3 Charts That Show How Healthy the Economy Really Is
We live in a kind of an insane time for economics. The financial crisis was just five years ago, but during the recovery the U.S. stock market has done so well that the S&P 500, a benchmark index of stock in most of America’s largest companies, is already setting fresh record highs. The index is up more than 90 percent over the past half decade, outpacing the long-term average rolling five-year increase of about 69 percent. The S&P 500 did so well last year, in fact, that it actually outperformed the famous money manager Warren Buffett, which has only happened in 10 of the last 49 years.
At a glance, this is great. The index is as good an indicator of business activity as any, so if the S&P 500 is up then businesses must be doing okay. Case in point, after-tax corporate profit hit a record high of $1.8 trillion in the second quarter of 2014, about 30 percent higher than peak pre-crisis profits.
But you don’t have to look very far before it’s obvious that the recovery has been lopsided. According to a paper published by Emmanuel Saez at UC Berkeley, average incomes grew just 6 percent during the recovery period between 2009 and 2012, while after-tax corporate profits increased by 40 percent. Moreover, if you exclude growth at the top 1 percent of the income distribution from the average, bringing the statistic a little closer to home, real income grew just 0.4 percent over the three-year period. By contrast, top 1 percent incomes grew by 31.4 percent, capturing 95 percent of all gains. As it stands, the top 10 percent of income earners in the U.S. claim 50.4 percent of all income, the highest share since 1917.
But gross inequality isn’t the only insane thing about the economy. U.S. bureaucracy is dilapidated and our politics are bitterly divided. Each problem alone is an economic friction, but together they become a full-blown threat. Take the 2013 government shutdown, for example, where an out-of-control game of fiscal brinksmanship cost the country an estimated $24 billion. Policymakers seem unable to find common ground on economic policy.
The political divide in economics has become so severe that some of the world’s top economists are in open disagreement about what’s actually happening. What should be a conversation about public policy and new economic thinking has devolved into a cacophony, and most of us get left in the dust as pundits and politicians exchange artillery fire. Healthy skepticism has been replaced by dogmatism in some and apathy in others, and as a result, the national dialog is misguided and aggressive.
There’s no quick fix, but the first step is one backward, so that we can get a better look at the big picture. Here are three charts that hopefully shed some light on what’s going on in the headlines.