The New, Ruthless Economy


The US economy is about to enter its sixth year of recovery from the recession of 1990–1991. Even though the economy’s many “restructurings” and “downsizings” have been a cause of great anxiety for Americans, the economy’s leading indicators between 1992 and 1995 showed strength rarely seen since the 1950s. Investment has been growing swiftly, productivity has been rising at twice the rate of the 1970s and 1980s, and inflation has remained low. At the beginning of 1996, despite the economy’s slow start, the consensus of economists polled by The Wall Street Journal is for steady growth without inflation during the coming year.1

The growth of investment has been particularly impressive, rising at its steepest rate since World War II.2 Spending by private business on information technology, mainly computers and software, has been leading this investment boom. In 1993, spending on computers alone grew at the phenomenal rate of 52 percent; it grew by 27 percent in 1994, and was projected to grow by 23 percent in 1995.3 This very rapid growth of investment during the 1990s has also boosted the growth of productivity—the output per head of private-sector employees.

Productivity is a basic measure of economic efficiency, and its growth rate reveals how effectively such components of investment as new plants and equipment are actually being used. In the view of many economists, including those of the Clinton administration, the rate of productivity growth also largely determines the living standard of most Americans. According to the Administration, productivity is “the primary source of income growth” and its increase “is the answer to stagnant real wages.”4 It ought to be a positive sign that the growth of productivity continued to accelerate in 1995 even though the economy’s rate of growth was slowing down.5

But amid this news of productivity growth, one set of statistics has not recovered since the recession that ended in 1991: the living standard of most Americans. According to the Census Bureau, median family income in 1994, adjusted for inflation, was $38,782, one percent below the level of 1991. Preliminary data suggests that there was no significant increase in median family income during 1995.6 Moreover, this recent stagnation is part of a larger downward trend that has been taking place since the early 1970s.

Government statisticians lump the 80 percent of working Americans whose jobs fall below the higher executive, managerial, and technical levels under the heading “production and non-supervisory workers.” The average weekly earnings of these mostly rank-and-file workers, again adjusted for inflation, fell by 18 percent between 1973 and 1995, from $315 per week to $258 per week. By contrast, between 1979 and 1989 the real annual pay of corporate chief executives increased by 19 percent, and by 66 percent after taxes.7 For the other eight out of ten workers in America, the renewed growth of productivity during the 1990s has not brought a renewed growth of real wages.

During the 1970s and 1980s US productivity grew…

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