The country's still rich. It just the people who aren't.
EPI put out a fascinating paper yesterday about wage stagnation. (Yes, it really was fascinating!) The upshot is that we're still a very rich country. The problem is that the wealth isn't being broadly distributed:
How much does this profit-biased recovery matter for wages? In the first quarter of 2013 (last quarter for which data is available), suppose that the corporate sector capital income share was at its pre-Great Recession long-term (1979-2007) average of 19.7 percent instead of the 24.7 percent that actually prevailed. This would represent roughly $350 billion that would have accrued to labor income rather than capital income during the recovery, or, a $6,900 raise for every employee in the corporate sector. And to be clear, the corporate sector of the economy is big—accounting for a majority of all economic activity and more than 45 percent of employment in the economy (so, spread this money over the entire private-sector workforce and the raise would still be more than $3,000.
There are lots of problems caused by how profit-biased the recovery has been. For one, income accruing to capital-owners is less likely to recycle quickly back through the economy and generate demand (as evidence, see the huge amount of idle cash balances on corporate balance sheets in recent years). If a larger share of income growth had translated into wage-growth, this would have sparked more self-generating demand and improved the recovery. From a political economy perspective, the rapid recovery of corporate profits has also likely led to less urgency from a potential ally in asking for more macroeconomic stimulus (corporate business, which, remember, strongly supported the Recovery Act).
And, most directly, these higher profits just mean that all else equal, there’s less to go to paychecks. And as yesterday’s paper shows, that’s a sadly familiar outcome.
That is not to say there aren't solutions to this. The problem is that those solutions must come from our completely dysfunctional political system:
We’ve got some solutions here, and, we should note that there is a glimmer of good news in Larry and Heidi’s analysis: we are a rich country that gets richer just about every year. Look at the productivity trends (check out Table 1) in their piece—in 2012 productivity was nearly 8 percent higher than it was at the start of the Great Recession! The problem is insuring that these potential income gains actually are broadly shared—and this is mostly a political problem. Political problems are bad (trust us, we know), but they’re better than genuine economic problems. To put it another way, it’s better to be arguing over how to fairly split up a big pile of money than to have no big pile of money to split up.
That's not much to hang on to. Our political system is so corrupted by money and obstructed by a rump fanatical minority that it's hard to see how we get out of it before this economic problem turns into a very big social and yes, economic problem. It's very hard to see where one ends and the other starts.
Still, it's good to know the money is still there. The greedheads who are hoarding it all should probably think hard about just how much they really need to keep for themselves. These things tend not to end well if they don't.