The One Number That Matters Most: Real Wages

Americans have taken their biggest inflation-adjusted pay cut in about a quarter-century.

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Increasing inflation means that real income is down for many Americans. (Photo by Robert Nickelsberg/Getty Images)

Dumb ideas can be important, and falsehoods can be more powerful than facts, especially when it comes to shaping popular culture and broad social attitudes. That sounds simultaneously vague and grandiose, I know: What I mean to emphasize here is that the connection Americans make between which party’s politicians hold the balance of political power (especially the presidency) and the state of the economy at any given moment wildly exaggerates the connection between those things, and often descends into something indistinguishable from superstition, even idolatry. If the rains don’t fall and the cattle aren’t fecund, it is because the divine priest-king has failed to properly propitiate the gods of abundance; if nominal GDP growth is outpaced by inflation as measured by the CPI … 

You know how that goes. 

I do not like to make election predictions and am not very good at it. (Even worse, my method of prediction isn’t very entertaining! My general read is that the people who are significantly ahead in the polls on Election Day will usually win but sometimes lose, and that the races that are close will be close. There’s rank punditry, and then there’s stale punditry.) But this time around, the big trend is staring us straight in the face, and there isn’t any great mystery about the political vectors of 2022: Real wages have been declining—in fact, Americans have taken their biggest inflation-adjusted pay cut in about a quarter-century—and Democrats from Joe Biden on down are going to be blamed for that. 

Americans’ real incomes were down 3.4 percent year-over-year as of September. And that is when incumbents get punished. How much are Democrats to be blamed for the current state of the economy? It’s a fair question, but a complicated one. 

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  1. JG

    I generally agree with Kevin's thoughts on the relationship between political leaders and the economy. But I dare say that our current president has been pushing that to its limits. When an administration goes full Biden and declares war on the energy sector, which influences pretty much everything else, and spends more money than exists in the world, the markets will reflect. I think Kevin would agree that the solution to this would be to curb the power of the administrative sector and for congress to grow a pair and take back their responsibilities.

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  2. Belisarius.Aves

    Why college is a scam. Kevin's comment about Harvard is for other things. What other things? Networking? Sure but in the era of LinkedIn is that as important? The professors? Seriously. Being on the green? Football? I have spent 35 years in business and my history degree contributed nothing. What would have been better than college were internships or a new modern apprenticeships and we are talking marketing here. God knows what a future plumber or electrician get from those other things.

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  3. Fidlerrich

    On a completely unrelated note: I have a cheap (not well researched, well, not researched at all) theory that, if you take out all the overweight, middle-aged, pasty-faced white guys with failed Van Dyke facial hair and felony level fashion sense, you'd have about sixteen people left to storm the Capitol. I have to believe, to survive, that you and Jonah Goldberg MUST dress well. (Not well researched, well, not researched at all.) I regret that I am too old to be able to read all that you will ever write.

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  4. Fiona B

    As someone who tries to avoid overstating what is at stake with politics, I am trying to listen to my own advice and not get myself overly worked up about the effects of ridiculous, election denying candidates winning. However, Kari Lake and her likelihood of winning deeply, deeply concerns me. How much of a threat do you genuinely think she is to the future of U.S. democracy and peaceful government? I fear about her having any authority in the administration of the 2024 election particularly, but would it be fine if Arizona votes for Republicans anyway (as she would then not contest it)?

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    The Bell Tower

    “How much are Democrats to be blamed for the current state of the economy?“

    Well, since MMT is a Democrat thing and it assumes you can eat, drive, and live in money, I’d say a lot. But the Republicans are careening towards that point of view like Cole Trickle headed towards the smoke cloud.

    Sigh….

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      Ben Connelly

      I don’t know that it’s that Republicans have embraced MMT so much as that they just don’t care anymore about pesky things that get in their way. Also, some of the hardcore ultra-mega-super-dark MAGA types aren’t able to grasp basic concepts like what a house committee is for, so I wouldn’t expect them to understand, you know, economics.

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      1. Fiona B

        what is MMT?

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          Ben Connelly

          Modern Monetary Theory

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  6. Leisha Cowart

    "...pretty much the most San Francisco thing you’ll ever experience outside of hepatitis"

    Almost spit my coffee all over my keyboard on that one!

