These are a lot of great points which I agree with.
The major question for me - and I think for American society at large - is why despite all of this prosperity, so many Americans still feel angry, disillusioned and frankly, even cheated.
It's just such a stark contrast to the economic facts. And also to other developed countries and democracies.
All have their fair share of challenges with populists, demographics, immigration, conflicts over cultural issues, growth, and inequality.
But the pain and anger Americans seem to feel and express seem to be deeper, harder and sharper than most others - and that even though the economic facts rather seem to suggest they've actually had it better (at least in pure money terms) than the citizens of most other rich countries.
That's the deeply worrying puzzle that neither economists nor political scientists or sociologists have found a really convincing answer to yet.
I have a couple of ideas, but it remains a puzzle nonetheless.
6. Social media allowing the relatively affluent American working/middle class to see how the top 10% lives, giving them intense status anxiety. Gets worse when they see foreign affluence too.
The problem with the "hollowed out city" idea is that there are always going to be some areas of thd country where the local economy has taken a hit because it's almost entirely based on an industry in decline. If we expect that there are never going to be such areas to exploit with a few evocative photos, we're never going to get any perspective.
This problem is exacerbated by the fact that all politics has gone national, when for the most part these are local issues. Cities with competent political leaders don't sit around lobbying the Federal government to protect their dying industries; they are constantly looking for new and more modern ways to revitalize their cities by diversifying their insustrial portfolio.
In the '80s, cities like Pittsburgh and Buffalo were the poster children for the decline of U.S. steel production. But they retooled and now look at them today—something which would have never happened if they had sat around waiting for Congress to somehow fix their problems. After all, Congress doesn't fix anything anymore; they simply complain about things in order to get elected, but then gridlock and ideological conflict prevent things from happening and they get cycled out for the other party.
Even the cities with high economic productivity like San Francisco are crappy places to be when compared to cities anywhere else in the developed world; I don’t think this is just about cities like Detroit.
From your bio line I suspect that your perspective on this comes from the fact that you currently live in one of the world's safest countries (you have my envy). 😏 There's no denying that American cities are unusually dangerous for the developed world. And if that's what we're talking about, the reason is obvious—the country is awash in guns, thanks to the Second Amendment.
The excessive housing prices in many parts of the country do not help. Especially when higher paying jobs are concentrated in those areas.
Also, the fact that many parts of the country appear to have pretty close to zero state capacity.
I live near Los Angeles, so I’m going to use it as an example. LA says it can put your sidewalk on a list to get it repaired in 10 years. There are potholes everywhere. The schools suck. Homeless people relieved themselves in my old neighborhood (not a bad one), so everywhere smelled like a public lavatory. I paid high taxes while I lived there. Should I not feel cheated and angry at this level of dysfunction?
It does certainly make sense, if you put it that way.
But your - very real - experience just seem to be starkly at odds with the very real and massive prosperity that America as a society (and also Americans as individual people, companies, municipalities, states etc.) have.
It's just strange to be saying, yeah America got *much* richer these last 20-30 years and also, pretty much all the things that make them feel rich, safe, and comfortable got much worse.
I mean, in which sense did Americans get richer then? It's just such an odd combination of a growing economy (and growing individual wealth!) yet widespread anger and dismay at public decay, dysfunction, and lots of important things becoming ever more expensive.
Part of this is where I have chosen to live. I have family obligations here that have kept me past the point when I would otherwise have voted with my feet to a more functional part of the country.
But, more and more I feel like the US, California, LA County, and LA City governments only have the state capacity to create and enforce regulations. They don’t have the ability to solve problems or perform the basic functions of a state (such as building and maintaining infrastructure).
So, I get why people are angry. The government is getting in their way and also not solving any of their problems.
I just don’t see any way for those problems to be solved any time soon.
I think your #1 is the most significant factor. People think they have it bad because politicians — Democrats since forever, and now Republicans too — are constantly telling them they have it bad. The reality is that they have it good; better than any peoples who have ever trod this earth previously or elsewhere.
I also think your #4 is mostly wrong, but people think it is true for the same reason. The reality is that inequality has not been increasing and is not worse than many other modern countries.
Market concentration is the easiest explanation, eating into consumer earning power--while simultaneously driving down wages.
Housing costs increasingly more as a share of income. As does healthcare.
Americans also have lower QOL than most EU residents--we work more hours for the same pay. Especially for women; and even more so for mothers.
We're also advertised to more heavily than in the EU; which increases desires and expectations. Especially when measured against increasing wealth concentration and correspondingly less socio-economic upward mobility.
You raise a couple of interesting points. Allow me to briefly respond.
– Market concentration is certainly a concern, but how Noah’s statistics show, consumer earning power has *still* grown. Where I would agree with you is that in certain areas (housing, health care, college) price increases have been so much higher than wage increases that it hurts disproportionately.
– Yes, I agree that housing, healthcare, college play a huge role. Which is why I’m increasingly wondering if economists should find way to better measure the relative “happiness” of people being able to afford different types of things. Theoretically, consumer happiness should increase with whatever they can afford more of (be it flat-screen TVs or doctor’s appointments). But imho it’s not that easy.
– The quality of living point is a complex one. Personally, I agree that there is something to this (esp. on health, life expectancy, free time, safety). But on the other hand, Americans as a society *did* choose time and again more income over more free time – and that’s a free choice too. And they are very productive.
– The point about advertising is interesting. I think it might even go further. So much of American self-image and happiness is tied up with career success and material possessions – perhaps even more so today than in the past. And what others have and own is even more visible today than in the past. So the feeling of relative income & wealth might be very skewed today.
– And yes, the socio-economic upward mobility is a good point too. But it’s also true that this varies a lot between rich countries in general.
I think a lot of answers are in that second bullet - housing, healthcare, education, retirement, etc. The "crap" is cheap and plentiful, but the essentials are often out of reach. Annie Lowrey's "affordability crisis" writeup a few years ago seemed pretty convincing to me.
And there's a precariousness to all of it. I wonder if you could almost model it as a "net present value" calculation where people used to feel confident their job would remain & their pension would pay out, so they "felt" more wealthy than they might knowing unemployment lurks around the corner and their retirement plan is dicey. The uncertainty of the future makes the NPV feel lower than it did for the 60s "factory man", even if this year's income will be higher.
While I don't think income inequality is the most important issue, it does also create this sense of a steep gradient where you can easily fall into a lower "bracket" lifestyle - and the bracket above seems quite out of reach. I'm in a top 5% household but I still worry about the 5-10 year horizon because I could get hit with college tuition and aging parents just as I'm approaching retirement. Or volatile economics could wipe out my wealth, which is primarily in stocks in retirement accounts.
I think this is absolutely a huge part of it and something that economists – and also Noah – only occasionally address.
Both the question of *what* is more / less affordable and the topic of how *certain* do people feel about their job, career, healthcare, housing, safety and so on.
My feeling is that on both counts, America has seen big shifts that Americans rightly and reasonably feel and see as threatening.
Being able to afford *lots* more stuff does not weigh up struggling to pay for the healthcare that you need or not being able to buy the house that you want (even though those got much bigger & nicer). In people’s minds, they might well feel poorer, even though they have lots more stuff and purchasing power.
And being uncertain about all of this plays an even bigger role, I think.
Even if most Americans *actually* move up the ladder most of the time and actual unemployment is very low, the mere possibility of falling off it and then very quickly losing almost everything (your house, your car, your healthcare plan, your purchasing power, for some even their self-esteem as it was tied to career success) must be a terrifying possibility in the back of people’s minds.
In a way, that thing that struck me was a recent quote of Victoria Ratliff in the TV series “White Lotus,” who said: “I don't want her thinking she'll be just fine if she's poor! She needs to fear poverty, Tim, like everyone else we know. That way, she'll make good decisions.”
Do Americans fear poverty (i.e. falling into poverty) that much? Even middle class and upper middle class Americans? Because that is a pretty terrifying prospect.
I’ll be honest, I’m European and grew up middle class. I personally do not fear falling into poverty. I just don’t. I know that everything around me is built in a way that this is not something I personally need to fear and that I have the resources, networks, support and everything to live a stable and actually pretty good life, even if unfortunate events (personal or more general) happen.
I am concerned of our economy struggling to grow or poverty becoming a bigger issue more generally and lots of other stuff. But personally, I do not fear falling into poverty, neither do my friends, family etc.
It seems a pretty grim prospect that many Americans would, even just in the back of their minds, have this fear.
One in 13 American households lost their homes to the banks in the Great Recession. Possibly the single largest transfer of wealth in US history. To the big four "Too large to fail" Banks that got even bigger because they bought out smaller banks with their Federal Reserve mega-loans.
Right now roughly 50% of the country lives 1-2 paychecks from homelessness. The bottom 10-15% that works retail usually has to work 2-3 jobs, because employers cap jobs at 20 hours/week maximum. With no benefits.
And now the Republicans want to gut Medicaid--upon which the bottom 20% depend. To increase tax cuts that will primarily benefit corporations and the top 5%.
These are some wild stats! See, the thing about the Great Recession I believe (and crazy!).
The thing about living paycheck to paycheck is much harder for me to believe. Noah did a post about this once, I think.
Basically, it's a very narrow calculation where you ignore all the massive assets Americans have (from 401k to stocks to the actual equity in their house to simply spending a bit less on discretionary stuff) and then say they live paycheck to paycheck.
I'm sure it *feels* that way for many - but also because somehow there's this expectation that you can spend a lot on everything at all times yet should still have loads of extra savings (which miraculously you won't spend somehow). It's a bit odd tbh.
And goes back to my point thag it's hard for me to tell why Americans, with such enormous prosperity, still individually seem to feel poorer or at least more uncertain and at risk of falling deep then in past generations (when clearly they had less material wealth, yet felt “richer” in many ways).
Comments like this (from either side of the political spectrum) are perfect illustrations of why everyone buys into the doom and gloom. What we lack is a relevant comparison to either the past or other countries. It is certainly true that there are challenges, there always have been and always will be. But Americans of 2025 have it better than 99.99% of humans that have ever lived.
Well, without a good income to cover living in a top tier city, you have to move to the hinterlands and then you don't really have access to the good jobs. (At least, how I feel working in tech.) So I do think Noah's short answer "land use" has truth.
And given the trend to losing hospitals and other services (and lousy internet) in the rural and semi-rural areas (where homes are more affordable), it is a serious tradeoff for many people to move. Jobs are tougher to find (especially good ones), etc..
I think there is a lot of unspoken fear because the American social safety net is meager, health insurance is tied to jobs, and most jobs ar “employment at will.” I had a long career as an engineer and a manager. Despite receiving good appraisals and raises, there was always the possibility of a merger or hostile takeover triggering layoffs unrelated to my performance. In the US, if that happens when you are in your 50s, getting an equivalent job can be tough. That level of uncertainty keeps plenty of middle class workers in a silent state of worry.
Have a look at Tyler Cowen's "Stubborn Attachments" for a reformulation of a GDP-like measure which he calls Wealth Plus. I'm still early in the book but it's so far a useful contribution.
Yeah that’s why I replied that it’s complex. Quality of living (QOL) can be measured in a myriad of different ways and depending on what you prefer you can come to lots of totally different results.
As for the pay measure, Americans do work more hours than Europeans, but their productivity per hour worked is usually on par with the very richest European countries – and ahead of most others. So Americans do get a lot of bang for their buck.
But they also work awfully lot and have a lot less free time, vacation and so on, which might well dent their enjoyment of all that earned money quite a lot.
Fair enough, I just think it's important to distinguish between working late to afford groceries and working late because we've developed a taste for bottled water, DoorDash, central air, yoga classes, SUVs, etc.
That's a good point, so I tried looking up survey data and found 15% answered yes and 68% no to the question "If you had the opportunity to work one less day each week and receive 20 percent less pay, would you take that opportunity?"
Talk radio, cable news, and the phones/social media.
We all live in our heads and our reality is shaped not by "the real world" but our perception of it. It is why ads against Biden were all about how people "felt" the economy was bad, and not that it was actually bad. Most Americans think all of this horrible things are true and they have it so bad (despite living in the richest country in the world) because they are told so constantly.
While the rest of the world has phones and the havoc they have wrought, we had decades of talk radio and cable news degrading our political discourse leading up to it.
We have expectation inflation of what a middle class life is supposed to look like. In the 1970’s it was a week in the Adirondack’s for a typical middle class New Yorker at a Holiday Inn, Howard Johnson or cabin. We brought our food for the road in a cooler and stopped at highway rest area for lunch. HGTV house porn, foodie BS - where the decor is as important as the food and entry level cars with things that are nice but you don’t really need. I can crank my own window and slide back my own seat - need to fix that now - 2k. Look at a college dorm of today vs my day in the 1980’s. Mine had more of a prison feel, USF is closer to a resort hotel. Nice to haves have become standard and that is no free. If you don’t have that you are pissed. Plus the really ostentatious wealth that we see even makes a very successful person feel like it’s not fair.
That's for sure the case. But it woukd again beg the question, why does this seem to have happened so much more in the US than almost anywhere else?
You probably also have elsewhere expected inflation of a middle class life. But the intense anger and feeling of being all the time on edge seems to be so prevalent in the US. Why?
I have two theories, first housing and education have become too expensive eating into people’s higher earnings and preventing them from achieving the American dream. Second pundits, academics, commentators etc in trying to find an excuse for why Trump, a person they find disgusting won latched onto the theory that it’s all because the economy has failed the middle class. I think the simplest explanation for Trump’s first win is that his opponent was unpopular, ran a bad campaign and voters are reticent to give a party three straight terms. His second victory was because of voters anger at inflation, mass migration and his opponent being seen as a continuation of an administration they didn’t like. The reason I’m skeptical of the narrative that voters won’t be happy until we bring manufacturing back is that they were happy about the economy in 2018-2019.
