K-12 Tax & Spending Climate: Bye, bye easy money

Tim Harford:

Don't fixate on the financial crisis. Our economic problems have been far longer in the making, and would have caught up with us sooner or later anyway.

That is one of the conclusions I take away from two striking essays: "The Great Divergence", published in Slate last September by the journalist Timothy Noah; and The Great Stagnation, just published as a short e-book by the economics professor and blogger Tyler Cowen.

The two essays describe two disturbing trends that, while logically separable, seem to be related. Noah discusses a sharp increase in income inequality in the US since the early 1970s. After analysing many explanations, he concludes that the chief culprits are a tolerance for super-high salaries and bonuses on Wall Street and in the boardroom, and a failure of the US education system. Blaming China is considered, but largely dismissed.

Cowen begins with the fact that median family income in the US has barely increased, again since the early 1970s. Its growth rate has been about 0.5 per cent a year after inflation. The median family income is the income of the family in the middle of the income distribution. It is a useful measure precisely because it ignores the action at the top: if a Connecticut hedge fund manager made an extra $11bn in a year, this would raise the mean income of the US's 110 million-ish households by $100 each. It wouldn't alter the median income by a cent

Posted by Jim Zellmer at February 13, 2011 1:52 AM
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