Yesterday’s New York Times has a very interesting article, “U.S. Middle Class No Longer World’s Richest”, demonstrating that from 1980 -2010 the median wage in many other developed nations has grown faster than in the U.S. The chart below does show that the U.S. median wage is still growing but just not as fast as elsewhere.
The authors suggest three reasons to explain what is happening:
- Educational attainment in the U.S. is growing more slowly than in the rest of the industrialized world.
- A larger portion of business profits in the U.S. is going to top executives meaning less for middle and low income workers.
- There is a higher degree of income redistribution (through taxation) in Canada and Western Europe than in the U.S.
The data presented in this article is more elaborate but nevertheless consistent with what other studies are showing. We are still on top but we need to make some major changes in order to stay there. For example:
- Most states have adopted the national Common Core curriculum for K – 12 schools. In today’s highly competitive global environment, this will enable a more rigorous evaluation of educational attainment between the states and should, therefore, improve overall academic achievement.
- The best way to raise salaries for middle and low-income workers is to boost economic output overall. Fundamental tax reform, with lower tax rates for everyone, offset by closing loopholes and lowering deductions for the wealthy, will put more money in the hands of the people most likely to spend it. This will increase demand and make the economy grow faster.
- As a highly visible way of addressing economic inequality in the U.S., institute a relatively small, i.e. 1% or 2%, wealth tax on the assets of individuals with a net worth exceeding $10 million. This would raise up to $200 billion per year which could be used for an extensive infrastructure renewal program, creating lots of jobs and further boosting the economy, with a lot left over to devote to shrinking our massive federal deficits.
A program like this encourages everyone to work hard and reach their highest potential, including accumulating as much wealth as they are able to. But the people at the very top, i.e. the superrich, will be required to give back a little bit more in order to benefit the entire country.