Exactly eight years ago, I trudged through New Hampshire sleet and slush, telling anyone who'd listen that Bill Clinton would do wonders for the American economy. Now, as the nation lurches into a millennial election year, most Americans seem largely content. The economy has faded as an election-year issue. But it shouldn't havethere are Two Big Things about the American economy that ought to be framing the upcoming election.
Big Thing Number One: America has been growing faster than ever. Productivity has been rising 2.1 percent a year since 1993, according to just-revised statistics. I wish the Clinton administration could take full credit, but it turns out that, as Barry Bluestone explains in this issue [see "Conversation: Clinton's Bequest Reconsidered," page 18], the productivity-growth spurt actually began picking up steam in the early 1980s. The recession of 1991-92 was only a temporary pause. Neither Reagan's supply-side tax cuts nor Clinton's deficit-thwacking budget cuts have contributed much to economic growth. The real engine of growth has been the revolution in information technology, which is transforming America into a super-efficient digital colossus. There's no reason to suppose this long-term trend should slow. Put simply, America is richer than ever and will become even more so.
Which brings us to Big Thing Number Two: Almost all of these gains have been going to people at the top. According to recent data from the congressional budget office, this year the richest 2.7 million Americans, comprising the top 1 percent of the population, will have as many after-tax dollars to spend as the bottom 100 million put together. Meanwhile, the poorest one-fifth of households will have an average income of $8,800 this year, down from $10,000 in 1977 (in current dollars). Since the start of the Clinton administration, the incomes of the richest one-fifth have risen twice as fast as those of the middle fifth.
This calculation doesn't even include deferred income and other perks, such as stock options, which have gone mostly to people at the top. And, notably, it does not include increases in the values of rapidly growing stock portfoliosadd these into the mix, and the wealth gap turns into the Grand Canyon. At the start of the Clinton administration, the Dow stood at 3,300. Now it's hovering around 10,800. Eighty-five percent of this windfall has gone to the top 10 percent of earnersand over 40 percent to the top 1 percent.
Now back to politics. Big Thing Number One means that America can afford to do a lot more than it is currently doing. Assuming that productivity continues to rise at least at the current ratea safe assumption, as it's been moving upward for almost two decades10 years from now the American economy will be nearly 25 percent larger than it is now. We could cut taxes on the poorby, say, eliminating the payroll tax on the first $10,000 of income or expanding the Earned Income Tax Credit so the wage supplement is ample to lift all workers and their families out of poverty. We could make sure every American has health insurance, every preschool child has safe and intellectually stimulating day care, and all the nation's school children are in classes with no more than 20 other children, led by well-paid teachers who meet high standards. We could also, if we wished, pay off more of the federal debt (which, by the way, is already shrinking in proportion to the overall economy). We could do all of these things and still have enough left over to fully fund Social Security and Medicare.
Big Thing Number Two means that whatever we decide to do, the richest among us can afford to pay more to do it and still be fabulously wealthy. Since the start of the 1980s, Americans' financial wealth has grown to $32 trillion from $7 trillion, four times faster than federal expenditures. There's no reason we have to limit our national ambitions to what the projected budget surplus can pay foror to the even tinier amount that the projected "non-Social Security" surplus can pay fordespite these becoming suddenly, and for no sound economic reason, the de facto standards for fiscal prudence.
Since I trudged through New Hampshire eight years ago, the American economy has soared, but only a relatively few people have soared with it. Given what's happened to the fortunes of the rich, it's a safe bet that income taxes could be raised on Americans in the top brackets and they'd hardly feel it. Even if they had to pay a small wealth tax in addition, the rich would still be far better off than they were only a few years ago. According to New York University's Edward Wolff, an expert on the wealth gap, a wealth tax starting at one-twentieth of one percent on net worths of $1 million, and rising to 1 percent on the super rich, would yield about $50 billion per year. Imagine earmarking this for, say, the education of poor kids.
These Two Big Things should change the way we talk about our national aspirations. Let the naysayers and pessimists say we won't continue to be as productive and can't afford to do what we should be doing. Let the rich say they don't want to use any more of their burgeoning wealth to give everyone else a better chance. Then let the rest of us tell them why they're dead wrong. That would be a debate worthy of the millennium.