I think that the negative feelings are being generated by cultural/political change, not economic decline. Do not estimate the amount of cultural change over the last 60 years:
Based on your other comments, it looks like by “technological change” you means the smart phone and social media. My article is about changes that long preceded those technologies.
Sure, I agree with that. I think a more nuanced version of my belief is that the information revolution simply sped up the effects that were already happening. I really agree with your point on diversity being eschewed for a single definition v the vast cultural differences associated with ethnic enclaves in the pre WW2 era. As that process started to matter less and chosen identities started to matter more, dropping the internet and then smartphone in the mix was turning that dial up to 11
A lot of this traces back to the fact that, right after WWII, America made up around 60% of the world’s GDP. Western Europe and Japan had been devastated by war, while the U.S. industrial base was untouched and booming. But by the 1950s and '60s, as Europe and Japan rebuilt and re-entered global markets, their competition began to chip away at America’s industrial dominance. The U.S. economy kept growing, but the global supremacy of many American companies began to erode.
Today, as the U.S. continues to run current account deficits and import goods, we send excess dollars abroad. In turn, countries like China, Japan, and Germany use those dollars to buy U.S. Treasuries, stocks, and real estate. Meanwhile, our low-end manufacturing becomes uncompetitive, unless it’s in high-value-added industries—like pharmaceuticals, aerospace components, or the design (but not fabrication) of semiconductors by companies like NVIDIA or Qualcomm. That shift is economically sustainable, even beneficial. It creates tech, finance, and biotech hubs with large ecosystems of service jobs surrounding them. But it also means New York City thrives while places like Troy, NY wither.
Median incomes have risen, but economic growth hasn’t been evenly spread. Most people still find jobs—unemployment today is lower than in the 1960s or 1970s—but the quality of those jobs varies dramatically. The labor market has polarized: you either work in professional fields like nursing, finance, engineering, or supply chain, or you’re stuck in low-wage retail and service roles like those at Walmart.
The American middle class has shrunk—but mostly because more people moved up the income ladder. According to Pew:
The majority of Americans are still middle class, but it feels different.
Why do things still feel bad? Because service costs have exploded. As more people flock to cities like LA, NYC, SF, and Boston, those hubs don’t build enough housing to meet demand—thanks to zoning laws, slow permitting, and NIMBYism. Education is more expensive too, partly because the government increased access to student loans. In the 1950s, mostly elites went to college. Now with widespread subsidized and unsubsidized loans, colleges have jacked up prices.
Healthcare is another pressure point: government programs subsidize demand, while a cartel-like system among doctors restricts supply through limited residencies and licensing bottlenecks. Meanwhile, drug companies and providers set high prices. We blame insurers, but in many cases, it’s the providers and pharma companies charging the actual rates.
I gravitate toward answers that are unique to America--and unique to this time.
Namely:
1.) We are a superpower. That encourages dysfunctional megalomaniacal thinking and power struggles that don't happen elsewhere.
Basically, the stakes of taking hold of power here are so much greater, and the penalties for losing it so much more potentially worse.
We've had no rival powers for a while, so that increases the rewards for capturing the heights of power in America.
On top of all that, it encourages foreign powers to meddle, and essentially ally with American factions in elections. Our domestic contests are now wide-open battlefields for global supremacy.
Also,
2.) It's the smartphones. Everyone has one now, and data to feed it. They're cooking our brains and impairing our judgement.
So, basically, 1.) The counterintuitive curse of being number 1 on Earth, combined with 2.) Internet shit.
P.S.: I originally wrote "magalomaniacal". I probably should have kept it.
More money more free time more time to shit post and get mad. It's just the information ages effects. Nothing to do with wages at all imo. All the rage studies align far more closely with the rise of the smartphone than some concocted story about wages
Yes but why then is it so much more acrimonious in the US? Other countries have smartphones and the internet too.
And yes, they also experience populism and all sorts of issues. But the depth of anger and conviction of somehow being cheater and all of that seems to be exceptionally strong in the US, even among people who are really well off.
My two cents, I think a great deal of the angst about employment today arises from the pace of change and the consequent impermanence of jobs. This and the financialization of retirement savings. In the US manufacturing heydays of the 1950 and 60's, most people had a job for life, or certainly as long as they wanted it, with medical benefits and a defined pension.
The think pieces supporting the "hollowed out America" narrative are always accompanied by photos of small towns and big cities, boarded up, blighted and dilapidated. I live part time in Detroit, and part time in rural Michigan, so I've seen plenty of this with my own eyes.
While I agree with Noah's general thesis here - it's true, we as a society are richer than ever - is our crumbling infrastructure a separate issue, driven by low taxes and low effort on building nice places to live? Is wealth hoarded by individual households instead of being shared for the common good?
Because telling people that we are actually rich, when they see evidence of crumbling cities and towns, is not going to convince them.
Who is complaining about cities, though? Cities are full of democratic voters. MAGA is not made up of voters who secretly crave an opportunity to move to a spiffed up inner city.
The story that people can't wrap their head around is that for every small manufacturing town that was bleeding people before NAFTA even existed, there were a dozen others created by the new market economy. Half the sun belt and half of Florida look like they were built yesterday. I don't know what we have to stop the whole economy because rural towns in Ohio or West Virginia didn't want to make the transition and never tried.
This is very true! Lots of town have been built in the last thirty years, and not every place on earth will be revitalized.
Detroit built crappy cars in the seventies, had decades of racial strife, and had problems way before NAFTA was on the horizon. So the "hollowing out by globalization" narrative isn't the whole story by any means. I could argue that globalization actually helped, at least in the last twenty years or so.
However there are places that still look like war zones in this country. Maybe it's just that we are so big and our population so mobile that people tend to abandon and move, rather than dig in and revitalize. In Europe, small towns can remain vibrant because moving on to new frontiers is less of an option.
The places that look like warzones are a policy choices not due to trade but due to chronically bad state and local government choices. Mississippi classrooms looked like hollowed out eastern european post war shells until they'd decided not to be like that. So much of the blame rests at the feet of the people complaining imo
But not everyone can move to those places or have the training to do the jobs there. Disruption and infrastructure decay is real. In an ideal world, people would move to new areas and get new jobs, but there is a ton of friction in terms of actually doing that.
And yet international surveys of infrastructure show the US as being well above average, indeed, near the top. As for crumbling cities, I would suggest that this is due to a lack of political leadership and economic dynamism (often caused by the political leadership).
Again, the question isn’t why the US is doing so bad, the real question is why do people view our remarkable relative prosperity with so much pessimism?
Detroit's mayor, who is now running for governor of Michigan as an independent, has spearheaded a remarkable comeback for the city. It's hardly complete (some neighborhoods and schools are dismal), but it shows that progress can be made. However, you hear very little of it if you aren't from this area.
“[T]elling people that we are actually rich, when they see evidence of crumbling cities and towns, is not going to convince them.”
Are you sure? The reverse—telling people that America is poor and weak despite its obvious strength and wealth—has actually worked really well for those who were pushing that narrative. I think we have to reckon with the reality that there is a large section of the American public who will believe what they hear in podcasts or on television in preference to their own eyes and checkbooks.
1) There's not enough voices fighting for why regionalization works. Shannon O’Neil’s The Globalization Myth makes a strong case: NAFTA is part of why aircraft engines are still made in Hartford, Connecticut by firms like Raytheon and Pratt & Whitney. By integrating with Canada and Mexico, U.S. companies can tap different labor pools and specialize—just like what we see in Columbus, Indiana or in cross-border hubs like Laredo, El Paso, and San Antonio.
Places like Akron, Ohio had their tire firms destroyed by Japanese and French tire firms, and those places used cheap labor too! Back in the 70s and 80s, Japan used Thailand and other Asian countries for cheap labor pools. Back in the 70s and 80s, southern Europe (Portugal, Spain, Italy, greece) was much poorer than than western Europe and functioned as cheap labor for rich Europe.
2) Also, let’s be honest—the military-industrial complex is America’s biggest form of protectionism. The Berry Amendment forces the Pentagon to buy American. I worked at Boeing Defense, and saw firsthand how plants from Ridley Park/Philly to Wichita alive because of federal contracts. These aren't outsourced to French firms. They go to American ones, even supporting good-paying, often union jobs for non-college grads.
If we thought of the Pentagon as economic policy, not just defense policy, we’d realize the U.S. is running the world’s largest protected economy—just dressed in camo..
In short: We need more regionalization and we already have a lot of protectionism.
Now, while I agree that "the hollowing out of the middle class" is not an apt summary of any macroeconomic development of the past few decades, I think something has happened in the economy which was deeply subversive for the way of life of middle America.
Assembly line factory production created, in the mid-20th century, an economy where *unskilled labor could earn a middle-class income.* That's why the factories were so important. Factory jobs served as a kind of economic safety net for people who didn't achieve any sort of excellence. They could do that because of the great *human capital saving* innovations in manufacturing, symbolized by the assembly line. It was very boring work, but if you were willing to screw the same two parts together 5,000 times a day, you could have a modern lifestyle full of modern comforts and luxuries, without any particular skills.
That's not normal, and we shouldn't have expected it to last.
Globalization and automation were the big factors that killed it. But the decline in unskilled labor wages was just reversion to the mean.
Now, the decline in unskilled labor wages did not hollow out the middle class. Much of the middle class was never unskilled, and some of the unskilled labor middle class that factories made possible in the mid 20th century managed to upskill either themselves or more often their children so that they could stay in the middle class even as the factory jobs went away or went low wage.
Nostalgia for the anomalous macroeconomy of the mid 20th century is now a destructive force. But I don't think it's fighting a phantom. A certain kind of damage was done in the midst of progress.
Another reason of course why unskilled Americans in the 1950s could earn a middle-class income in factories is because there was so little foreign competition (because it had been wrecked by World War II).
Unions and lack of foreign competition were _both_ necessary conditions for those jobs to yield a middle-class living: the lack of foreign competition created an economic rent, and the unions then fought to claim as much of that rent as possible for their members.
I remember back in the 1980s (when the competition was from Germany and Japan) I noted your point and then mused "We have a lot of unused nuclear weapons, maybe we could get rid of the foreign competition."
Yes, I think this is a very important point. When you split the population by class-type factors (among which education is very significant), certain *groups* have gone downhill badly. Only slicing the population by income hides that there has been tremendous downward mobility, not only of individuals but of classes. (And consequently, upward mobility.) I once noted down a quote:
"When I grew up in Pocatello [in the 1960s], you could not read or write and still get a job at the railroad making $50,000 or $60,000 a year." -- Pocatello mayor Roger Chase
That number must be incorrect, but the overall concept is true.
There is a term for an American born citizen now who can’t read and write. The term rhymes with “gidiot,” and the proper response isn’t to redesign our economy around them, it is to build special needs facilities.
There is no shortage of blue and pink collar jobs in the US, as ten or twenty million immigrants have made clear.
They Used to Be Ahead in the American Economy. Now They’ve Fallen Behind.
Take white men working without a college degree. In 1980, they made more than the average American worker.
But over 40 years, even as their inflation-adjusted income has remained relatively flat, they’ve fallen well below the average income.
In the reordering of the U.S. economy since 1980, white men without a degree have been surpassed in income by college-educated women.
What this captures is a sense of relative standing — not just how well you do on your own terms, but how you fare compared with everyone else. In short, a sense of status.
As the American economy has shifted over the past 40 years away from manufacturing and toward services and “knowledge” work, this less visible hierarchy within the economy has shifted, too. Jobs that helped build the nation, like the machinists and metalworkers who were mostly white men without college degrees, today make a shrinking share of what the average American worker does. Newer kinds of work, like financial analysis and software development, have come to pay much more.
The economy has effectively devalued the work and skills of some Americans, while delivering mounting rewards to others — reordering the status of workers along lines that increasingly shape the country’s politics too.
It wasn’t an anomalous micro-economy, it was an engineered pro-labor economy designed to produce political stability. Those 90% tax rates and high corporate/dividend taxes weren’t an accident, they were part of a government policy designed to ensure that corporations produced decent jobs. Now we’re experiencing the instability that comes from a non-engineered economy; maybe we’ll survive it for a bit longer, but I’m not confident.
Weren't the extremely high top rates of taxation of the postwar era in some ways a holdover from WWII itself, and only sustainable for as long as they were because that era (the time of the Bretton-Woods system) was also an era of strict controls on the international movement of capital?
This is a question that’s pretty easily answered by Googling. (No, that isn’t shade! I had to Google it as well.)
Here is a chart containing historical data on the top marginal rate for individual taxpayers [1]. As you can see, it goes from 25% to 63% in 1932. I suppose if you squint you could make an argument that this change (just a couple years into the worst of the Depression) was somehow related to the war we would enter formally in 1941, but I don’t find that convincing. I’m sure with some further research you could find the bills and the arguments made in Congress.
The New Deal wasn’t some accident where folks just raised taxes to balance a budget. It was a very thoughtful and deliberate project designed to lower income equality and ensure long-term employment, and it was done explicitly to stabilize society so we didn’t end up like Russia or Germany. We tore it down in the 1980s and arguably we’re seeing exactly the sort of political destabilization FDR et al. were worried about. This could become much worse if we have another 2007/8 crash that’s badly managed.
