Economic growth is a good thing. (Well, there's some big questions over both the possibility and desirability of perpetual growth, but let's ignore them for now.) On average, economic growth means that more people can afford more things, which means they can live happier and healthier lives and not need to worry about starving to death.
Ah, but there's a trap hidden in that statement: on average. Average growth is a very different thing than real growth, especially if you measure average with the "arithmetic mean" that you probably learnt about in school. A toy example will show what I mean: suppose our toy economy consists of five workers: Homer, Moe, Apu, Barney and Mr Burns. In 2006, Homer, Moe, Apu and Barney make $30,000 a piece, and Mr Burns makes $3,000,000. In 2007, Mr Burns' income has increased by $1,000,000, while the others earn exactly the same amount. The result is that the average income increases from $624,000 to $824,000. Lo and behold, Mayor Quimby can crow that his Millionaire Friendly Policies has led to the average worker getting a 32% increase in income in just one year! Marvellous! Obviously a rising tide raises all boats.
Drawn out in detail like that, it seems so obvious that nobody could possibly be fooled by it. Lies, damned lies and statistics. But in fact, that is precisely what the miracle of American economic growth since the late 1970s is made up of. Only the numbers are different, the principle is the same: the vast number of Americans have seen virtually no economic growth, or even a loss of income, while the overall average is inflated by enormous gains at the top of the pyramid. There's been growth, and plenty of it, but only a relatively small number of people, the richest 1%, have seen much benefits.
As Ezra Klein writes:
In the past, I've called this "The Conehead Economy." Plenty of growth in the economic body, but all of it happening in the top percent. Were that to happen to a person, you'd see six inches of growth in their forehead and doctors everywhere would be puzzling over how to correct the grotesque deformity. As it is, the media trumpets the growth, the politicians backslap over the roaring economy, and everyone wonders why the average American seems so unhappy. [...]
Meanwhile, government policy is explicitly aimed at accelerating the income distortions. [...] But don't object, o' Democrats, lest you be accused of class warfare which, as we know, only happens when the middle class wants their wages to keep up with productivity, as they did in the last generation.
Lest anybody conclude from this that statistics are essentially dishonest, consider this: there are many ways to calculate the average. The method used above, the mean, is just one way of many, and while it has its uses, it is very vulnerable to being distorted by a few very high or very low values. When it comes to income, a better measurement of average is usually the median, which for the above toy economy works out at $30,000 a year, with zero growth on average. Not quite so useful a figure for either the economists or for Mayor Quimby's re-election chances, but it reflects better the actual experience of 4 out of 5 people.







