Pethokoukis

Great stagnation? Why Goldman Sachs thinks the next 4 decades will ‘show significantly faster household income growth’

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From 1947 through 1973, real median household income grew by 2.1% a year, but just 0.1% annually since. (These numbers come from a new Goldman Sachs research note, and for now let’s take them as is.) So will the future look more like the immediate postwar decades or more like the last decades of the 20th century and first one of the 21st?

One of the gloomier prognosticators is economist Robert Gordon. As he writes in his new paper, “The Demise of U.S. Economic Growth: Restatement, Rebuttal, and Reflections”: “Future growth will be … 0.4 percent for real income per capita of the bottom 99 percent of the income distribution, and 0.2 percent for the real disposable income of that group.”

Aack! Gordon’s reasons for New Normal pessimism: (a) lower labor force participation, due in part to demographics; (b) stagnating educational attainment; (c) income inequality; (d) higher taxes to deal with rising debt; and (e) continued weak productivity growth.

But Goldman Sachs economist Jan Hatzius is much cheerier:

Our conclusion is that real income growth for the majority of US households should be better in the next four decades than in the past four. The uncertainty is substantial, but we believe 1%-1½% is a reasonable base case. … If so, the next four decades would show significantly faster household income growth than the last four, though the progress would fall short of the postwar “golden age.”

Why does Hatzius disagree with Gordon? For starters, he’s more positive about education (still a favorable cost-benefit to getting a four-year degree) and labor force participation (some of the decline is cyclical, and eventually the boomers will have completed their workforce exit, stabilizing employment). In addition, Hatzius notes that even though government may need to raise taxes, that money will turn into Medicare and Social Security income transfers and feed into disposable personal income, Gordon’s income measurement of choice. So “the net effect on disposable income is zero.”

Hatzius also clips Gordon for simplistically extrapolating income inequality trends. For instance, Gordon takes the Piketty-Saez estimate that high-end inequality has reduced the 99%’s income growth by 0.5 percentage points over the past few decades and “extrapolates these numbers into the future without much discussion of why the trends must necessarily continue.” Yet, as Hatzius explains, inequality looks to be slowing: “There was a big increase in wage inequality in the 1980s and 1990s, but that increase has slowed since the early 2000s. In fact, wage inequality has been roughly flat over the past decade. While a renewed increase is certainly possible, it is far from a foregone conclusion.”  Likewise, Hatzius expects the decline in labor’s share of income to stabilize or even reverse.

Thomas Piketty, Emmanuel Saez

Thomas Piketty, Emmanuel Saez

Gordon’s technopessimistic views have brought him a lot of attention, so let me quote Hatzius at length:

We are sympathetic to Gordon’s view that the total factor productivity (TFP) impact of the third industrial revolution (IT etc.) may continue to disappoint relative to the second one (electricity, automobiles, telecoms etc.). The second industrial revolution was unprecedented in human history, and may well remain unmatched. In that sense, Gordon’s study marks a useful counterpoint against the cliché of unprecedented and ever-accelerating technological change.

It therefore seems reasonable to use the 1972-2007 period—that is, the period after the second industrial revolution—as the starting point for a projection of long-term living standards. Over this period, labor productivity grew 2% in the nonfarm business sector and 1.6% in the overall economy. Our working assumption is that the average of coming decades will be similar. This is also broadly in line with the latest numbers from the Federal Reserve and the Congressional Budget Office.

But even without a statistical upturn in innovation and productivity – metrics which may not be providing effective measurement in America’s increasingly IT-centric economy  – Hatzius still sees a much brighter future for American workers. While I wish there were greater discussion on the impact of automation and the differing sorts of innovation, the economist adds an enlightening perspective of the future of the US economy.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

35 thoughts on “Great stagnation? Why Goldman Sachs thinks the next 4 decades will ‘show significantly faster household income growth’

  1. The US economy has slowed to Euro-socialist speed because government’s share of GDP (spending + regulation) has grown from 30% of GDP in 1950 to 60% today. If we cut govt back to 1950 levels, that would boost the private sector’s share of GDP from 40% to 70%, a 75% boost. How’s that for stimlus and growth?