Both can be true. Anomalous macroeconomic conditions may have made it possible to run a pro-labor economy, where under other macroeconomic conditions that would just have caused ruin, as arguably happened in the later 1930s. There's no obvious causal link between 90% marginal tax rates and companies producing decent jobs.
I think the fuller story is that human capital saving technological change created the possibility of an unskilled labor middle class, AND ALSO high taxes and strong unions suppressed capitalist inequality. But it also suppressed capitalist economic dynamism. Innovation peaked in the Gilded Age, then slowed to a crawl in the 1950s through the 1970s. Then it was gradually rekindled in the more free market economy ushered in by Ronald Reagan.
Too much regulation and redistribution kills the goose that lays the golden eggs and impoverishes posterity.
In the 1930s this was a tradeoff people were willing to make. It’s hard for us to understand the level of catastrophe they were facing after decades of wealth inequality, and there was every reason to believe that US political instability would go the way of Nazi Germany or Soviet Russia. The New Deal saved us from that, and the result was wildly better for industry dynamism than the alternative.
We’re just a few years into the same type of political instability here in the US, and we’ve already experienced one Depression-style economic crash that only avoided becoming a Depression due to extremely powerful New-Deal-style intervention. Are you really confident that US dynamism can withstand another 4-12 years under the sort of governance we’ve seen in the past 110 days? Because I’m not.
There is huge demand for relatively uneducated blue collar labor in the US, and it pays extremely well.
Plumbers
Electricians
Home remodelers.
Handymen (please excuse the gender bias)
Truck drivers
Waiters at upscale restaurants
Appliance repairmen
Landscaper
Automotive repairman
I could go on for hours… many of these jobs pay outrageously great and are in high demand in most growing areas. A husband and wife working full time could afford a solid middle class lifestyle just about anywhere.
Yes, we now import some of the products that union laborers used to build. But this didn’t hollow out opportunity for physical labor, it just moved it to new fields.
That's an important point, but it needs to be qualified. Truck driver jobs pay middle-class incomes, but the lifestyle downsides are huge, since you spend weeks on the road away from your family. Most of the other jobs on the list, while they don't require a lot of academic education, are not unskilled labor. They take experience and training, and many lack the amplitude, the physical health, or both. They may require business acumen as well.
One of the things that I think AI might do is deskill some of those jobs. Would it be possible to design a smart cloud-based app that can process images from the pipes in a basement, and direct an unskilled worker wearing an augmented reality headset, while marking up his field of vision, so that he could fix pipes like a pro? That would make a big difference!
As I said, this is just an off the top of my head start at jobs that don’t require extensive education. There are thousands more and many are in high demand. Which is appropriate for which person is contextual and based on their life and capabilities.
I am pretty sure my gardener, my housecleaning lady, and my handyman all make six figure incomes with near zero taxes. And I find all three quite reasonable.
Yes, making an income in a trade or private business usually requires gumption and work.
The point of all this is that there is a huge demand in the US for other-than-white collar work. The myth that jobs died with factories is just a poor and outdated framing.
There are a lot of differences across geographies, too. Factory jobs are disproportionately non-metropolitan. In big cities, I can believe that some house cleaners, handyman and gardeners make six figures. Not in small towns. And of course, big city real estate tends to be expensive enough that it's hard to move there If you start out poor. I'm sure there are a lot of urban high school grads with some entrepreneurial flair and a good work ethic and manual labor skills who do very well. But a hollowing out of the middle class in small towns due to factory closures is a widespread reality.
I agree that creative destruction is a reality and that many factory jobs in developed nations have been outsourced to places with cheaper labor (this has been especially true in places with higher priced union labor.) What I disagree with is that there are not jobs available for working class men and women. Yes, they may have to move. If their town dies, they are crazy not to move. And they don’t have to move to a higher priced city as there are countless towns and cities that are still reasonably priced.
There is nothing better about a manufacturing job to a service job, the difference is that one sector was unionised and the other isn’t, if McDonalds or Amazon Warehouses or Delivery drivers or any of the other non college service jobs that exist were unionised they could pay the same wages and conditions that the old factory floor jobs used too
My economics teacher in high school once said something that’s always stuck with me, that there’s no reason a shift manager in a McDonald’s Kitchen should be viewed any differently than a floor manager in a factory, but the issue is as much cultural as it is economic, kids have no qualms saying their dad works in the local factory but feel embarrassed to say he manages the kitchen at McDonald’s
I think a lot of the fetishization of manufacturing is basically mercantilist in nature: a manufacturing worker is seen as "bringing money into the country" by producing products that will either be exported, or will provide for domestic consumption that would otherwise need to be imported.
But then MAGA types don't seem to be particularly worried about foreign tourists shunning the US, even though tourism jobs resemble manufacturing jobs in being both accessible to the poorly-educated (unlike knowledge-economy jobs) and bringing money into the country (unlike most low-level service-sector jobs).
There is no difference. Wages dropped not because we switched from manufacturing to services, but because we doubled the labor supply by bringing women into it and then increased it again by bringing in tens of millions of illegal immigrants, and then totally flooded it by outsourcing labor via free trade. If we could magically bring back the manufacturing economy of the mid 20th century wages would still be low because of supply and demand.
Unions can't negotiate against supply and demand. If a company can just hire an entirely new workforce for a factory or move it to another country the union has no leverage. Excess labor supply is what killed the unions.
Cartels in open markets can’t sustain their above market “rents”. This is not a bug in markets, it is a feature.
Unions raise wages empirically by 15 to 20% over the market rate, but simultaneously choke off investment and growth in the unionized segment of the industry, thus killing themselves off over time. Thank God that at least some factory jobs were able to go to the Carolinas rather than Vietnam.
Yes, during the boom years of manufacturing in the Industrial Revolution in the late 19th and early 20th century America famously had very low levels of immigration, that’s why nobody knows a place called Ellis Island exists
You might want to look into the history of the labor conflicts of the era and the role of immigrants before you use that stupid trope to argue the opposite of what the history actually says.
Quick comment: "when America has finally realized the futility of Trump's approach" is off track. Pundits overwhelmingly recognized its futility for serving any conception of the common good instantaneously, and polls. Suggest the public isn't far behind. But that doesn't seem to be Trump's goal. Tariffs give him power. They make companies and countries grovel. It's part of his dictatorship push, not a reindustrialization strategy. That's not a comment on the whole article, just that one phrase.
Your data is, I am sure, correct, but it isn’t answering the right question.
Globalization, as we have done it, has taken the US from a place where good jobs are widespread across the country and narrowed it into a place where good jobs are heavily concentrated in a small number of places.
People tend to be heavily vested in their family, friends, hometown, and the quirks of their local culture. That culture, in the US, also frequently tends to prize space, whether it’s for cookouts, gardening, or a fenced yard for the dog. Many people literally loathe dense living.
By focusing so much on agglomeration, our economy has increasingly pushed against the preferences of a significant percentage of our people - a preference pretty clearly revealed by the census data on pandemic dispersal of remote workers to less urban areas. That dispersal also revitalized those areas with secondary job production.
Policy needs to consider the geographic dispersal of jobs, including supporting remote work, because lack of those jobs is a big part of why our political culture is breaking.
What I would ask is why did Americans end up in places like Detroit and Cleveland in the first place? People typically are where they are because their family moved there for economic reasons -- the very thing we are now saying is unreasonable to ask people to do. Perhaps local community, roots, and all the other benefits of not having to chase higher incomes across the country are best viewed as another luxury that middle class people can now afford.
The culture in the United States places a high value on home ownership (and this goes back to the 19th century: the "American Dream" that lured millions of European immigrants across the Atlantic essentially _was_ the dream of owning your own land) which has become economically damaging.
For an individual, the home they live in is a suboptimal investment as it is less liquid than (for example) stocks, and has a value that is strongly tied to the state of the _local_ economy. The US economy today is stronger than it was 40 years ago, but the Detroit economy is not, so people who plowed their earnings into buying homes in Detroit will have seen them wiped out. This means that homeowners are more likely than (market) renters to be trapped in regions with poor economies.
Homeownership also fuels NIMBYism (because people whose life savings are locked up in the piece of real estate where they live are paranoid about any change that could cause it to lose value), and encouraging it as government policy also tends to encourage suburban sprawl: in the US 85% of single-family homes are owner-occupied, while 85% of apartments (in buildings containing at least 3 of them) are rented.
If you buy a house, you do not have to pay rent, your housing expense is relatively stable for up to three decades, and in your old age, you have no rent to pay and greatly reduced expenses.
If you rent instead, you are not investing that money in the stock market instead - you are just paying rent. And that rent is very unlikely to remain fixed over three decades, and you have to pay rent the rest of your life.
Finally, most homeowners are far less worried about effects on the value of their house than they are about zoning effects on their lifestyle. However, most US residents prefer suburban living, homeowner or not, and by a large margin.
Some of those moves happened because the local economies got so bad that there was no longer any choice but to move. Some was a younger age group that was relatively unconstrained and could move (without spending 4-5 years getting a college degree first). A bunch of reasons why mobility may be less today (there are other ones and as you noted, there are psychological reasons as well - complex topic)
About 7 million of those people moving from 1900 to the 60s were Black people moving out of the South to more welcoming areas in the Midwest and West that would give them more opportunity. That’s a rational response that doesn’t generalize to people in different situations.
In general, most people who grew up in the US do not move very far at all, and they strongly prefer to stay close to their families. 80% wind up within 100 miles of where they grew up. Median distance is 30 miles. Most live within 18 miles of their parents.
I'm not sure it's ever been true that "good jobs are (were) widespread across the country". Labor mobility is a constant theme of US history. And industries geographically consolidate / cluster for good supply chain and skills-access reasons. This sounds more like the myths we tell ourselves about the past that are twisting the present.
Personally, I blame a nationalized media industry that is heavily incentivized to tell people that things are awful everywhere, in a manner that confirms their preconceived notions.
From my own personal knowledge, yes, good jobs were in fact FAR more geographically widespread around the country. It very much concerns me that well informed people do not realize this. That’s been lost from a mix of globalization, corporate consolidation, and general lack of interest in preserving it as an economic goal.
In the 70s, of my own personal knowledge in my own state, Virginia, there was a large metal manufacturing company, Reynold Metals, headquartered in Richmond, with a big aluminum plant in the same city. That’s now part of an international aluminum company headquartered in PA that primarily manufactures outside the US. Richmond also had a drug company headquarters and drug manufacturing with the now-defunct AH Robins. Danville and Martinsville, both very small cities, were big centers of textile manufacturing. Virginia was also a major center of furniture manufacturing, North Carolina even more so. Hopewell and the tri cities had chemical manufacturing. The modestly populated New River Valley was, and really still is on a smaller scale, a center of complex manufacturing in general. Manufacturing was spread all over the state.
Mergers also took a toll. There were multiple banks, small and medium by today’s standards, headquartered in various cities in the state, that were absorbed through multiple rounds of mergers into larger banks headquartered elsewhere. Norfolk and Western Railroad, headquartered in Roanoke, became Norfolk and Southern, headquartered in Atlanta. Each merger reduced the geographic scope of professional jobs at the same time it hopefully increased efficiency.
As far as labor mobility goes, you do realize that a huge component of labor mobility from about 1900 to the 60s or so was Black people moving out of the South into areas they hoped would be more welcoming and provide more opportunity? That migration was millions and millions of people and it greatly affects the migration figures.
Agglomeration makes sense UP TO A POINT. But unrelated industries do not tend to cluster together, and historically we have had manufacturing clusters all over. Historically, manufacturing popped up where you had land, transportation, and a fairly modest number of people. The huge Dan River textile plant was centered around a city of what, 40k? Manufacturing was not primarily centered in big cities.
I do wish there was more policy discussion about this. I’m a remote worker who left a larger urban area to move to a “hollowed out” small city for family during the pandemic, and it’s been clear to me that the impact of that type of migration has been so positive for the area.
Wasn't the geographic concentration of good jobs in a handful of overpriced "superstar" cities driven less by globalization per se, and more by the corporate consolidation enabled by Reaganism?
The consolidation of *corporations* doesn't necessarily lead to the consolidation of *work*. In the early 1900s, manufacturers could only get good transport if they were in the center of one of a few dozen big eastern cities. (Actually, the ones that had major-league baseball teams, the westernmost of which was St. Louis.) But with the development of the interstate highways, factories could be moved to the hinterlands, and because labor was cheaper there, they did. But the concentration of the corporate owners didn't change.
The concentration of knowledge work is more driven by the fact that a knowledge worker gains more from being near a lot of knowledge workers than an assembly line worker gains similarly. Indeed, it would be a lot cheaper to hire a semiconductor engineer in Des Moines than in Silicon Valley, but they would do must less useful work.
In the early 1900s, manufacturing and manufacturing ownership was spread all over, and transportation was dependent on access to waterways and rail lines, not proximity to big Eastern cities. Examples I am familiar with include the Tredregar Iron Works on the James River in Richmond, Dan River Mills in Danville on a railroad line, Reynolds Metals with its HQ in Richmond and plants all over the south on rail lines and rivers, etc.
Knowledge workers typically collaborate more online than face to face, and a solid proportion of them work remote. Personal experience. It doesn’t matter then where they are physically located. For those workers, they don’t do less useful work zooming from Des Moines than they do zooming from Oakland. Theory needs to keep up with changing work technology.
Ok. If this is the case, can you quickly summarize what needs fixing for the US economy (or is there nothing) purely from the econ perspective, sans politics?
Land use is a big one. But I still maintain that health care also makes Americans deeply unhappy because it causes lots of uncertainty.
