non-supervisory workers equaled 78.2 percent of median family income in that year, also measured in constant dollars. In 1947 less than one-third of women were in the labor force. By 1990, however, the ratio of annual real wages to median family income for a non-supervisory worker had dropped to 50.9 percent. By 1990, 57.5 percent of women were working (US Department of Commerce, 1991, p. 201). These figures tell us that simply having a job no longer insures a decent standard of economic well-being for many workers and their families. Increasingly, the family with a single wage-earner is an oddity in today's economy. If employment (or unemployment) is not adequate as a measure of the nation's economic health, what standard should we use? I have proposed that the real income of the wage-earner or family be the basic standard by which the economy's health is judged. Why real income? The answer is straight-forward. Real income determines material living standards; our material standard of life is the best gauge of economic progress. If real income stops growing, progress is interrupted, and the economy is in a depressed state. By this standard, the economy has been in a depressed state for the last 20 years. Since 1973 the annual average rate of growth for real hourly and weekly wages has been negative; the annual average rate of growth for median family income in constant dollars dropped from a healthy 2.8 percent from 1947 through 1973 to a minuscule 0.2 percent since then. Most important of all, productivity growth has fallen from 2.5 percent annually in the 1947-73 period to a mere 0.7 percent since then (Economic Report of The President, 1991, pp. 320, 336, 338). Productivity growth is the key to improved real wages and real incomes. Think what this means. At an annual growth rate of 2.8 percent, the real income of a family will double in 25 years -- about a generation. But at a growth rate of but 0.2 percent, it will take more than three centuries to double, not a pleasing prospect. If productivity grows at an annual average rate of 2.5 percent, then output per worker will double in 28 years, but at an annual average growth rate of only 0.7 percent, it will take 100 years for output per worker to double. These years of relative stagnation, years of the depression, are not a phenomenon limited to the United States. It has afflicted all the 18 advanced market economies that are members of the OECD (Organization for Economic Cooperation and Development), as John Cornwall ably documents in his book The Theory of Economic Breakdown (1990). …