  2. @Tom Sullivan US Government Consumption Expenditures and Gross Investments as a % of GDP is at its lowest level in real terms in the post war era (peak, 1953 39%, currently a 18%). In nominal terms it is back to it 2000 levels.

  3. As I have written before, the dividing ln 2030 America will be those who can fix their own plumbing and those who will wait weeks for an appointment.

      • “… Hatzius notes that even though government may need to raise taxes, that money will turn into Medicare and Social Security income transfers and feed into disposable personal income, Gordon’s income measurement of choice. So the net effect on disposable income is zero.’

        And with fewer workers per capita, they’ll have much more leverage than they have had over the past 40 years. Imagine an America in 2030 where the debate is how to encourage immigration.
        So, Paul, if the plumber who finally shows up is Mexican American, are you going to shut the door in his face?

        • Why would he do that, Turd?

          It’s much more likely that the Mexican-American plumber will be shut down by union thugs before even reaching Paul’s neighborhood.

          But you lefties love unions, so this is all fine with you.

          BTW, Hatzius is one of the most accurate Wall St. economists, which is like being the tallest pygmy. Not real impressive. He is forthcoming about his mistakes, however, which are numerous.

          • Why would you limit the realm of pygmy economists to Wall St? (Accurate economist being an oxymoron.)

            In my history books, unions accepted and assimilated immigrant and nonwhite members much earlier than any other American institution. I wouldn’t rule out a union resurgence, particularly in health care where demand for workers will collide with government austeriy measures.

        • Skilled immigration, Turd. Skilled. We will never run short of Democrat votin’ mouths to feed. And I know it’s pointless for me to assert it’s got nothing to do with race. You leftist swine do love to trot that canard out in lieu of an actual argument.

          • As in life itself, the question of race and labor unions is complex and hinges on the question compared to what. The AFL, following a craft system, excluded blacks from the learning the skills they would need to be carpenters, typesetters or movie projectionists. The rival CIO was founded in the 1930s on the principle that exclusion could not work in an industrial setting. While the CIO’s record on race still left much to be desired, game theory had arrived in the union movement: We’re all in this together.
            What ho you say? Wouldn’t employers necessarily hve embraced black workers before unions were obliged to include them? Well, the answer depends on your definition of the word “embrace.” The book “Racial Integration in Corporate America,” has a wonderful account of Luken Steel’s “colored colony” in Coatesville, Pa., which housed black workers imported from the South during WW!. By the end, it was clear that company armed guards patrolling the camp were protecting Coatesville from the workers rather than the other way around.
            You see, Paul, we’re all racists when push comes to shove. Happily, we are not all eugenicists like you.

          • Right, Turd. You, like all liberals, are a dysgenicist. Look around at the formerly great cities your ilk have destroyed which also serve as the Left’s base of power. The more illiterate, bankrupt, and violent the neighborhood, the more votes you can bank.

            Nice you also admitted you’re a racist.

          • Been to Detroit a couple times. Left it completely intact as I recall.

            Gotta wonder why anyone who distrusts government would want a central authority deciding who can breed and who can’t.

          • Been to Detroit a couple times. Left it completely intact..

            And weren’t you just in awe of your liberal pals’ handiwork?

            Gotta wonder why anyone who distrusts government would want a central authority deciding who can breed and who can’t.

            Is this where you resort to just making shit up, Turd? Only thing I’ve ever said is we should stop paying the underclasses to breed, and we should revamp our immigration policies. Not exactly Margaret Sanger stuff there, Turd Man.

          • Juandos,

            They rejected the proposal, figures. They certainly know who their constituents are.

          • Sad to say, I am not making anything up, Paul

            “Paul | January 10, 2014 at 11:30 am

            If we have to have poverty programs, we should be constructing them in ways to discourage the poor from breeding and passing on their low IQ’s to a new generation likely doomed to be among the underclass.”