Not the health care they actually receive – which mostly is good, often even top-notch – but the overall cost and setup that your health and healthcare is always contingent on hard-to-control external factors.
I truly think that this basic fact is a big driver of underlying uncertainty and misery.
To be very concrete: Most Americans (especially middle class Americans) have very good healthcare.
But I have yet to meet one American who has never in their life been worried or concerned about their healthcare coverage in some way, shape or form.
And this worry and concern – which is a very existential one, because health simply is the foundation of our lives – keeps of course shaping and warping their choices.
They may not always be directly aware of it because it’s so ingrained already, but the very fact that Americans go into careers or make big life choices with the corresponding healthcare options in mind is a huge thing that warps their perceptions of what they are truly free to choose and do.
They usually end up with very good healthcare. But they are also aware that it is contingent on a very specific setup which, I believe, adds a lot of underlying stress that’s hard to shake.
And yes, I also think that did change over the last couple of decades with careers becoming more unstable (even if people ultimately earn much more).
America’s peculiar way of providing healthcare wasn’t that big of a deal in a world where people would be employed for decades with the same company or where actual options on the healthcare market were fairly limited.
It was organized differently than elsewhere, but most Americans probably did hop from one type of insurance to another pretty seamlessly and without much worrying, or just stay on the same plan all their life.
But the economy has changed and that the healthcare system has stayed the same has inserted an enormous amount of uncertainty in people’s lives, which is really adding up.
Last point (and I realize I’m answering myself here a lot, sorry for that):
In my humble opinion, one of the major reasons that makes European healthcare “better” in some ways is precisely because it removes this excruciating layer of uncertainty.
European healthcare may sometimes be cheaper or more universal or better at some things – but as pundits keep pointing out, American healthcare is also exceptional at a lot of things (and lots of Americans get really good healthcare).
So the major underlying thing that is “better” in Europe is simply that this uncertainty doesn’t exist, no matter the income level of the country in Europe. And that makes a huge difference.
and one minor addition - even if you THINK you have good healthcare in the US, it's very hard to be sure until you are actually using it. I have been shocked by the expenses that still passed through to my pocketbook for something as ordinary as a c-section baby delivery.
If you’re assuming no one outside the US is ever “concerned” about their healthcare, I think you’re setting the standard far too high. You won’t have to work hard to find people in countries with national healthcare that you presumably prefer who are themselves “concerned” about their healthcare. Americans hate that healthcare access is rationed by cost. But they would also hate if it were rationed by scarcity and incredibly long delays to receive care, which is the primary alternative for controlling access to a scarce good where demand outstrips supply.
I’m certainly not assuming that. But the concerns – especially in Europe or developed Asia – are very different. People are generally *not* concerned that they won’t have healthcare coverage.
Or that, if they lose their job or take the wrong one, they can’t get certain important procedures or need to pay tens of thousands for it. That’s just not a thing people are concerned about.
They might still be concerned about lots of other things – how fast will I be treated, how good is the doctor / hospital and so on – but these are still different things.
Americans might not like them either, sure (nobody likes those things). But that’s not really the choice we’re talking about here.
I agree, Since WW2, sprawling land use and the car-dependent transportation system are the root causes of much that ails the US. Places like California were at the forefront of this development pattern and have run up against the limits of a system where everyone lives in a single family house and drives a car everywhere. Holland (severely damaged in WW2 and rebuilt along US lines)) came to it's senses in the 80s with the oil crises and now transportation is largely based on walking, biking and public transportation. Unfortunately, the US just continues to double down on cars and highways and unsustainable housing patterns.
I will be interested in what Noah has to say about this
While it is great that we have a high per capita income, we also have a high per capita cost structure. I spend significant time in Czech Republic and friends and family are not that worse off ( if I look at things like home size) than people in the USA - and maybe better off if I look at quality of life. Outside Prague rent is cheap, beer is cheap, transportation is cheap (better than German now( food is cheap, HC is free but not as available, and Chinese phones are cheap and better, internet is better than VT!
So what you're saying is that the American middle class is a bunch of spoiled brats that don't recognize their privileged position? Interesting.
Maybe I missed it, but what might be interesting to see is the relative share of total income per 10th percentile group, and the changes over time, to see if their position relative to both lower and upper class has changed. This might explain why for people it might feel as if they're worse of.
Additionally, I do think 'real income' might be somewhat misleading, as the price of goods & services is limited by the disposable income in the region. So instead of a rise in prises one might just see a reduced supply, that still prevents one to purchase certain goods or services that were available to the middle class before, even though your income relative to its cost might be the same.
Of course that's also related to housing/land where a 'affordable house in a vibrant community' (with shops and service providers nearby) might feel almost impossible if zoning regulation prevents exactly that kind of areas to develop. And your barber might still cost 20 dollars, in real terms, but if you need to spend an additional 20 on gas to get there it still is more expensive to you.
Also, we do need more expensive stuff, like smartphones, to be able to participate in society. So the income share left for savings might be lower? Which might explain some of the discontent as well?
So middle class has gotten poorer relative to the top (which can actually also be derived from the table in the Jason Furman tweet).
Also,an increasing percentage of housing is bought by investors. And the land available for (new) housing is increasingly far away from employment centers (which have centralized more in urban areas with the switch to services).
So if your idea of 'middle class' is being able to afford a house in the suburbs not to far from work and a social community, so you can work and still have a social life, maybe with some occasional luxury purchases and some nice holidays, then probably that is no longer possible for as many as it used to be. Of course the holidays are now to destinations further away, those things that were luxuries in the past now seem basic necessities, and those things that the rich buy (the luxury items) are relatively more expensive because the rich have gotten relatively richer.
Also, class/quartile mobility in the US is weaker than in a lot of Europe (American myths notwithstanding). Part of that is due to employer based healthcare issues, but also other things (lots of articles out there on the topic).
Every study by decile or quartile over time that I have seen shows the exact opposite of what you are saying. Namely that when you take households in the lowest quintile and compare then ten years later that they actually improve at a faster rate than average. A lot of this is of course due to age, as people routinely move way up the income scale as the get into middle age.
Very interesting data! I guess at the risk of leaving the land of Econ and going into discussing vibes, why is there this sense then that American middle class is so much worse off from the rest of the world?
My personal theory is that Americans (not just Americans, it's also other rich countries, especially Anglo ones, but especially in America) there has been a decades-long project of setting expectations in the stratosphere for where people can realistically expect to be on Maslow's Pyramid during their life.
They've been fed a steady diet of What Colour is Your Parachute and "Do what you love and you'll never work a day in your life" and "find your passion" and similar things and...the reality is that very few people are "naturally" going to love the jobs they need to do make money to eat good and have housing. (I think many people grow to like/love their jobs in a kind of "I am competent at this and I enjoy exercising my mastery of a subject" but that's not quite the same thing we were promised as youths.)
Personally, I think it’s bound up with the breakdown of more classical systems of meaning, solidarity and purpose in modern life, especially in the US. Work and material success has replaced lots of that and become overly important.
In the past – also the not mythologized one – having a house, a neighborhood community, going to church, coaching a kids’ baseball team, having a hobby or a passion – all counted for a lot. These were strong sources of meaning and purpose for people and also for respect from peers.
I have the feeling, all of this was reduced by a lot. If you are not majorly successful in your career (or feel that way), this is a major blow for people’s self-esteem and happiness – to a degree that it arguably wasn’t in the past.
Hustling culture has always been real in America, but now it seems to be even sharped pointed to success as a goal for itself, not for getting lots of other nice things (material comfort, nice trips, leisure time, nice things for family & friends etc.).
I should have mentioned this in my original comment but it slipped my mind: my context is having lived in Vietnam for many years. My sense is that generally people just accept that work sucks but it is something you do to eat & live. You don't look for "meaning" from work. You also don't complain about work, it would be like complaining that the sun rises in the morning and sets at night. My brother-in-law works at a Nike factory and the other day was so tired (he works an overnight shift) he fell asleep on the assembly line and the machinery severely bruised his hand (nothing broken thankfully). His response wasn't "life is horrible", "modernity sucks", "the past was better". It was more like, "I've been talking about starting my own auto repair shop maybe this is the year I do it".
And there's no organised religion (definitely no church!), no hobbies (that's sort of a rich country thing, poor people don't exactly have hobbies), no coaching of kids baseball teams (that requires community spaces that poor countries can't afford to set aside), etc. Despite lacking so many of those American-centric other sources of meaning people aren't nearly as negative as in America, even though work life is objectively way worse than in America (6 day workweeks are the standard, just for one).
That's why I'm not convinced those are the major drivers. Though nothing in reality is mono-causal so they probably do contribute somewhat.
Interesting point of view. I definitely agree with you that the attitude to and expectation of how work should be is very different.
But for the US in particular, Americans probably do remember times when they “had it all,” in a way. Jobs that paid pretty well (and felt kinda meaningful, at least to a degree) and all of these other things that gave meaning and purpose.
Now the expectation how meaningful a job should be was scaled up *massively* while all these other drivers of meaning gradually fell away. That does something.
In countries such as Vietnam, I’d say one major difference is that people have no reference that it was “better in the past” – because it truly wasn’t (at least regarding jobs & income). Today’s jobs may be very tough and incomes low compared to rich countries, but compared to the jobs and income in Vietnam of 20 or 40 years ago, there’s a world of difference.
Because the balance‑of‑payments identity must hold, every dollar of the U.S. goods‑and‑services deficit arrives as a dollar of foreign savings. Those savings must be absorbed. The U.S. therefore faces a binary choice, which Michael Pettis summarizes this way:
(1) Let demand contract. Tighten fiscal policy, refuse the inflow, and watch unemployment rise until falling wages and prices restore external balance.
(2) Recycle the inflow through debt. Borrow the foreign savings—first via households and firms (pre‑2008 credit boom), later via the federal budget—and keep spending from collapsing.
For forty years the United States has chosen option 2. The measured gains in median household consumption are real, but they are leveraged: they exist only because rising private debt (1980‑2008) and soaring public debt (post‑2008) replaced the income that leaked abroad.
In other words, the trade deficit did not create welfare; it pulled it forward by converting foreign excess savings into American liabilities. The result is a deceptively “richer” median household coupled to a balance sheet that is ever more fragile. Any evaluation of the deficit must therefore count the hidden cost of the leverage that props it up.
I'd like to see you tackle these trade questions much more rigorously and argue from first principles. I do not think your recent articles are giving sufficient weight to the structural arguments Pettis and others are making. I find them more and more convincing, so I'd like counterarguments at their level of analysis.
I wonder what inflation was used to determine "real" wages/earnings because if it was CPI, then CPI is intentionally suppressed and kept low. Asset prices have massively increased in price relative to earnings whereas consumable disposable income items have gone down in price. CPI measures the latter, not the former, and it's the former that angers people the most. The cost of owning a home (esp say in gold terms, a better measure) hasn't changed but wages have certainly gone done in gold terms.
Housing, transportation, food, healthcare, (and schooling for some) are the biggest expenses...and those have definitely outpaced wages.
Noah — despite all the favorable data you show, you want to make changes? A far better course would be to give true trade adjustment assistance to those who lose their jobs because of free(er) trade. We’ve done a terrible job of this over time.
Sure, I want to do that, but my desire to promote manufacturing isn't about jobs at all. It's about A) national defense, B) multiplier effects, and C) diversification.
What about those that lose their job due to technology or fashion? Or bad performance?
I think the US does a tremendous amount of support for job losses, such as unemployment insurance, Medicaid, and a couple of dozen programs on transfer aid adding up to somewhere near a trillion dollars per year.
I would strongly argue that too much aid, improperly delivered has incentivized the very dysfunctionality we complain about in some of these abandoned towns.
I sent your article to my son, whose reaction was, among other things:
“And I can easily find graphs from reputable sources that directly contradict his graphs showing that median salaries and working class wages have increased”,
citing the following chart from Pew in contrast to your EIG chart “Real average hourly earnings of production and nonsupervisory employees and real median wages”
These are a lot of great points which I agree with.
The major question for me - and I think for American society at large - is why despite all of this prosperity, so many Americans still feel angry, disillusioned and frankly, even cheated.
It's just such a stark contrast to the economic facts. And also to other developed countries and democracies.
All have their fair share of challenges with populists, demographics, immigration, conflicts over cultural issues, growth, and inequality.
But the pain and anger Americans seem to feel and express seem to be deeper, harder and sharper than most others - and that even though the economic facts rather seem to suggest they've actually had it better (at least in pure money terms) than the citizens of most other rich countries.
That's the deeply worrying puzzle that neither economists nor political scientists or sociologists have found a really convincing answer to yet.
I have a couple of ideas, but it remains a puzzle nonetheless.
Yep, we need to figure this out.
My bet is some combination of:
1. Political conflict leading to everyone yelling about how everything sucks whenever the party they don't like is in power
2. Social conflict making Americans feel like they don't have a nation
3. Inflated and then dashed personal expectations (really striking when you talk to people from Japan or Europe and hear what they expect out of life)
4. Inequality
5. Crappy city centers hollowed out from crime and suburban flight
6. Social media allowing the relatively affluent American working/middle class to see how the top 10% lives, giving them intense status anxiety. Gets worse when they see foreign affluence too.
Doesn’t that exposure apply to Europeans as well? And their social anxieties seem to be lower (albeit also inflamed)
The problem with the "hollowed out city" idea is that there are always going to be some areas of thd country where the local economy has taken a hit because it's almost entirely based on an industry in decline. If we expect that there are never going to be such areas to exploit with a few evocative photos, we're never going to get any perspective.
