Kevin Drum's written a lot of good posts today, but one stands out: his post on the meaning and importance of economic growth. He highlights something that has been bugging me for a while: that it's not average growth that matters, but median growth.
Over at TPMCafe, Gene Sperling is defending his new book, The Pro-Growth Progressive, from a determined onslaught led by the redoubtable David Sirota. Unfortunately, amid all the fireworks over the meaning of fair trade, the meaning of progressive, and the meaning of straw man, there hasn't been time yet to discuss the meaning of the most important word of all: growth.
If I could have one wish in arguments about the economy, it would be for the default definition of "growth" to be changed. Normally, it's taken to mean overall GDP growth, and it's certainly true that steady GDP growth is a good thing. But really, what's the point of economic growth if all the extra money is going to Donald Trump and the average guy is just treading water? What's the value of growth like that?
If I had to choose one single thing as the most important determinant of a genuinely strong economy, it would be median wage growth. After all, if median wages are increasing smartly, it's a sure bet that the economy as a whole is growing too and everyone — including Donald Trump — is doing well. It's quite possible to have strong GDP growth that still leaves two-thirds of the country stagnant — which is roughly what's happened for the past 30 years — but it's almost impossible to have strong median wage growth and not also have a booming economy.
I'd argue that headline writers should stop paying so much attention to inflation rates, GDP growth rates, and unemployment rates — as important as they are — and spend more time highlighting median wage growth. That's the single biggest sign of a healthy economy.This is one of the most annoying ways that the neo-liberals tend to misinterpret the arguments of their left-wing counterparts, and is the big blind spot in neo-classical economics: the problem of distribution.
Neo-classicists don't care about distribution, except in that they care about efficiency. They're concerned with how the market can distribute resources to maximize efficient usage. This is a fine and worthy goal, as the growth of an economy eventually benefits everybody to some degree. The problem is that if you ignore distribution, you end up in situations where average income can rise, but median income can dip or remain stagnant... especially when inflation or interest rates get factored in.
(The median consumer, I'd wager, is far more likely to be a net debtor than a net creditor, and thus high interests rates would lead to a growing gap between median and average income.)
This wouldn't be so much of a problem if neo-classicists said the problem was unimportant, but they don't. They simply ignore it, or pretend it doesn't exist. Then, of course, they wonder why they're seen as apologists for power, and why the comparative advantage that they hold so dear is savaged so viciously.
The real question for the cynic, of course, is whether they care.