When Congress comes back into session in early September, action to address the immediate problems in the economy will be high on the agenda. But with the economy in decline for 2008, the data released today by the Bureau of the Census for 2007 shows us that the nation’s economic problems predate the immediate downturn. These data, which close the book on the post-2000 business cycle, suggest that action is needed to address structural problems in the economy as well as the current economic ills brought on by the U.S. housing and global credit crises..
The period since the last recession in 2001 was characterized by a moderate level of aggregate economic growth—with real U.S. gross domestic product rising by an annual rate of 2.6 percent through 2007. Before the release of today’s data, it was apparent that this economic expansion had failed as of 2006 to deliver in the form of rising incomes for most households. From 2001 to 2006 median household income remained essentially unchanged at an annual growth rate of 0.04 percent. Median income in 2006 stood at 2.0 percent below its level as of the economic peak in 2000. Earnings for full-time workers had declined from 2001 to 2006. The median earnings of full-time working men dropped by 3.0 percent for the period. The median earnings of full-time working women were down by 2.3 percent. For both men and women earnings had dropped in every year since 2003.
The data released today did show an uptick for 2007. Median household income rose by 1.3 percent from 2006 to 2007. But this brings the median income annual growth rate from 2001 to 2007—the period from the last recession to the peak prior to the current downturn—to only 0.26 percent. Today’s data still leaves median household income 0.6 percent lower in 2007 than in 2000.
Earnings for full-time working men rose from 2006 to 2007 by 3.8 percent, and for women by 5.0 percent—a much-needed respite from the several years of decline. Overall, however, these data mark the period as a highly disappointing economic expansion. Median income is below its pre-2001 recession peak, as are men’s earnings (down 0.38 percent from 1999). Women’s earnings continued their long-standing upward trend with 2007 being a very strong year—but this earnings growth has not been strong enough to overcome other drags on household incomes. Poverty is up from 2000 to 2007, with the rate rising from 11.3 to 12.5 percent and 5.7 million more people in poverty.
Of course, when the data become available for 2008, the picture will undoubtedly grow more grim. Average real weekly earnings are down 2.4 percent so far this year, according to the Bureau of Labor Statistics. The 2000 through 2008 period is shaping up to be a very weak economic period, during which incomes will almost certainly prove to have declined.
This suggests that a number of fundamental economic policy points need to be addressed by Congress. The first is that the economic policy of the last seven years—primarily tax cuts for those with high incomes alongside limited public investment and lack of regulatory oversight—did not turn economic growth into prosperity for most Americans. As the data released today confirm, economic performance was weak prior to the latest problems in the U.S. housing and credit markets and the rise in energy prices.
As Congress considers steps to improve the immediate economic situation through a short-term economic stimulus package, it should keep an eye on long-term economic reform as well. A careful return to adequate regulation of the credit and capital markets is clearly needed. Beginning to make needed investments in the low-carbon energy transformation of our economy and in other public infrastructure is also overdue. These investments will make the economy stronger—with less dependence on increasingly expensive oil and more employment in the struggling construction and manufacturing sectors. The benefits of such investments would spread throughout the economy resulting in rising employment and higher incomes.
Ultimately, a more comprehensive approach to dealing with the economy must be put in place. The Progressive Growth series of reports by the Center for American Progress offers detailed plans to address long-running economic problems and produce economic growth with its benefits broadly shared. Its key components are: transforming to a low-carbon economy, spurring innovation, restoring economic security and mobility, addressing globalization and fiscal responsibility. It is a plan that addresses fundamental problems in such areas as energy, health care, education, labor markets, globalization and trade, and federal fiscal conditions, creating conditions under which strong job creation and widely shared income growth will again be a feature of the U.S. economy.
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Vice President, Economic Policy