This problem is exacerbated by the fact that all politics has gone national, when for the most part these are local issues. Cities with competent political leaders don't sit around lobbying the Federal government to protect their dying industries; they are constantly looking for new and more modern ways to revitalize their cities by diversifying their insustrial portfolio.
In the '80s, cities like Pittsburgh and Buffalo were the poster children for the decline of U.S. steel production. But they retooled and now look at them today—something which would have never happened if they had sat around waiting for Congress to somehow fix their problems. After all, Congress doesn't fix anything anymore; they simply complain about things in order to get elected, but then gridlock and ideological conflict prevent things from happening and they get cycled out for the other party.
Even the cities with high economic productivity like San Francisco are crappy places to be when compared to cities anywhere else in the developed world; I don’t think this is just about cities like Detroit.
From your bio line I suspect that your perspective on this comes from the fact that you currently live in one of the world's safest countries (you have my envy). 😏 There's no denying that American cities are unusually dangerous for the developed world. And if that's what we're talking about, the reason is obvious—the country is awash in guns, thanks to the Second Amendment.
The excessive housing prices in many parts of the country do not help. Especially when higher paying jobs are concentrated in those areas.
Also, the fact that many parts of the country appear to have pretty close to zero state capacity.
I live near Los Angeles, so I’m going to use it as an example. LA says it can put your sidewalk on a list to get it repaired in 10 years. There are potholes everywhere. The schools suck. Homeless people relieved themselves in my old neighborhood (not a bad one), so everywhere smelled like a public lavatory. I paid high taxes while I lived there. Should I not feel cheated and angry at this level of dysfunction?
It does certainly make sense, if you put it that way.
But your - very real - experience just seem to be starkly at odds with the very real and massive prosperity that America as a society (and also Americans as individual people, companies, municipalities, states etc.) have.
It's just strange to be saying, yeah America got *much* richer these last 20-30 years and also, pretty much all the things that make them feel rich, safe, and comfortable got much worse.
I mean, in which sense did Americans get richer then? It's just such an odd combination of a growing economy (and growing individual wealth!) yet widespread anger and dismay at public decay, dysfunction, and lots of important things becoming ever more expensive.
Part of this is where I have chosen to live. I have family obligations here that have kept me past the point when I would otherwise have voted with my feet to a more functional part of the country.
But, more and more I feel like the US, California, LA County, and LA City governments only have the state capacity to create and enforce regulations. They don’t have the ability to solve problems or perform the basic functions of a state (such as building and maintaining infrastructure).
So, I get why people are angry. The government is getting in their way and also not solving any of their problems.
I just don’t see any way for those problems to be solved any time soon.
6. Media (looking at you, Fox et al) that have figured out targeting/exploiting fear/anger/resentment, reptile brain stuff, is easy money.
I think your #1 is the most significant factor. People think they have it bad because politicians — Democrats since forever, and now Republicans too — are constantly telling them they have it bad. The reality is that they have it good; better than any peoples who have ever trod this earth previously or elsewhere.
I also think your #4 is mostly wrong, but people think it is true for the same reason. The reality is that inequality has not been increasing and is not worse than many other modern countries.
Market concentration is the easiest explanation, eating into consumer earning power--while simultaneously driving down wages.
Housing costs increasingly more as a share of income. As does healthcare.
Americans also have lower QOL than most EU residents--we work more hours for the same pay. Especially for women; and even more so for mothers.
We're also advertised to more heavily than in the EU; which increases desires and expectations. Especially when measured against increasing wealth concentration and correspondingly less socio-economic upward mobility.
You raise a couple of interesting points. Allow me to briefly respond.
– Market concentration is certainly a concern, but how Noah’s statistics show, consumer earning power has *still* grown. Where I would agree with you is that in certain areas (housing, health care, college) price increases have been so much higher than wage increases that it hurts disproportionately.
– Yes, I agree that housing, healthcare, college play a huge role. Which is why I’m increasingly wondering if economists should find way to better measure the relative “happiness” of people being able to afford different types of things. Theoretically, consumer happiness should increase with whatever they can afford more of (be it flat-screen TVs or doctor’s appointments). But imho it’s not that easy.
– The quality of living point is a complex one. Personally, I agree that there is something to this (esp. on health, life expectancy, free time, safety). But on the other hand, Americans as a society *did* choose time and again more income over more free time – and that’s a free choice too. And they are very productive.
– The point about advertising is interesting. I think it might even go further. So much of American self-image and happiness is tied up with career success and material possessions – perhaps even more so today than in the past. And what others have and own is even more visible today than in the past. So the feeling of relative income & wealth might be very skewed today.
– And yes, the socio-economic upward mobility is a good point too. But it’s also true that this varies a lot between rich countries in general.
I think a lot of answers are in that second bullet - housing, healthcare, education, retirement, etc. The "crap" is cheap and plentiful, but the essentials are often out of reach. Annie Lowrey's "affordability crisis" writeup a few years ago seemed pretty convincing to me.
And there's a precariousness to all of it. I wonder if you could almost model it as a "net present value" calculation where people used to feel confident their job would remain & their pension would pay out, so they "felt" more wealthy than they might knowing unemployment lurks around the corner and their retirement plan is dicey. The uncertainty of the future makes the NPV feel lower than it did for the 60s "factory man", even if this year's income will be higher.
While I don't think income inequality is the most important issue, it does also create this sense of a steep gradient where you can easily fall into a lower "bracket" lifestyle - and the bracket above seems quite out of reach. I'm in a top 5% household but I still worry about the 5-10 year horizon because I could get hit with college tuition and aging parents just as I'm approaching retirement. Or volatile economics could wipe out my wealth, which is primarily in stocks in retirement accounts.
I think this is absolutely a huge part of it and something that economists – and also Noah – only occasionally address.
Both the question of *what* is more / less affordable and the topic of how *certain* do people feel about their job, career, healthcare, housing, safety and so on.
My feeling is that on both counts, America has seen big shifts that Americans rightly and reasonably feel and see as threatening.
Being able to afford *lots* more stuff does not weigh up struggling to pay for the healthcare that you need or not being able to buy the house that you want (even though those got much bigger & nicer). In people’s minds, they might well feel poorer, even though they have lots more stuff and purchasing power.
And being uncertain about all of this plays an even bigger role, I think.
Even if most Americans *actually* move up the ladder most of the time and actual unemployment is very low, the mere possibility of falling off it and then very quickly losing almost everything (your house, your car, your healthcare plan, your purchasing power, for some even their self-esteem as it was tied to career success) must be a terrifying possibility in the back of people’s minds.
In a way, that thing that struck me was a recent quote of Victoria Ratliff in the TV series “White Lotus,” who said: “I don't want her thinking she'll be just fine if she's poor! She needs to fear poverty, Tim, like everyone else we know. That way, she'll make good decisions.”
Do Americans fear poverty (i.e. falling into poverty) that much? Even middle class and upper middle class Americans? Because that is a pretty terrifying prospect.
I’ll be honest, I’m European and grew up middle class. I personally do not fear falling into poverty. I just don’t. I know that everything around me is built in a way that this is not something I personally need to fear and that I have the resources, networks, support and everything to live a stable and actually pretty good life, even if unfortunate events (personal or more general) happen.
I am concerned of our economy struggling to grow or poverty becoming a bigger issue more generally and lots of other stuff. But personally, I do not fear falling into poverty, neither do my friends, family etc.
It seems a pretty grim prospect that many Americans would, even just in the back of their minds, have this fear.
One in 13 American households lost their homes to the banks in the Great Recession. Possibly the single largest transfer of wealth in US history. To the big four "Too large to fail" Banks that got even bigger because they bought out smaller banks with their Federal Reserve mega-loans.
Right now roughly 50% of the country lives 1-2 paychecks from homelessness. The bottom 10-15% that works retail usually has to work 2-3 jobs, because employers cap jobs at 20 hours/week maximum. With no benefits.
And now the Republicans want to gut Medicaid--upon which the bottom 20% depend. To increase tax cuts that will primarily benefit corporations and the top 5%.
These are some wild stats! See, the thing about the Great Recession I believe (and crazy!).
The thing about living paycheck to paycheck is much harder for me to believe. Noah did a post about this once, I think.
Basically, it's a very narrow calculation where you ignore all the massive assets Americans have (from 401k to stocks to the actual equity in their house to simply spending a bit less on discretionary stuff) and then say they live paycheck to paycheck.
I'm sure it *feels* that way for many - but also because somehow there's this expectation that you can spend a lot on everything at all times yet should still have loads of extra savings (which miraculously you won't spend somehow). It's a bit odd tbh.
And goes back to my point thag it's hard for me to tell why Americans, with such enormous prosperity, still individually seem to feel poorer or at least more uncertain and at risk of falling deep then in past generations (when clearly they had less material wealth, yet felt “richer” in many ways).
Comments like this (from either side of the political spectrum) are perfect illustrations of why everyone buys into the doom and gloom. What we lack is a relevant comparison to either the past or other countries. It is certainly true that there are challenges, there always have been and always will be. But Americans of 2025 have it better than 99.99% of humans that have ever lived.
Well, without a good income to cover living in a top tier city, you have to move to the hinterlands and then you don't really have access to the good jobs. (At least, how I feel working in tech.) So I do think Noah's short answer "land use" has truth.
And given the trend to losing hospitals and other services (and lousy internet) in the rural and semi-rural areas (where homes are more affordable), it is a serious tradeoff for many people to move. Jobs are tougher to find (especially good ones), etc..
I think there is a lot of unspoken fear because the American social safety net is meager, health insurance is tied to jobs, and most jobs ar “employment at will.” I had a long career as an engineer and a manager. Despite receiving good appraisals and raises, there was always the possibility of a merger or hostile takeover triggering layoffs unrelated to my performance. In the US, if that happens when you are in your 50s, getting an equivalent job can be tough. That level of uncertainty keeps plenty of middle class workers in a silent state of worry.
Have a look at Tyler Cowen's "Stubborn Attachments" for a reformulation of a GDP-like measure which he calls Wealth Plus. I'm still early in the book but it's so far a useful contribution.
"Americans also have lower QOL than most EU residents--we work more hours for the same pay."
Do you by any chance have a citation for this? I am skeptical...
Yeah that’s why I replied that it’s complex. Quality of living (QOL) can be measured in a myriad of different ways and depending on what you prefer you can come to lots of totally different results.
As for the pay measure, Americans do work more hours than Europeans, but their productivity per hour worked is usually on par with the very richest European countries – and ahead of most others. So Americans do get a lot of bang for their buck.
But they also work awfully lot and have a lot less free time, vacation and so on, which might well dent their enjoyment of all that earned money quite a lot.
Fair enough, I just think it's important to distinguish between working late to afford groceries and working late because we've developed a taste for bottled water, DoorDash, central air, yoga classes, SUVs, etc.
I would hazard a guess that many folks work late because their employer or profession requires it. Employees are not entirely free agents.
That's a good point, so I tried looking up survey data and found 15% answered yes and 68% no to the question "If you had the opportunity to work one less day each week and receive 20 percent less pay, would you take that opportunity?"
https://today.yougov.com/economy/articles/9941-poll-results-working-hours
One caveat is that these people are in competition with one another for things like housing, which may cause something of a race to the bottom.
Talk radio, cable news, and the phones/social media.
We all live in our heads and our reality is shaped not by "the real world" but our perception of it. It is why ads against Biden were all about how people "felt" the economy was bad, and not that it was actually bad. Most Americans think all of this horrible things are true and they have it so bad (despite living in the richest country in the world) because they are told so constantly.
While the rest of the world has phones and the havoc they have wrought, we had decades of talk radio and cable news degrading our political discourse leading up to it.
We have expectation inflation of what a middle class life is supposed to look like. In the 1970’s it was a week in the Adirondack’s for a typical middle class New Yorker at a Holiday Inn, Howard Johnson or cabin. We brought our food for the road in a cooler and stopped at highway rest area for lunch. HGTV house porn, foodie BS - where the decor is as important as the food and entry level cars with things that are nice but you don’t really need. I can crank my own window and slide back my own seat - need to fix that now - 2k. Look at a college dorm of today vs my day in the 1980’s. Mine had more of a prison feel, USF is closer to a resort hotel. Nice to haves have become standard and that is no free. If you don’t have that you are pissed. Plus the really ostentatious wealth that we see even makes a very successful person feel like it’s not fair.
That's for sure the case. But it woukd again beg the question, why does this seem to have happened so much more in the US than almost anywhere else?
You probably also have elsewhere expected inflation of a middle class life. But the intense anger and feeling of being all the time on edge seems to be so prevalent in the US. Why?
I have two theories, first housing and education have become too expensive eating into people’s higher earnings and preventing them from achieving the American dream. Second pundits, academics, commentators etc in trying to find an excuse for why Trump, a person they find disgusting won latched onto the theory that it’s all because the economy has failed the middle class. I think the simplest explanation for Trump’s first win is that his opponent was unpopular, ran a bad campaign and voters are reticent to give a party three straight terms. His second victory was because of voters anger at inflation, mass migration and his opponent being seen as a continuation of an administration they didn’t like. The reason I’m skeptical of the narrative that voters won’t be happy until we bring manufacturing back is that they were happy about the economy in 2018-2019.
I think that the negative feelings are being generated by cultural/political change, not economic decline. Do not estimate the amount of cultural change over the last 60 years:
https://frompovertytoprogress.substack.com/p/the-great-realignment-in-american
Yeah the cultural change is downstream from technological change, that's my point
Based on your other comments, it looks like by “technological change” you means the smart phone and social media. My article is about changes that long preceded those technologies.
