The Wall Street Journal's David Wessel: Surprises From 25 Years on the Economics Beat

From the Wall Street Journal:
Surprises From 25 Years Covering the Economy

A Longtime WSJ Journalist Shares His Thoughts on the Middle Class, the Financial Crisis and More

I arrived in the Washington bureau of The Wall Street Journal shortly after the stock-market crash of 1987. Except for a stint as Berlin bureau chief, I've been tracking the economy from that perch ever since.

Looking back over that quarter century, four surprises stand out:

That the American middle class hasn't done better

In a 1998 book, my colleague Bob Davis and I argued the U.S. was on the cusp of an era of broadly shared prosperity that would boost the middle class. We were wrong. We correctly saw the potential of information technology, but we expected the gap between winners and losers to narrow. It didn't.

Output of goods and services per person has grown by about 45% since 1987. That's substantial, but the percentage increase is only half the 90% increase of the preceding 26 years (1961-1987).

For folks in the middle, the past quarter century doesn't look so good. The cash income of the median family, the one at the statistical middle, barely kept up with inflation. Add in health insurance and other noncash benefits, and it has risen significantly more. But here's an arresting fact: Adjusted for inflation, the typical man who worked full-time made less in 2012 ($49,398) than his analog did in 1987 ($50,166). Because more women were educated and landed better-paying jobs, they did better: Median earnings rose 16%.

Where did the money go? Disproportionately to the best off, the best educated, the two-professional couples, the winners on Wall Street and in Silicon Valley. Technology and globalization favored the best-educated. The rise of finance paid some handsomely. Earnings of those at the top of almost every field rose faster than at the middle.

Different measures show differences in degree, but the trend is clear: The latest Census data show the share of pretax income going to the top 5% of families rose from 15.7% in 1962 to 17.2% in 1987 to 21.3% in 2012. Higher tax rates on the well-off and benefits aimed at the bottom damp the trend, but that wealth redistribution hasn't offset inequality-widening market forces.

That China has done so well

China is an economic miracle. Lawrence Summers, the former U.S. Treasury secretary, puts it this way: When the U.S. was growing at its fastest, it doubled living standards about every 30 years. China has been doubling living standards roughly each decade for the past 30 years—and it has done so without following Washington's playbook for development.

In 1987, the big Asian economic threat was Japan. China had demonstrated impressive growth, but few then foresaw how long that growth spurt would last. "China's super-rapid growth has already lasted three times longer than a typical episode [in world history] and is the longest ever," Mr. Summers said recently.

He doubts China can keep this up, and he's probably right. But that doesn't detract from its remarkable success: The World Bank estimates that since initiating market reforms in 1978, China has lifted more than 500 million out of poverty....MORE