            Let them eat salt peter? Mandatory abortions for women on welfare?v Phrenology scans for food stamp recipients? OR DO Tell us how we identify the undeserving poor.

          • Ummm, the bill in question would ban cash withdrawals by ebt cards at pot stores. The question arises because Visa and MC won’t accept pot stores as merchants for fear of repercussions in federal court. Hence cash only. Hence onsite ATMs. Hence Colorado Ds objection to removing ATMs from neighborhoods that wouldn’t have an ATM otherwise. Missing in this is any suggestion that public assistance money is being used to buy pot. One worried group: pot store merchants: “The marijuana industry argued for the ban, saying it could help prevent rumors about people using disability benefits or spending Social Security checks on marijuana.” (AP story.)

          • Hey Turd,

            And nowhere in that comment do I call for a central authority determining who can breed. I would rather just zero out welfare, but there’s nothing wrong with asking people who do dip into the taxpayer wallet to abide by certain rules, as some states are doing with drug tests. Or, you know, we could create more Detroits all across the country. We already tried it your way, Turd. Over $15 trillion bought us the destruction of the black family and some of our greatest cities. High price to pay for a loyal Democrat constituency.

            Anyway, you’ve just exposed yourself as a liar. Well done, Turd!

          • STOP NAME-CALLING

            people have different ideas. this should be a mature, intelligent discussion. stop the insults!

          • Paul and Mesa aren’t interested in discussions. Their aim is to silence people who disagree with them.

          • Actually Turd, I’m interested in helping you look even dumber than you would normally, given your highly ignorant and completely illogical commentary.

            You have recently been doing exceptionally well on your own, however (see above), so well done there.

          • Turd,

            I see. Every poor person is undeserving and must surrender human rights.

            And nowhere do I make that claim. You, like all liberals, have no actual interest in solving that pesky inequality problem you’re always going on about. You just use it as a way to demonstrate your completely imaginary moral superiority, and also as an excuse to grow government and tax rich people.

            Their aim is to silence people who disagree with them.

            LOL. That’s hilarious coming from a member of the team that invented political correctness, and keeps trying to bring back the Fairness Doctrine.

          • Hey, I’m just trying to find some logic in Paul Land. You say we don’t need a US Bureau of Eugenics to administer Paul’s welfare reform. Yet you imply that there are deserving and undeserviing poor. So I guess you’d write comprehensive regulations then.

            It is not as simple as you think.Sort the states at this link by white rates of poverty. http://kff.org/other/state-indicator/poverty-rate-by-raceethnicity/ The Top Ten list starts at 20 percent in West Virginia and ends at 16 percent in Mississippi. Unlike your laughable notion that Ds use dependency as a political tool (as if black Americans would vote R under any circumstance), sterilizing the poor stands an excellent chance of gutting Reagan’s southern’s strategy. Lots of shades of grey rather than black and white, eh?.

          • Turd,

            Hey, I’m just trying to find some logic in Paul Land.

            No, you’re not. You’re trying to distort it and end-run around the logic because you aren’t interested in solutions that don’t involve more of what’s in my wallet. And you like to do the liberal holier-than-thou dance while not giving a shit about all the actual carnage your policies have engendered.

            You say we don’t need a US Bureau of Eugenics to administer Paul’s welfare reform.

            Why would we when we can just attach strings to existing programs? You’re just trying to work in the scary “eugenics” label because you can’t address any substance.

            Yet you imply that there are deserving and undeserviing poor. So I guess you’d write comprehensive regulations then.

            Sure, for example: “financial penalties or complete loss of benefits if added babies” Oh wow, such back breaking work that would entail to flesh that out.

            You’ve said repeatedly we can’t do anything about existing babies born to welfare dependent mothers because it isn’t the kids’ fault. And now you say we can’t even discourage women from having babies they can’t afford in spite of all the evidence of how destructive it is to bring up young males without fathers.