Sure, I agree with that. I think a more nuanced version of my belief is that the information revolution simply sped up the effects that were already happening. I really agree with your point on diversity being eschewed for a single definition v the vast cultural differences associated with ethnic enclaves in the pre WW2 era. As that process started to matter less and chosen identities started to matter more, dropping the internet and then smartphone in the mix was turning that dial up to 11
A lot of this traces back to the fact that, right after WWII, America made up around 60% of the world’s GDP. Western Europe and Japan had been devastated by war, while the U.S. industrial base was untouched and booming. But by the 1950s and '60s, as Europe and Japan rebuilt and re-entered global markets, their competition began to chip away at America’s industrial dominance. The U.S. economy kept growing, but the global supremacy of many American companies began to erode.
Today, as the U.S. continues to run current account deficits and import goods, we send excess dollars abroad. In turn, countries like China, Japan, and Germany use those dollars to buy U.S. Treasuries, stocks, and real estate. Meanwhile, our low-end manufacturing becomes uncompetitive, unless it’s in high-value-added industries—like pharmaceuticals, aerospace components, or the design (but not fabrication) of semiconductors by companies like NVIDIA or Qualcomm. That shift is economically sustainable, even beneficial. It creates tech, finance, and biotech hubs with large ecosystems of service jobs surrounding them. But it also means New York City thrives while places like Troy, NY wither.
Median incomes have risen, but economic growth hasn’t been evenly spread. Most people still find jobs—unemployment today is lower than in the 1960s or 1970s—but the quality of those jobs varies dramatically. The labor market has polarized: you either work in professional fields like nursing, finance, engineering, or supply chain, or you’re stuck in low-wage retail and service roles like those at Walmart.
The American middle class has shrunk—but mostly because more people moved up the income ladder. According to Pew:
The State of the American Middle Class (2024): https://www.pewresearch.org/race-and-ethnicity/2024/05/31/the-state-of-the-american-middle-class/
In 1971:
27% lower income
61% middle income
11% upper income
In 2023:
30% lower income (+3 points)
51% middle income (–10 points)
19% upper income (+8 points)
(Yes, these are inflation-adjusted.)
The majority of Americans are still middle class, but it feels different.
Why do things still feel bad? Because service costs have exploded. As more people flock to cities like LA, NYC, SF, and Boston, those hubs don’t build enough housing to meet demand—thanks to zoning laws, slow permitting, and NIMBYism. Education is more expensive too, partly because the government increased access to student loans. In the 1950s, mostly elites went to college. Now with widespread subsidized and unsubsidized loans, colleges have jacked up prices.
Healthcare is another pressure point: government programs subsidize demand, while a cartel-like system among doctors restricts supply through limited residencies and licensing bottlenecks. Meanwhile, drug companies and providers set high prices. We blame insurers, but in many cases, it’s the providers and pharma companies charging the actual rates.
I gravitate toward answers that are unique to America--and unique to this time.
Namely:
1.) We are a superpower. That encourages dysfunctional megalomaniacal thinking and power struggles that don't happen elsewhere.
Basically, the stakes of taking hold of power here are so much greater, and the penalties for losing it so much more potentially worse.
We've had no rival powers for a while, so that increases the rewards for capturing the heights of power in America.
On top of all that, it encourages foreign powers to meddle, and essentially ally with American factions in elections. Our domestic contests are now wide-open battlefields for global supremacy.
Also,
2.) It's the smartphones. Everyone has one now, and data to feed it. They're cooking our brains and impairing our judgement.
So, basically, 1.) The counterintuitive curse of being number 1 on Earth, combined with 2.) Internet shit.
P.S.: I originally wrote "magalomaniacal". I probably should have kept it.
More money more free time more time to shit post and get mad. It's just the information ages effects. Nothing to do with wages at all imo. All the rage studies align far more closely with the rise of the smartphone than some concocted story about wages
Yes but why then is it so much more acrimonious in the US? Other countries have smartphones and the internet too.
And yes, they also experience populism and all sorts of issues. But the depth of anger and conviction of somehow being cheater and all of that seems to be exceptionally strong in the US, even among people who are really well off.
That's what's so puzzling.
May I introduce you to South Korea
My two cents, I think a great deal of the angst about employment today arises from the pace of change and the consequent impermanence of jobs. This and the financialization of retirement savings. In the US manufacturing heydays of the 1950 and 60's, most people had a job for life, or certainly as long as they wanted it, with medical benefits and a defined pension.
It's the phones.
Lol? Are you serious?
https://youtu.be/xz8i5c909uk?si=WJEOUk8WobH3H6YF
The grass is always greener and even a “good job” sucks compared to bourgeois wealth.
The think pieces supporting the "hollowed out America" narrative are always accompanied by photos of small towns and big cities, boarded up, blighted and dilapidated. I live part time in Detroit, and part time in rural Michigan, so I've seen plenty of this with my own eyes.
While I agree with Noah's general thesis here - it's true, we as a society are richer than ever - is our crumbling infrastructure a separate issue, driven by low taxes and low effort on building nice places to live? Is wealth hoarded by individual households instead of being shared for the common good?
Because telling people that we are actually rich, when they see evidence of crumbling cities and towns, is not going to convince them.
Yes. It's our cities that have been hollowed out, not our economy. This is the subject of my next two posts!
Who is complaining about cities, though? Cities are full of democratic voters. MAGA is not made up of voters who secretly crave an opportunity to move to a spiffed up inner city.
The story that people can't wrap their head around is that for every small manufacturing town that was bleeding people before NAFTA even existed, there were a dozen others created by the new market economy. Half the sun belt and half of Florida look like they were built yesterday. I don't know what we have to stop the whole economy because rural towns in Ohio or West Virginia didn't want to make the transition and never tried.
This is very true! Lots of town have been built in the last thirty years, and not every place on earth will be revitalized.
Detroit built crappy cars in the seventies, had decades of racial strife, and had problems way before NAFTA was on the horizon. So the "hollowing out by globalization" narrative isn't the whole story by any means. I could argue that globalization actually helped, at least in the last twenty years or so.
However there are places that still look like war zones in this country. Maybe it's just that we are so big and our population so mobile that people tend to abandon and move, rather than dig in and revitalize. In Europe, small towns can remain vibrant because moving on to new frontiers is less of an option.
The places that look like warzones are a policy choices not due to trade but due to chronically bad state and local government choices. Mississippi classrooms looked like hollowed out eastern european post war shells until they'd decided not to be like that. So much of the blame rests at the feet of the people complaining imo
Yes! The blame is best aimed not at China, but at the people doing the complaining and the policy choices and political leadership they elect.
But not everyone can move to those places or have the training to do the jobs there. Disruption and infrastructure decay is real. In an ideal world, people would move to new areas and get new jobs, but there is a ton of friction in terms of actually doing that.
Sure but that's no reason to freeze society in amber to protect the interest of one random place over another
With the biggest friction (aka glue) possibly being local governmental aid tying people to dead towns. U-Hauls are extremely cheap.
I would argue that ghost towns and rust belts aren’t a sign of a bad economy, but rather the proof of a dynamic economy of creative destruction.
The rust belt isn't particularly rusty at this point.
And yet international surveys of infrastructure show the US as being well above average, indeed, near the top. As for crumbling cities, I would suggest that this is due to a lack of political leadership and economic dynamism (often caused by the political leadership).
Again, the question isn’t why the US is doing so bad, the real question is why do people view our remarkable relative prosperity with so much pessimism?
Detroit's mayor, who is now running for governor of Michigan as an independent, has spearheaded a remarkable comeback for the city. It's hardly complete (some neighborhoods and schools are dismal), but it shows that progress can be made. However, you hear very little of it if you aren't from this area.
“[T]elling people that we are actually rich, when they see evidence of crumbling cities and towns, is not going to convince them.”
Are you sure? The reverse—telling people that America is poor and weak despite its obvious strength and wealth—has actually worked really well for those who were pushing that narrative. I think we have to reckon with the reality that there is a large section of the American public who will believe what they hear in podcasts or on television in preference to their own eyes and checkbooks.
2 things:
1) There's not enough voices fighting for why regionalization works. Shannon O’Neil’s The Globalization Myth makes a strong case: NAFTA is part of why aircraft engines are still made in Hartford, Connecticut by firms like Raytheon and Pratt & Whitney. By integrating with Canada and Mexico, U.S. companies can tap different labor pools and specialize—just like what we see in Columbus, Indiana or in cross-border hubs like Laredo, El Paso, and San Antonio.
Places like Akron, Ohio had their tire firms destroyed by Japanese and French tire firms, and those places used cheap labor too! Back in the 70s and 80s, Japan used Thailand and other Asian countries for cheap labor pools. Back in the 70s and 80s, southern Europe (Portugal, Spain, Italy, greece) was much poorer than than western Europe and functioned as cheap labor for rich Europe.
2) Also, let’s be honest—the military-industrial complex is America’s biggest form of protectionism. The Berry Amendment forces the Pentagon to buy American. I worked at Boeing Defense, and saw firsthand how plants from Ridley Park/Philly to Wichita alive because of federal contracts. These aren't outsourced to French firms. They go to American ones, even supporting good-paying, often union jobs for non-college grads.
If we thought of the Pentagon as economic policy, not just defense policy, we’d realize the U.S. is running the world’s largest protected economy—just dressed in camo..
In short: We need more regionalization and we already have a lot of protectionism.
Now, while I agree that "the hollowing out of the middle class" is not an apt summary of any macroeconomic development of the past few decades, I think something has happened in the economy which was deeply subversive for the way of life of middle America.
Assembly line factory production created, in the mid-20th century, an economy where *unskilled labor could earn a middle-class income.* That's why the factories were so important. Factory jobs served as a kind of economic safety net for people who didn't achieve any sort of excellence. They could do that because of the great *human capital saving* innovations in manufacturing, symbolized by the assembly line. It was very boring work, but if you were willing to screw the same two parts together 5,000 times a day, you could have a modern lifestyle full of modern comforts and luxuries, without any particular skills.
That's not normal, and we shouldn't have expected it to last.
Globalization and automation were the big factors that killed it. But the decline in unskilled labor wages was just reversion to the mean.
Now, the decline in unskilled labor wages did not hollow out the middle class. Much of the middle class was never unskilled, and some of the unskilled labor middle class that factories made possible in the mid 20th century managed to upskill either themselves or more often their children so that they could stay in the middle class even as the factory jobs went away or went low wage.
Nostalgia for the anomalous macroeconomy of the mid 20th century is now a destructive force. But I don't think it's fighting a phantom. A certain kind of damage was done in the midst of progress.
Another reason of course why unskilled Americans in the 1950s could earn a middle-class income in factories is because there was so little foreign competition (because it had been wrecked by World War II).
Without unions, those jobs would not have yielded a middle class living.
Unions and lack of foreign competition were _both_ necessary conditions for those jobs to yield a middle-class living: the lack of foreign competition created an economic rent, and the unions then fought to claim as much of that rent as possible for their members.
I remember back in the 1980s (when the competition was from Germany and Japan) I noted your point and then mused "We have a lot of unused nuclear weapons, maybe we could get rid of the foreign competition."
Yes, I think this is a very important point. When you split the population by class-type factors (among which education is very significant), certain *groups* have gone downhill badly. Only slicing the population by income hides that there has been tremendous downward mobility, not only of individuals but of classes. (And consequently, upward mobility.) I once noted down a quote:
"When I grew up in Pocatello [in the 1960s], you could not read or write and still get a job at the railroad making $50,000 or $60,000 a year." -- Pocatello mayor Roger Chase
That number must be incorrect, but the overall concept is true.
There is a term for an American born citizen now who can’t read and write. The term rhymes with “gidiot,” and the proper response isn’t to redesign our economy around them, it is to build special needs facilities.
There is no shortage of blue and pink collar jobs in the US, as ten or twenty million immigrants have made clear.
This article is a good summary:
https://archive.ph/https://www.nytimes.com/interactive/2024/10/26/upshot/census-relative-income.html
They Used to Be Ahead in the American Economy. Now They’ve Fallen Behind.
Take white men working without a college degree. In 1980, they made more than the average American worker.
But over 40 years, even as their inflation-adjusted income has remained relatively flat, they’ve fallen well below the average income.
In the reordering of the U.S. economy since 1980, white men without a degree have been surpassed in income by college-educated women.
What this captures is a sense of relative standing — not just how well you do on your own terms, but how you fare compared with everyone else. In short, a sense of status.
As the American economy has shifted over the past 40 years away from manufacturing and toward services and “knowledge” work, this less visible hierarchy within the economy has shifted, too. Jobs that helped build the nation, like the machinists and metalworkers who were mostly white men without college degrees, today make a shrinking share of what the average American worker does. Newer kinds of work, like financial analysis and software development, have come to pay much more.
The economy has effectively devalued the work and skills of some Americans, while delivering mounting rewards to others — reordering the status of workers along lines that increasingly shape the country’s politics too.
It wasn’t an anomalous micro-economy, it was an engineered pro-labor economy designed to produce political stability. Those 90% tax rates and high corporate/dividend taxes weren’t an accident, they were part of a government policy designed to ensure that corporations produced decent jobs. Now we’re experiencing the instability that comes from a non-engineered economy; maybe we’ll survive it for a bit longer, but I’m not confident.
Weren't the extremely high top rates of taxation of the postwar era in some ways a holdover from WWII itself, and only sustainable for as long as they were because that era (the time of the Bretton-Woods system) was also an era of strict controls on the international movement of capital?
This is a question that’s pretty easily answered by Googling. (No, that isn’t shade! I had to Google it as well.)