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      Ben Connelly

      That was the funniest line!

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  7. Tom Doniphon

    About that Atlantic article; I haven't finished it, and what it says is excellent, but what it fails to say is significant. It does an excellent job of describing the conspiratorial beliefs of a lot of Election Truthers. The problem lies in its error of omission; it says nothing (so far - haven't finished at, busy day at work and all that) that shows any sort of understanding that of course lots of stuff went on about changing election procedures fairly late in the game that gave an appearance of abnormality to the whole proceeding. Mix that in with our current polarization, and the need for so many to have strong political opinions while at the same time knowing so little about the subject, and you have a recipe for a problem, and a lack of trust. That doesn't at all mean the Election Truthers are right that the election was "rigged" or whatever, but it's unacceptable to have procedures even APPEAR out of the ordinary; transparency should be maximized, and no appearance of double-dealing should be tolerated even where actual double-dealing doesn't exist.

    Both parties are unwilling to disavow their own fringe, which of course provides fertile ground for the paranoia of the fringe of the other party. Party A refuses to openly disavow their fringe, leading the fringe of Party B to see their own worst fears as likely happening. Party B simultaneously sees their fringe increasingly active, and are afraid to say anything to anger them, so they also refuse to disavow their fringe, which feeds the fears of party A's fringe - and so on and so on, in a vicious circle. One fringe's fear feeds their engagement, which immunizes them from intraparty rejection, which feeds the fear of the other party's fringe, whose subsequent engagement also immunizes them from intraparty rejection, which feeds the fear of the first party's fringe, and so on and so on.

    I have no idea what breaks that circle. I'd say electoral disaster might be it, but probably not - and do we really want either party's fringe to defeat the other party's fringe at the cost of that first fringe's being validated? I mean, if it comes to it, I want the GOP to beat the Democrats, all things being considered, but it would be a Pyrrhic victory if the GOP defeating the Democrats soundly only fed the GOP fringe's power, while further radicalizing the Democrat fringe's ideas and behavior. The same is true in reverse; if the Dems gave a solid whooping to the GOP, I'd say that's bad, but what would be even worse is that the Democratic fringe would feel validated and their power in the party strengthened, while the GOP fringe would become even more apocalyptic in their ideas and behavior.

    So what emboldens the center in both parties against the fringe? What weakens both fringes?Expand full comment

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      Marion Coatsworth-Hay

      Good comment.

      Your question is one that will keep me thinking. On first reflection, I think it might be more widespread political violence like riots in which one angry political mob attacks another angry political mob and it devolves into a melee. Deaths, injuries, destruction. Vigilante "justice". More of that kind of stuff, but bigger, uglier, more devastating, and more frequent. Organized. Maybe it has to be so frequent that there isn't time for the political community to even ask what AOC or MTG said about it. It would need to be so intolerable that 80% of America says, "ENOUGH!! I don't care who started it. It has to stop." I hope it doesn't have to come to this.

      Perhaps the second motivation for an emboldened center is a more existential external threat than those we currently face. Painful as the first six months of the pandemic were, people were pretty decent about pulling for one another. The fringes only started to appear when we had vaccines/treatments in sight, when we learned how to clinically manage patients better, when we understood transmission better. If a hemorrhagic fever hit the country, something with a very high mortality rate and rapid spread, maybe the sensible center MUST emerge. Or if there is a serious military incursion or attack on the U.S. or U.S. interests abroad (including protectorates, commonwealths, territories, large businesses, diplomatic outposts, and the like), perhaps the center emerges then. It would have to be so serious that it endangered food supplies, availability of critical medicines, disrupted energy availability. I don't think there's much old-school "patriotism" to appeal to anymore -- just performative flag wavers and wearers. Americans would have to be extremely afraid, cold, hungry, tired to put aside Hatfields v. McCoys. Like if we knew an asteroid was going to land in the middle of the Atlantic Ocean and wipe out a corner of the country with tsunami, permanent weather changes, etc. Maybe that kind of threat would take people away from their totem poles and keyboards (and voodoo dolls).