            Once again, I can only conclude that you, like all filthy liberals, are a dysgenicist. You sicken me.

            It is not as simple as you think.Sort the states at this link by white rates of poverty.

            So what?

            Unlike your laughable notion that Ds use dependency as a political tool (as if black Americans would vote R under any circumstance),

            A) Of course they do. That’s their base of power. Fact: Democrats would absolutely not be able to compete nationally without the votes of illiterates, criminals, and layabouts.(Once again, see Detroit where Obama won 98% of the vote. ) Luckily for the D’s, their programs have had remarkable success in churning out such citizens all across the land.
            B) Blacks used to vote GOP in large numbers until the Democrats changed sides over who should be discriminated against and their War on Poverty destroyed the black family.

            sterilizing the poor stands an excellent chance of gutting Reagan’s southern’s strategy. Lots of shades of grey rather than black and white, eh?

            A) Who said anything about sterilizing the poor? Once again, you’re just making up bull shit arguments rather than addressing mine, because you can’t do it honestly.
            B) Under your completely made-up scenario, the Democrats would suffer far more loss of votes than the GOP.

          • And when stuff happens?

            https://www.optionsforsexualhealth.org/birth-control-pregnancy/birth-control-options/effectiveness

            I am happy to see you are cleaning up your act. Some difference between this:

            “If we have to have poverty programs, we should be constructing them in ways to discourage the poor from breeding and passing on their low IQ’s to a new generation likely doomed to be among the underclass.”

            And this:

            “And now you say we can’t even discourage women from having babies they can’t afford in spite of all the evidence of how destructive it is to bring up young males without fathers.”

            See? You can make your point without being an elitist ass. But we still haven’t established cause and effect. Is dad gone because his microeconomy sucks, be it coal country or innercity. Or does the microeconomy suck because dad is gone?

          • See? You can make your point without being an elitist ass.

            It’s the same thing, Turd Man. Like all liberals, you reject science that doesn’t adhere to your Marxist roots. And so you scream “racist” and “elitist” and “eugenicist” all that crap. Fact: chronic welfare recipients are highly over-represented in the bottom 20% of intelligence levels. Whether that’s nature or nuture, it doesn’t matter, but we know their off-spring are highly likely to repeat the same destructive patterns as the parents that breed 3x the amount of children as those not on welfare. Nearly 50% of births in the US are paid for by Medicaid. We should be doing something to avoid the dystopian future that will spring from those trends, but I guess Turd figures he won’t be around when the idiocracy reaches high tide. So what does he care? In the meantime, he will peacock around his feverishly imagined moral superiority.

            But we still haven’t established cause and effect.

            Yeah, we have. You just reject the data because the conclusions demonstrate the colossal failure of liberalism .

            Is dad gone because his microeconomy sucks, be it coal country or innercity. Or does the microeconomy suck because dad is gone?

            Why did dad knock up mom in the first place when they weren’t married and neither had the means to support the kid in the first place? The microeconomy has sucked throughout history, and we didn’t have this level of illegtiimacy. The blood is on your hands, Turd.

          • Yup it’s so much easier to be a greedhead when you believe that people who need help are subhumans who don’t deserve it.

  4. Let’s see, the woefully inefficient government bureaucracy taxes the income of productive households and those transfer payments are a benefit to the economy as disposable income to the recipients? $1.00 comes from a productive source, turns into $0.50 with government waste and ineptitude and goes to a less productive group and that helps the economy?? Dream on.

    Point #2-It’s not the boomers that have cratered the participation rate, its the dropout and will-nots.

  5. If we’re all serious about slashing “entitlements” for individuals (leaving out those to corps for a later discussion), let’s slash those budgets (welfare and the like) and increase the minimum wage to $15/hr. Then, give the corps most affect by the new mwi a tax break (paid by the reduced budget for social programs).

    Done. Everybody gets what they need.

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