Here is a chart containing historical data on the top marginal rate for individual taxpayers [1]. As you can see, it goes from 25% to 63% in 1932. I suppose if you squint you could make an argument that this change (just a couple years into the worst of the Depression) was somehow related to the war we would enter formally in 1941, but I don’t find that convincing. I’m sure with some further research you could find the bills and the arguments made in Congress.
The New Deal wasn’t some accident where folks just raised taxes to balance a budget. It was a very thoughtful and deliberate project designed to lower income equality and ensure long-term employment, and it was done explicitly to stabilize society so we didn’t end up like Russia or Germany. We tore it down in the 1980s and arguably we’re seeing exactly the sort of political destabilization FDR et al. were worried about. This could become much worse if we have another 2007/8 crash that’s badly managed.
[1] https://taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates
Both can be true. Anomalous macroeconomic conditions may have made it possible to run a pro-labor economy, where under other macroeconomic conditions that would just have caused ruin, as arguably happened in the later 1930s. There's no obvious causal link between 90% marginal tax rates and companies producing decent jobs.
I think the fuller story is that human capital saving technological change created the possibility of an unskilled labor middle class, AND ALSO high taxes and strong unions suppressed capitalist inequality. But it also suppressed capitalist economic dynamism. Innovation peaked in the Gilded Age, then slowed to a crawl in the 1950s through the 1970s. Then it was gradually rekindled in the more free market economy ushered in by Ronald Reagan.
Too much regulation and redistribution kills the goose that lays the golden eggs and impoverishes posterity.
In the 1930s this was a tradeoff people were willing to make. It’s hard for us to understand the level of catastrophe they were facing after decades of wealth inequality, and there was every reason to believe that US political instability would go the way of Nazi Germany or Soviet Russia. The New Deal saved us from that, and the result was wildly better for industry dynamism than the alternative.
We’re just a few years into the same type of political instability here in the US, and we’ve already experienced one Depression-style economic crash that only avoided becoming a Depression due to extremely powerful New-Deal-style intervention. Are you really confident that US dynamism can withstand another 4-12 years under the sort of governance we’ve seen in the past 110 days? Because I’m not.
Oh, the last 110 days are disastrous, but we don't need a New Deal to escape that. Just the beneficent old establishment back in the driver's seat.
There is huge demand for relatively uneducated blue collar labor in the US, and it pays extremely well.
Plumbers
Electricians
Home remodelers.
Handymen (please excuse the gender bias)
Truck drivers
Waiters at upscale restaurants
Appliance repairmen
Landscaper
Automotive repairman
I could go on for hours… many of these jobs pay outrageously great and are in high demand in most growing areas. A husband and wife working full time could afford a solid middle class lifestyle just about anywhere.
Yes, we now import some of the products that union laborers used to build. But this didn’t hollow out opportunity for physical labor, it just moved it to new fields.
I wouldn't call plumbers, electricians or repairmen (of either type you mention) "uneducated": they just weren't educated at _college_.
Agreed.
That's an important point, but it needs to be qualified. Truck driver jobs pay middle-class incomes, but the lifestyle downsides are huge, since you spend weeks on the road away from your family. Most of the other jobs on the list, while they don't require a lot of academic education, are not unskilled labor. They take experience and training, and many lack the amplitude, the physical health, or both. They may require business acumen as well.
One of the things that I think AI might do is deskill some of those jobs. Would it be possible to design a smart cloud-based app that can process images from the pipes in a basement, and direct an unskilled worker wearing an augmented reality headset, while marking up his field of vision, so that he could fix pipes like a pro? That would make a big difference!
As I said, this is just an off the top of my head start at jobs that don’t require extensive education. There are thousands more and many are in high demand. Which is appropriate for which person is contextual and based on their life and capabilities.
I am pretty sure my gardener, my housecleaning lady, and my handyman all make six figure incomes with near zero taxes. And I find all three quite reasonable.
Yes, making an income in a trade or private business usually requires gumption and work.
The point of all this is that there is a huge demand in the US for other-than-white collar work. The myth that jobs died with factories is just a poor and outdated framing.
There are a lot of differences across geographies, too. Factory jobs are disproportionately non-metropolitan. In big cities, I can believe that some house cleaners, handyman and gardeners make six figures. Not in small towns. And of course, big city real estate tends to be expensive enough that it's hard to move there If you start out poor. I'm sure there are a lot of urban high school grads with some entrepreneurial flair and a good work ethic and manual labor skills who do very well. But a hollowing out of the middle class in small towns due to factory closures is a widespread reality.
I agree that creative destruction is a reality and that many factory jobs in developed nations have been outsourced to places with cheaper labor (this has been especially true in places with higher priced union labor.) What I disagree with is that there are not jobs available for working class men and women. Yes, they may have to move. If their town dies, they are crazy not to move. And they don’t have to move to a higher priced city as there are countless towns and cities that are still reasonably priced.
There is nothing better about a manufacturing job to a service job, the difference is that one sector was unionised and the other isn’t, if McDonalds or Amazon Warehouses or Delivery drivers or any of the other non college service jobs that exist were unionised they could pay the same wages and conditions that the old factory floor jobs used too
My economics teacher in high school once said something that’s always stuck with me, that there’s no reason a shift manager in a McDonald’s Kitchen should be viewed any differently than a floor manager in a factory, but the issue is as much cultural as it is economic, kids have no qualms saying their dad works in the local factory but feel embarrassed to say he manages the kitchen at McDonald’s
I think a lot of the fetishization of manufacturing is basically mercantilist in nature: a manufacturing worker is seen as "bringing money into the country" by producing products that will either be exported, or will provide for domestic consumption that would otherwise need to be imported.
But then MAGA types don't seem to be particularly worried about foreign tourists shunning the US, even though tourism jobs resemble manufacturing jobs in being both accessible to the poorly-educated (unlike knowledge-economy jobs) and bringing money into the country (unlike most low-level service-sector jobs).
There is no difference. Wages dropped not because we switched from manufacturing to services, but because we doubled the labor supply by bringing women into it and then increased it again by bringing in tens of millions of illegal immigrants, and then totally flooded it by outsourcing labor via free trade. If we could magically bring back the manufacturing economy of the mid 20th century wages would still be low because of supply and demand.
And we killed the unions that fought for consistently higher wages and conditions..
Unions can't negotiate against supply and demand. If a company can just hire an entirely new workforce for a factory or move it to another country the union has no leverage. Excess labor supply is what killed the unions.
Cartels in open markets can’t sustain their above market “rents”. This is not a bug in markets, it is a feature.
Unions raise wages empirically by 15 to 20% over the market rate, but simultaneously choke off investment and growth in the unionized segment of the industry, thus killing themselves off over time. Thank God that at least some factory jobs were able to go to the Carolinas rather than Vietnam.
Yes, during the boom years of manufacturing in the Industrial Revolution in the late 19th and early 20th century America famously had very low levels of immigration, that’s why nobody knows a place called Ellis Island exists
You might want to look into the history of the labor conflicts of the era and the role of immigrants before you use that stupid trope to argue the opposite of what the history actually says.
Quick comment: "when America has finally realized the futility of Trump's approach" is off track. Pundits overwhelmingly recognized its futility for serving any conception of the common good instantaneously, and polls. Suggest the public isn't far behind. But that doesn't seem to be Trump's goal. Tariffs give him power. They make companies and countries grovel. It's part of his dictatorship push, not a reindustrialization strategy. That's not a comment on the whole article, just that one phrase.
Your data is, I am sure, correct, but it isn’t answering the right question.
Globalization, as we have done it, has taken the US from a place where good jobs are widespread across the country and narrowed it into a place where good jobs are heavily concentrated in a small number of places.
People tend to be heavily vested in their family, friends, hometown, and the quirks of their local culture. That culture, in the US, also frequently tends to prize space, whether it’s for cookouts, gardening, or a fenced yard for the dog. Many people literally loathe dense living.
By focusing so much on agglomeration, our economy has increasingly pushed against the preferences of a significant percentage of our people - a preference pretty clearly revealed by the census data on pandemic dispersal of remote workers to less urban areas. That dispersal also revitalized those areas with secondary job production.
Policy needs to consider the geographic dispersal of jobs, including supporting remote work, because lack of those jobs is a big part of why our political culture is breaking.
What I would ask is why did Americans end up in places like Detroit and Cleveland in the first place? People typically are where they are because their family moved there for economic reasons -- the very thing we are now saying is unreasonable to ask people to do. Perhaps local community, roots, and all the other benefits of not having to chase higher incomes across the country are best viewed as another luxury that middle class people can now afford.
The culture in the United States places a high value on home ownership (and this goes back to the 19th century: the "American Dream" that lured millions of European immigrants across the Atlantic essentially _was_ the dream of owning your own land) which has become economically damaging.
For an individual, the home they live in is a suboptimal investment as it is less liquid than (for example) stocks, and has a value that is strongly tied to the state of the _local_ economy. The US economy today is stronger than it was 40 years ago, but the Detroit economy is not, so people who plowed their earnings into buying homes in Detroit will have seen them wiped out. This means that homeowners are more likely than (market) renters to be trapped in regions with poor economies.
Homeownership also fuels NIMBYism (because people whose life savings are locked up in the piece of real estate where they live are paranoid about any change that could cause it to lose value), and encouraging it as government policy also tends to encourage suburban sprawl: in the US 85% of single-family homes are owner-occupied, while 85% of apartments (in buildings containing at least 3 of them) are rented.
https://pedestrianobservations.com/2017/05/10/cities-should-not-encourage-home-ownership/
If you buy a house, you do not have to pay rent, your housing expense is relatively stable for up to three decades, and in your old age, you have no rent to pay and greatly reduced expenses.
If you rent instead, you are not investing that money in the stock market instead - you are just paying rent. And that rent is very unlikely to remain fixed over three decades, and you have to pay rent the rest of your life.
Finally, most homeowners are far less worried about effects on the value of their house than they are about zoning effects on their lifestyle. However, most US residents prefer suburban living, homeowner or not, and by a large margin.
Some of those moves happened because the local economies got so bad that there was no longer any choice but to move. Some was a younger age group that was relatively unconstrained and could move (without spending 4-5 years getting a college degree first). A bunch of reasons why mobility may be less today (there are other ones and as you noted, there are psychological reasons as well - complex topic)
About 7 million of those people moving from 1900 to the 60s were Black people moving out of the South to more welcoming areas in the Midwest and West that would give them more opportunity. That’s a rational response that doesn’t generalize to people in different situations.
In general, most people who grew up in the US do not move very far at all, and they strongly prefer to stay close to their families. 80% wind up within 100 miles of where they grew up. Median distance is 30 miles. Most live within 18 miles of their parents.
I'm not sure it's ever been true that "good jobs are (were) widespread across the country". Labor mobility is a constant theme of US history. And industries geographically consolidate / cluster for good supply chain and skills-access reasons. This sounds more like the myths we tell ourselves about the past that are twisting the present.
Personally, I blame a nationalized media industry that is heavily incentivized to tell people that things are awful everywhere, in a manner that confirms their preconceived notions.
From my own personal knowledge, yes, good jobs were in fact FAR more geographically widespread around the country. It very much concerns me that well informed people do not realize this. That’s been lost from a mix of globalization, corporate consolidation, and general lack of interest in preserving it as an economic goal.
In the 70s, of my own personal knowledge in my own state, Virginia, there was a large metal manufacturing company, Reynold Metals, headquartered in Richmond, with a big aluminum plant in the same city. That’s now part of an international aluminum company headquartered in PA that primarily manufactures outside the US. Richmond also had a drug company headquarters and drug manufacturing with the now-defunct AH Robins. Danville and Martinsville, both very small cities, were big centers of textile manufacturing. Virginia was also a major center of furniture manufacturing, North Carolina even more so. Hopewell and the tri cities had chemical manufacturing. The modestly populated New River Valley was, and really still is on a smaller scale, a center of complex manufacturing in general. Manufacturing was spread all over the state.
Mergers also took a toll. There were multiple banks, small and medium by today’s standards, headquartered in various cities in the state, that were absorbed through multiple rounds of mergers into larger banks headquartered elsewhere. Norfolk and Western Railroad, headquartered in Roanoke, became Norfolk and Southern, headquartered in Atlanta. Each merger reduced the geographic scope of professional jobs at the same time it hopefully increased efficiency.
As far as labor mobility goes, you do realize that a huge component of labor mobility from about 1900 to the 60s or so was Black people moving out of the South into areas they hoped would be more welcoming and provide more opportunity? That migration was millions and millions of people and it greatly affects the migration figures.
Agglomeration makes sense UP TO A POINT. But unrelated industries do not tend to cluster together, and historically we have had manufacturing clusters all over. Historically, manufacturing popped up where you had land, transportation, and a fairly modest number of people. The huge Dan River textile plant was centered around a city of what, 40k? Manufacturing was not primarily centered in big cities.
Well said!
I do wish there was more policy discussion about this. I’m a remote worker who left a larger urban area to move to a “hollowed out” small city for family during the pandemic, and it’s been clear to me that the impact of that type of migration has been so positive for the area.
Wasn't the geographic concentration of good jobs in a handful of overpriced "superstar" cities driven less by globalization per se, and more by the corporate consolidation enabled by Reaganism?
The consolidation of *corporations* doesn't necessarily lead to the consolidation of *work*. In the early 1900s, manufacturers could only get good transport if they were in the center of one of a few dozen big eastern cities. (Actually, the ones that had major-league baseball teams, the westernmost of which was St. Louis.) But with the development of the interstate highways, factories could be moved to the hinterlands, and because labor was cheaper there, they did. But the concentration of the corporate owners didn't change.
