Will the Economy Ever Be As Good As It Was in the ’90s?

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Pull on your Doc Martens, button up your flannel, tease up your bangs, and throw some Mariah on. This week, the Census Bureau came out with its big annual report on income and poverty in the United States, and it reconfirmed that as a country, we peaked in the late 1990s. 

To be more specific, median household income peaked. Back in 1999, the average household made $56,895 in today’s dollars. That number took a hit when the dot-com bubble burst and never reached the same high note again. It plummeted once more during the Great Recession and has slinked lower through the recovery. That middle-of-the-road household is now making $51,939. In other words, for the past 15 years, a growing economy has failed to translate into rising incomes.

It is a big problem. And it goes a long, long way to explaining the squeeze lower and middle-income families feel. If the economy had kept on performing the way it did in the late 1990s, that median household would be making $20,000 more than it currently is. But forget a world where the 1990s lasted forever, where there was no Iraq War and no mortgage bubble. The latest findings raise a more modest question: Will we ever get back to where we were? 

First, let’s stipulate that things were really, really good back then. More Americans who wanted to work were working, with the unemployment rate remaining below today’s rate of 6.1 percent from 1994 through 2003, and falling as low as 3.8 percent. That happened even though more Americans wanted to work overall, with the employment-population ratio about 5 percentage points higher. The tight labor market forced employers to raise wages, so even though inequality was intensifying, average and lower-income families felt the rising tide lifting their boats.

But since then, something profound seems to have changed. Economic growth is not lifting the median income, and the only families making big gains are those at the top of the income spectrum. Middle-class — and even upper-middle-class — workers are experiencing flatter and flatter earnings trajectories. The less-educated and men have it particularly bad, with men aged 30 to 50 seeing their median earnings fall 27 percent between 1969 and 2009.

The root causes include technological change, the decline of labor unions, and globalization, economists think, though they disagree sharply on how much to weight each factor. But foreign-produced goods became sharply cheaper, meaning imports climbed and production moved overseas. And computers took over for humans in many manufacturing, clerical, and administrative tasks, eroding middle-class jobs growth and suppressing wages. 

Growth itself has become more anemic, too. To help explain why, let’s turn to another throwback, top Democratic policy mind Lawrence Summers, who just happened to be Treasury secretary in 1999. Of late, Summers has talked a lot about what he calls “secular stagnation.” The big idea is that the economy cannot achieve strong growth and low unemployment absent some kind of extraordinary policy intervention.

That extraordinary policy intervention is often really loose monetary policy and growing deficits. The modest expansion of the 2000s only happened under the aegis of the housing bubble, he points out. And today’s modest rates of growth are only happening because of the Federal Reserve’s aggressive asset purchases and insistence on leaving interest rates at scratch. (Those bang-up growth rates and rising median incomes in the 1990s also owe a lot to the froth of the dot-com bubble, it is worth noting.)

Summers notes that continually blowing asset bubbles and trying to staunch the bleeding when they pop is not exactly a brilliant macroeconomic policy. “A strategy that relies on interest rates significantly below growth rates for long periods of time virtually guarantees the emergence of substantial bubbles and dangerous build-ups in leverage,” he wrote. His big idea is just to have the government run deficits in perpetuity, supplying the demand that the great swath of American middle-income households can no longer supply. Improving worker skills and boosting exports would help, too.

But right now, deficits are falling and the Federal Reserve is planning on stepping back, rather than doing more. Growth is not translating into higher wages, or lifting median earnings by much. There is little to suggest that the middle class will start growing and feeling flush again. In short, 1999 levels of median income might still be nothing but a fantasy for the next five years of growth, or ten. But at least we have our flannels, scrunchies, and Mariah to soothe us.