Yay! We’re Almost as Rich as We Were in 1998!

By James Kwak

There’s been a fair amount of triumphalism about the Census Bureau’s recent report on income and poverty, which showed a 5.2% increase in median real household income from 2014 to 2015. For example:

Congratulations!

But, and I don’t think Jason Furman would disagree, this is not particularly strong evidence that everything is rosy, or that “America is already great,” as some would have it. As many people have pointed out, median household income in 2015 was only back to its 1998 level. Actually, when you take into account a methodological change in 2013, it’s still 5% below its 1999 peak.

Also, if you’re going to celebrate the good years, you should acknowledge the bad years. Here is the annual change in median income for every year since 1985, ranked from best to worst:

screen-shot-2016-09-14-at-9-32-45-am

(For some reason, FRED’s data series only goes back to 1984. Also, to get 2013’s figure, I went back to the Census Bureau’s report for that year, because of the methodological change.)

The years in red are the years of the current recovery. As you can see, this is the first time annual growth has exceeded 0.3%, despite the fact that the economy has been growing every year.

Now, it’s possible that 2015 will be the first of several good years. Maybe unemployment has finally reached the point where companies have to offer higher wages to workers, instead of telling them to apply for government benefits. On the other hand, going simply by how long recoveries usually last, we are due for a recession—which would mean another economic cycle in which ordinary households became worse off.

There’s no way to know for sure, of course, because this is macroeconomics. But on its own, one data point does not make a trend. And so far, this century has not turned out so well for the median American family.

5 responses to “Yay! We’re Almost as Rich as We Were in 1998!

  1. I had exactly the same thought! Using a one year increase, or taking the recent lows is not only misinformation but disinformation.

  2. And if Trump wins, it probably won’t matter.

    (Just did this bit of research and am now a bitter bitey bird: http://adviceunasked.blogspot.com/2016/09/the-republican-leadership-and-money.html.)

  3. Richard H Caldwell

    Compare with the per-capita income change for the same period and then explain to me the ~3% difference… Household destruction, perhaps (negative household formation)? Not a pretty picture, consumption-wise…

  4. Links below to excellent articles on how much job losses are due to automation, and technology in general. First one includes recent study out of Ball St.. Second with Leontief excerpts by Tim Taylor.

    http://conversableeconomist.blogspot.com/2016/07/international-trade-as-scapegoat.html

    http://conversableeconomist.blogspot.com/2016/08/automation-and-job-loss-leontief-in-1982.html