The concentration of knowledge work is more driven by the fact that a knowledge worker gains more from being near a lot of knowledge workers than an assembly line worker gains similarly. Indeed, it would be a lot cheaper to hire a semiconductor engineer in Des Moines than in Silicon Valley, but they would do must less useful work.
In the early 1900s, manufacturing and manufacturing ownership was spread all over, and transportation was dependent on access to waterways and rail lines, not proximity to big Eastern cities. Examples I am familiar with include the Tredregar Iron Works on the James River in Richmond, Dan River Mills in Danville on a railroad line, Reynolds Metals with its HQ in Richmond and plants all over the south on rail lines and rivers, etc.
Knowledge workers typically collaborate more online than face to face, and a solid proportion of them work remote. Personal experience. It doesn’t matter then where they are physically located. For those workers, they don’t do less useful work zooming from Des Moines than they do zooming from Oakland. Theory needs to keep up with changing work technology.
Ok. If this is the case, can you quickly summarize what needs fixing for the US economy (or is there nothing) purely from the econ perspective, sans politics?
Land use.
Land use is a big one. But I still maintain that health care also makes Americans deeply unhappy because it causes lots of uncertainty.
Not the health care they actually receive – which mostly is good, often even top-notch – but the overall cost and setup that your health and healthcare is always contingent on hard-to-control external factors.
I truly think that this basic fact is a big driver of underlying uncertainty and misery.
To be very concrete: Most Americans (especially middle class Americans) have very good healthcare.
But I have yet to meet one American who has never in their life been worried or concerned about their healthcare coverage in some way, shape or form.
And this worry and concern – which is a very existential one, because health simply is the foundation of our lives – keeps of course shaping and warping their choices.
They may not always be directly aware of it because it’s so ingrained already, but the very fact that Americans go into careers or make big life choices with the corresponding healthcare options in mind is a huge thing that warps their perceptions of what they are truly free to choose and do.
They usually end up with very good healthcare. But they are also aware that it is contingent on a very specific setup which, I believe, adds a lot of underlying stress that’s hard to shake.
And yes, I also think that did change over the last couple of decades with careers becoming more unstable (even if people ultimately earn much more).
America’s peculiar way of providing healthcare wasn’t that big of a deal in a world where people would be employed for decades with the same company or where actual options on the healthcare market were fairly limited.
It was organized differently than elsewhere, but most Americans probably did hop from one type of insurance to another pretty seamlessly and without much worrying, or just stay on the same plan all their life.
But the economy has changed and that the healthcare system has stayed the same has inserted an enormous amount of uncertainty in people’s lives, which is really adding up.
Last point (and I realize I’m answering myself here a lot, sorry for that):
In my humble opinion, one of the major reasons that makes European healthcare “better” in some ways is precisely because it removes this excruciating layer of uncertainty.
European healthcare may sometimes be cheaper or more universal or better at some things – but as pundits keep pointing out, American healthcare is also exceptional at a lot of things (and lots of Americans get really good healthcare).
So the major underlying thing that is “better” in Europe is simply that this uncertainty doesn’t exist, no matter the income level of the country in Europe. And that makes a huge difference.
and one minor addition - even if you THINK you have good healthcare in the US, it's very hard to be sure until you are actually using it. I have been shocked by the expenses that still passed through to my pocketbook for something as ordinary as a c-section baby delivery.
If you’re assuming no one outside the US is ever “concerned” about their healthcare, I think you’re setting the standard far too high. You won’t have to work hard to find people in countries with national healthcare that you presumably prefer who are themselves “concerned” about their healthcare. Americans hate that healthcare access is rationed by cost. But they would also hate if it were rationed by scarcity and incredibly long delays to receive care, which is the primary alternative for controlling access to a scarce good where demand outstrips supply.
I’m certainly not assuming that. But the concerns – especially in Europe or developed Asia – are very different. People are generally *not* concerned that they won’t have healthcare coverage.
Or that, if they lose their job or take the wrong one, they can’t get certain important procedures or need to pay tens of thousands for it. That’s just not a thing people are concerned about.
They might still be concerned about lots of other things – how fast will I be treated, how good is the doctor / hospital and so on – but these are still different things.
Americans might not like them either, sure (nobody likes those things). But that’s not really the choice we’re talking about here.
I agree, Since WW2, sprawling land use and the car-dependent transportation system are the root causes of much that ails the US. Places like California were at the forefront of this development pattern and have run up against the limits of a system where everyone lives in a single family house and drives a car everywhere. Holland (severely damaged in WW2 and rebuilt along US lines)) came to it's senses in the 80s with the oil crises and now transportation is largely based on walking, biking and public transportation. Unfortunately, the US just continues to double down on cars and highways and unsustainable housing patterns.
I will be interested in what Noah has to say about this
While it is great that we have a high per capita income, we also have a high per capita cost structure. I spend significant time in Czech Republic and friends and family are not that worse off ( if I look at things like home size) than people in the USA - and maybe better off if I look at quality of life. Outside Prague rent is cheap, beer is cheap, transportation is cheap (better than German now( food is cheap, HC is free but not as available, and Chinese phones are cheap and better, internet is better than VT!
So what you're saying is that the American middle class is a bunch of spoiled brats that don't recognize their privileged position? Interesting.
Maybe I missed it, but what might be interesting to see is the relative share of total income per 10th percentile group, and the changes over time, to see if their position relative to both lower and upper class has changed. This might explain why for people it might feel as if they're worse of.
Additionally, I do think 'real income' might be somewhat misleading, as the price of goods & services is limited by the disposable income in the region. So instead of a rise in prises one might just see a reduced supply, that still prevents one to purchase certain goods or services that were available to the middle class before, even though your income relative to its cost might be the same.
Of course that's also related to housing/land where a 'affordable house in a vibrant community' (with shops and service providers nearby) might feel almost impossible if zoning regulation prevents exactly that kind of areas to develop. And your barber might still cost 20 dollars, in real terms, but if you need to spend an additional 20 on gas to get there it still is more expensive to you.
Also, we do need more expensive stuff, like smartphones, to be able to participate in society. So the income share left for savings might be lower? Which might explain some of the discontent as well?
Found an answer to my first issue: https://data.worldbank.org/indicator/SI.DST.05TH.20?locations=US
So middle class has gotten poorer relative to the top (which can actually also be derived from the table in the Jason Furman tweet).
Also,an increasing percentage of housing is bought by investors. And the land available for (new) housing is increasingly far away from employment centers (which have centralized more in urban areas with the switch to services).
So if your idea of 'middle class' is being able to afford a house in the suburbs not to far from work and a social community, so you can work and still have a social life, maybe with some occasional luxury purchases and some nice holidays, then probably that is no longer possible for as many as it used to be. Of course the holidays are now to destinations further away, those things that were luxuries in the past now seem basic necessities, and those things that the rich buy (the luxury items) are relatively more expensive because the rich have gotten relatively richer.
Also, class/quartile mobility in the US is weaker than in a lot of Europe (American myths notwithstanding). Part of that is due to employer based healthcare issues, but also other things (lots of articles out there on the topic).
Every study by decile or quartile over time that I have seen shows the exact opposite of what you are saying. Namely that when you take households in the lowest quintile and compare then ten years later that they actually improve at a faster rate than average. A lot of this is of course due to age, as people routinely move way up the income scale as the get into middle age.
Very interesting data! I guess at the risk of leaving the land of Econ and going into discussing vibes, why is there this sense then that American middle class is so much worse off from the rest of the world?
My personal theory is that Americans (not just Americans, it's also other rich countries, especially Anglo ones, but especially in America) there has been a decades-long project of setting expectations in the stratosphere for where people can realistically expect to be on Maslow's Pyramid during their life.
They've been fed a steady diet of What Colour is Your Parachute and "Do what you love and you'll never work a day in your life" and "find your passion" and similar things and...the reality is that very few people are "naturally" going to love the jobs they need to do make money to eat good and have housing. (I think many people grow to like/love their jobs in a kind of "I am competent at this and I enjoy exercising my mastery of a subject" but that's not quite the same thing we were promised as youths.)
There might be something to this.
Personally, I think it’s bound up with the breakdown of more classical systems of meaning, solidarity and purpose in modern life, especially in the US. Work and material success has replaced lots of that and become overly important.
In the past – also the not mythologized one – having a house, a neighborhood community, going to church, coaching a kids’ baseball team, having a hobby or a passion – all counted for a lot. These were strong sources of meaning and purpose for people and also for respect from peers.
I have the feeling, all of this was reduced by a lot. If you are not majorly successful in your career (or feel that way), this is a major blow for people’s self-esteem and happiness – to a degree that it arguably wasn’t in the past.
Hustling culture has always been real in America, but now it seems to be even sharped pointed to success as a goal for itself, not for getting lots of other nice things (material comfort, nice trips, leisure time, nice things for family & friends etc.).
I should have mentioned this in my original comment but it slipped my mind: my context is having lived in Vietnam for many years. My sense is that generally people just accept that work sucks but it is something you do to eat & live. You don't look for "meaning" from work. You also don't complain about work, it would be like complaining that the sun rises in the morning and sets at night. My brother-in-law works at a Nike factory and the other day was so tired (he works an overnight shift) he fell asleep on the assembly line and the machinery severely bruised his hand (nothing broken thankfully). His response wasn't "life is horrible", "modernity sucks", "the past was better". It was more like, "I've been talking about starting my own auto repair shop maybe this is the year I do it".
And there's no organised religion (definitely no church!), no hobbies (that's sort of a rich country thing, poor people don't exactly have hobbies), no coaching of kids baseball teams (that requires community spaces that poor countries can't afford to set aside), etc. Despite lacking so many of those American-centric other sources of meaning people aren't nearly as negative as in America, even though work life is objectively way worse than in America (6 day workweeks are the standard, just for one).
That's why I'm not convinced those are the major drivers. Though nothing in reality is mono-causal so they probably do contribute somewhat.
Interesting point of view. I definitely agree with you that the attitude to and expectation of how work should be is very different.
But for the US in particular, Americans probably do remember times when they “had it all,” in a way. Jobs that paid pretty well (and felt kinda meaningful, at least to a degree) and all of these other things that gave meaning and purpose.
Now the expectation how meaningful a job should be was scaled up *massively* while all these other drivers of meaning gradually fell away. That does something.
In countries such as Vietnam, I’d say one major difference is that people have no reference that it was “better in the past” – because it truly wasn’t (at least regarding jobs & income). Today’s jobs may be very tough and incomes low compared to rich countries, but compared to the jobs and income in Vietnam of 20 or 40 years ago, there’s a world of difference.
Trajectories and trends matter in these things.
Especially since 50 years ago was the end of a horrific war that killed one in ten of the Vietnamese population!
Because the balance‑of‑payments identity must hold, every dollar of the U.S. goods‑and‑services deficit arrives as a dollar of foreign savings. Those savings must be absorbed. The U.S. therefore faces a binary choice, which Michael Pettis summarizes this way:
(1) Let demand contract. Tighten fiscal policy, refuse the inflow, and watch unemployment rise until falling wages and prices restore external balance.
(2) Recycle the inflow through debt. Borrow the foreign savings—first via households and firms (pre‑2008 credit boom), later via the federal budget—and keep spending from collapsing.
For forty years the United States has chosen option 2. The measured gains in median household consumption are real, but they are leveraged: they exist only because rising private debt (1980‑2008) and soaring public debt (post‑2008) replaced the income that leaked abroad.
In other words, the trade deficit did not create welfare; it pulled it forward by converting foreign excess savings into American liabilities. The result is a deceptively “richer” median household coupled to a balance sheet that is ever more fragile. Any evaluation of the deficit must therefore count the hidden cost of the leverage that props it up.
I'd like to see you tackle these trade questions much more rigorously and argue from first principles. I do not think your recent articles are giving sufficient weight to the structural arguments Pettis and others are making. I find them more and more convincing, so I'd like counterarguments at their level of analysis.
I wonder what inflation was used to determine "real" wages/earnings because if it was CPI, then CPI is intentionally suppressed and kept low. Asset prices have massively increased in price relative to earnings whereas consumable disposable income items have gone down in price. CPI measures the latter, not the former, and it's the former that angers people the most. The cost of owning a home (esp say in gold terms, a better measure) hasn't changed but wages have certainly gone done in gold terms.
Housing, transportation, food, healthcare, (and schooling for some) are the biggest expenses...and those have definitely outpaced wages.
Noah — despite all the favorable data you show, you want to make changes? A far better course would be to give true trade adjustment assistance to those who lose their jobs because of free(er) trade. We’ve done a terrible job of this over time.
Sure, I want to do that, but my desire to promote manufacturing isn't about jobs at all. It's about A) national defense, B) multiplier effects, and C) diversification.
What about those that lose their job due to technology or fashion? Or bad performance?
I think the US does a tremendous amount of support for job losses, such as unemployment insurance, Medicaid, and a couple of dozen programs on transfer aid adding up to somewhere near a trillion dollars per year.
I would strongly argue that too much aid, improperly delivered has incentivized the very dysfunctionality we complain about in some of these abandoned towns.
I sent your article to my son, whose reaction was, among other things:
“And I can easily find graphs from reputable sources that directly contradict his graphs showing that median salaries and working class wages have increased”,
citing the following chart from Pew in contrast to your EIG chart “Real average hourly earnings of production and nonsupervisory employees and real median wages”
Can you please comment?
See first chart in:
https://www.pewresearch.org/short-reads/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/
Never let facts get in the way of a good story