America’s longest recession since World War II officially ended in June 2009. Since then, the economy has expanded by almost 6 percent (adjusted for inflation). All of the losses of 2007-2009 have been erased.
American economic output is now at an all-time high. So why doesn’t it feel that way?
Back in October 2005, three Citigroup stock analysts heralded the arrival of a new kind of economic system in the United States. They called it the “Plutonomy,” the economy of the rich.
They explained that in a Plutonomy “the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers.” In other words, official economic statistics no longer represent the experience of the economy as a whole. More and more, they represent only the experiences of the very rich.
Official economic statistics show that US national income per capita grew a cumulative 10 percent between 1999 and 2011 (adjusted for inflation). In aggregate, we generate 10 percent more per person than we did 12 years ago. Where did that 10 percent growth go?
Up in the stratosphere of the American Plutonomy, the IRS reports that incomes among the top 400 American taxpayers increased 107 percent between 1999 and 2007 (adjusted for inflation). Top 400 incomes declined in 2008, but by most accounts they have now bounced back to pre-recession levels.
For people who just make it into the top 1 percent, the gains have been much more modest. Their real incomes have risen about 12 percent since 1999, depending how you count. By some estimates, the increase has been closer to 6 percent. In other words, people at the 99th percentile of the US income distribution – people making upwards of $360,000 per year – have just about kept pace with economic growth in the economy as a whole.
Since 1999, no group below the top 1 percent has even kept pace. They are the “other 99 percent.” They live in the “Realonomy.”
In the Realonomy, people make most of their money from wages, not investments. In the Realonomy, people have to worry about retirement planning and health insurance. In the Realonomy, people can’t afford to lose their jobs.
While the Plutonomy continues to grow by leaps and bounds, the Realonomy has been in recession since 1999. Even at the very top of the Realonomy, people have experienced flat or declining incomes over the past 12 years. For example, families at the 95th percentile of America’s income distribution have experienced, on average, a 1.2 percent decline in real income (income adjusted for inflation) since 1999.
Further down the ladder, the situation gets worse and worse. For families at the 80th percentile, incomes are down 1.3 percent; at the 60th percentile, down 4.4 percent; at the 40th percentile, down 7.1 percent; at the 20th percentile, down 10.5 percent.
Nor does education provide an insurance policy. Among college graduates with full-time, year-round jobs, real incomes are down 3.6 percent over the past 12 years.
On the other hand, those without college degrees or full-time jobs have fared even worse.
The simple fact is that the Realonomy has been stagnant or in recession since 1999. The Realonomy hit bottom in 2009-2010, but it still hasn’t bounced back. Only the Plutonomy is growing, not the Realonomy.
The Realonomy won’t start growing again until America addresses its runaway inequality. We need fairer taxes, higher minimum wages, and more – not less – government spending.
That may all sound counterintuitive in a recession, but that’s only because we’ve gotten so used to the politics of Plutonomy. Growth isn’t enough.
We have growth. The top of the top 1 percent is growing like crazy. It’s government’s job to redirect some of that growth to the other 99 percent.