      Tom, after reading your comment, I now think of it less as the fringes going away, and more like the center needs to take the lead, take control, define itself. Thanks for that image. Right now, the far left and the far right are our tar babies. Few in the center want to get any of that stuff on them.

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  8. Matt Stanley

    "It is fair to say that Democrats have been bad on spending, and that they have been worse than Republicans have been. " I'm not sure I agree. Over the last 40 years or so, the only responsible budgets were under divided gov't. The Clinton/Gingrich budgets are atop the (pretty irresponsible and underwhelming) list. Some of Obama/Boehner budgets were next. Unified gov't has produced spending orgies under democrats and tax-cutting orgies under republicans, neither of which approached any semblance of responsibility.

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      Lchrisberg

      Completely disagree. Tax rate reductions (i.e. "tax-cutting" - a meaningless term because of its vagueness and the impossibility of predicting what will happen to tax revenues - something real. Tax rates and tax revenues have meaning. "Tax cuts" have none.) most often lead to immediate tax revenue increases and always lead to increased tax revenues in the long run. Further, it places debt pressures on the Federal government which serve as a very important leash.

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      1. Matt Stanley

        Am open to seeing any data that supports your contention. I would absolutely love your claim to be true! However, the preponderance of the data that I've looked at suggests that for most economies (including our own), the Laffer curve peaks somewhere between 60% and 75% tax rates, meaning overall tax revenues decrease following tax rate reductions given the tax range that the US has been in for the past 40 years.

        Furthermore, I've never understood the logic of "let's run big deficits now to constrain borrowing later". Deficits are a generational transfer of wealth. When we cut tax rates and increase deficits, we encourage the current generation to spend now and implicitly ask the next generation to pay later. This impact is minimized when the economy grows fast, but it never truly goes away.

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          Lchrisberg

          "Furthermore, I've never understood the logic of "let's run big deficits now to constrain borrowing later"."
          Ok. That does not change the historical reality that when deficits are larger and become a political liability, spending does not grow as fast. Perhaps you could invest some time in historical research.

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          Lchrisberg

          Here is 1980-83 from BEA Interactive Data Application for Government Receipts.
          1980 1981 1982 1983
          799.9 919.1 940.9 1,002.1
          "Bush Tax Cuts"
          2002 2003 2004
          2,969.1 3,045.4 3,275.0

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          1. Matt Stanley

            "Perhaps you could invest some time in historical research.". Dude. Really? Really??

            The Reagan tax cuts hit in 1982. The top marginal rate went from ~70% to 50% (which, for the record, I consider a good thing). But, the guvvy revenues grew by ~15% from 80 to 81. They grew by 2% from 81 to 82. And they grew by 6% from 82 to 83. So, by your own data, the very smallest growth was after the tax cuts. The US economy (to the enduring credit of US entrepreneurs and workers) has proven remarkably resilient. It grows. It grows more than most economies. That is a good thing. But, to claim that tax cuts auto-magically increase guvvy revenues is like claiming that you ride a life-size unicorn. Only your most fervent fans will believe you. Do better. Be better.

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    DWAnderson

    "The immediate problem for the U.S. economy is inflation. The longer-term problem—which could become an immediate problem very quickly if things go badly—is government debt. These are, at root, the same problem: the problem of excessive government spending."

    Yes, because for a while it has seemed like additional government spending was really free. We have now seen that if it ever was it certainly isn't any more. The price of that spending is being paid in lower real wages-- and in lower growth as fewer wealth creating projects are profitable in an era of inflation, regulation and higher taxes.

    A reckoning will occur if people understand this dynamic. But that is a big "if" and I only hope that the reckoning goes far enough.

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  10. Brook

    I say this every time: Kevin’s columns are wonderful. Classics in this one include FDR domestic agenda and Ron Paul foreign policy, hepatitis in SF (still chuckling as I write this), and the take down of the columnist who misused the word “unthinkable”. But, as much as I love Kevin’s brilliant wit, I think I most appreciate his willingness to discuss the absurdly ever-increasing federal debt. A public essayist’s anguish over the debt is akin to a lovely flower wasting its sweetness on the desert air (thank you, Mr. Gray) — beautiful but sadly unappreciated.

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