Economic Growth

More than any election in living memory, the 2012 race is shaping up to be about one thing: jobs. Pundits are convinced that the rate of job growth between now and November is the magic number that will determine the outcome. The main policies the candidates are debating—whether to cut taxes or raise them on the rich; whether to shrink government or increase investments in infrastructure or research—are all pitched as ways to “grow” jobs. The presumption is that if we can get the economy to create jobs like it used to, America will be back on the right track.

America’s air transport system is vital to the economic health of the nation, and to the well-being of every region of the country. Yet across much of America, the air transport system is breaking down as the few surviving airlines simultaneously jack up fares and slash service. This means citizens can’t get where they need to go. And it means large and vibrant cities – including St. Louis, Cincinnati, Pittsburgh, and Memphis – are having trouble keeping what businesses they have, let alone attracting new investors.

"For all its current economic woes,” the Economist magazine recently asserted, “America remains a beacon of entrepreneurialism.” That idea is at the heart of America’s self-image. Both parties celebrate entrepreneurial small business as the fount of innovation and growth. Even if America no longer manufactures its own smartphones or computers, we cling to the idea that American entrepreneurs invent most of the new products and services that matter to the world.

Editor's Note: This is a guest blog post authored by Lina Khan, program associate with New America's Markets, Enterprise and Resiliency Initiative.

If there’s one thing Americans have faith in it’s the country’s entrepreneurial verve. Even amid high unemployment and a tepid economic recovery, we generally believe that strong entrepreneurship and upstart businesses will help steer us out of our present ditch. Media reports and sparring politicians fixate on this crucial sector of the American economy, a source of new products, new ideas, new jobs, and new wealth.

An article published today shows that America’s entrepreneurial sector is actually in deep crisis. The piece, written by Barry C. Lynn and myself in the forthcoming issue of the Washington Monthly, shows that for over a generation fewer Americans have been creating new businesses. The nation’s self-image notwithstanding, the number of new entrepreneurs – measured per capita – declined by 53 percent between 1977 and 2010. Even the share of self-employed Americans has fallen, dropping by more than 20 percent between 1991 and 2010.

America’s entrepreneurial sector is in deep trouble. Although the mainstream media continues to promote the idea that the nation’s small and upstart businesses are either generally thriving or, at worst, recovering from the sudden blow of the Great Recession, a closer look at the data reveals the exact opposite to be true, with a long-standing decline in the numbers of independent startups per working-age American.

According to the 2011 census estimates, for the first since 1920—nearly a century—cities are growing more than suburbs. A recent study shows 77% of millennials want to live in the urban core. 28 year-old Denver resident, Jaclyn King said, “I will never live in the suburbs… I just like being connected to everything down here—concerts, work, restaurants, all of it.

The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include the monetary policy, economic inequality, and financial services.

Monetary Policy

Inequality has been receiving a fair amount of attention in recent years. Even before the Great Recession hit, a number of researchers and academics were sharing observations on the divergent paths of those in the middle and on the bottom compared to those at the top and very top. Median wages have been relatively stagnant, and, more importantly, had become divorced from productivity gains. And while poverty has persisted for large segments of the population, the share of income controlled by those at the top has continued to climb. These have been long-term trends which began to take shape in the early 1980s. Two questions have been on my mind. First, what about wealth? Second, what’s the connection between the Great Recession and inequality in America?

I’ve posed these questions to Tim Noah, whose recent book, The Great Divergence, has helped elevate the discussion of inequality in America. Tim recently posted a response on his informative and insightful blog. But I didn’t like his answers.

In his book, Tim limits his discussion of inequality to the distribution of income. I think this fails to capture the full extent of the phenomenon. In some ways, I understand the choice. We have much better data for income than we do for wealth and traditionally that is where the research on inequality has focused. Still, income is only part to the story, and I fear Tim has needlessly limited his inquiry. It reminds me of looking for something where the light is brightest even though it was lost somewhere else.

New data from the Federal Reserve make it clear that wealth has assumed a leading role in the inequality story. Their Survey of Consumer Finances offers one of the fullest accounts of the family balance sheet. Unfortunately, it is conducted only every three years. The good news is that the last two surveys (2007 and 2010) offer a means to examine the impact of the Great Recession.

Here is what the Fed reported about the changes in wealth holdings. Between 2007 and 2010, the average family saw their wealth decline 39 percent. That is a sentence that deserves to be bolded. This far outpaced the 8% drop of income the average family experienced.  The 39% drop in wealth speaks to the severity of the recession and it did get front page treatment on a number of news outlets. But the impact was not experienced equally. Families in the top ten percent by income actually saw their net worth increase almost two percent.

Those at the top had their wealth holdings increase and almost everybody else experienced a drastic decline. That’s inequality by definition. Check out the visual (rollover to see the absolute figures).

Here’s another perspective on the same phenomenon. This time the families are ranked by their net worth holdings rather than income. Those in the bottom 25% had their (admittedly small) wealth holdings completely wiped out. Families in the next three groups experienced big drops but at increasingly declining rates. The top 10% were relatively immune from the impact of the Great Recession, experiencing a wealth loss of 6.4%.

These charts offer new and illuminating information. While we have known for years that median incomes have stagnated even as there were income gains at the very top, the re-concentration of wealth is an emerging phenomenon. And it appears that the Great Recession has changed the dynamics at play.

Tim writes on his excellent blog that he can’t get too worked up about this for a number of reasons, almost all of which I find surprising.