From time to time I update a chart or make a new one, and I realize it is worthy of highlighting. But then I delay posting it, looking for some broader theme to tie it too. I invariably regret doing that, so here is a short post with just 4 charts and some brief comments.
Chart #1
A few days ago the Census Bureau released its calculation of Median Household Income for 2019. As Chart #1 shows, this measure of prosperity increased at a historically significant rate. It rose a record-setting 8.7% from 2018 in nominal terms, and 7% in real terms, the latter being shown in Chart #2. Trump can claim credit for much of this, given his significant tax cuts and regulatory reform which began to take effect in 2018.
It's arguable, of course, but I think Biden's agenda, which calls for significant tax hikes across the board, as well as an environmental agenda that would involve huge costs, economic turmoil (you don't easily get rid of an addiction to fossil fuels), and re-regulation (especially of the labor market), would be a drag on growth. Biden's agenda is anti-growth and anti-business, in the belief that addressing income inequality, social justice, and global warming are paramount.
UPDATE: Mark Perry's
recent post on this same subject makes an important point I overlooked. Since the size of the median family has decreased steadily for the past several decades, if this data is adjusted for household size, by measuring income per member of the median household, the increase in median income growth has been much greater than my charts show: "the percent increase in median household income per household member since 1967 of 86.6% is almost exactly twice the percent increase in real median household income over the last half-century of 43.3%."
Chart #3 shows a huge, record-setting increase in homebuilder sentiment, which in turn foreshadows a significant pickup in housing starts. It's no secret that historically low mortgage rates have been a boon to the housing market and home construction, as well as to consumer sentiment. Who couldn't love sub-3% mortgage rates?
Mortgage rates are low because the 10-yr Treasury yield, currently only 0.7%, is at levels once that though impossibly low, and the 10-yr is the primary driver of mortgage rates. And Treasury yields are low not because the Fed is promising to keep short-term rates near zero for the next 2-3 years, but because investors the world over are desperately demanding safety and security. The Fed is keeping rates low because it is forced to accommodate the world's huge demand for safe assets. On the bright side, the wave of risk aversion that has carried Treasury yields to unbelievably low levels is helping to generate a wave of new willingness to invest in homes as well as many other hard and financial assets. Remember, the new meme that the Fed is promoting is "Borrow and Buy," as I have noted in recent posts. When interest rates are super-low, it pays to borrow, and it pays to buy almost anything that will eventually benefit from renewed growth and—possibly—higher inflation.
On a less promising note, Chart #4 shows that passenger air traffic, which a few weeks ago was picking up (Labor Day holiday-related) has now resumed its flat trend. This detracts from the otherwise V-shaped recovery narrative that we have seen in housing, employment, industrial production, and retail sales. I think the economy will continue to improve at a relatively fast pace, but it's not yet gangbusters.
For all the promise of renewed growth, it remains the case that this year's gargantuan government spending and income redistribution will be a serious drag on growth for the foreseeable future. By borrowing many trillions, the government has commandeered a significant portion of the economy's resources and redirected those resources in ways which are very likely not as efficient as if those resources had been left in the hands of the private sector. Government can never spend other people's money as wisely and as efficiently as people can spend their own money, to paraphrase the great Milton Friedman.
From my supply-side perspective, the most important things to watch are confidence, employment, investment, and incentives to work and invest, all of which drive supply. Supply, as supply-siders believe, creates its own demand. Investment, production, and risk-taking are what deliver productivity, and productivity, coupled with more people and more work, is what delivers growth and prosperity. Spending follows production and growth; spending is not what drives the economy.
Paying extra-generous unemployment benefits surely (and justly) helps those who were on the wrong side of government-mandated shutdowns, and it helps sustain consumption. But in the end it is harmful to the overall economy. There is no free lunch. It is increasingly clear that, as I predicted last April, government-ordered shutdowns were a catastrophic mistake, since nowhere in the world have they managed to derail the spread and devastation of the Covid virus, while in every case they have been hugely expensive and economically destructive to the lives and businesses of countless millions.
Supply-siders, as well as conservatives generally, believe that free markets and individual freedom are what create the fertile ground in which growth prospers. Modern-day liberals (as opposed to traditional liberals) believe that government actions (income redistribution, subsidies, price controls, regulations, industrial policies) are the main drivers of growth. Conservatives put their trust in individuals and businesses; liberals put their trust in government. You are free to choose, especially in the upcoming elections.
It’s highly likely that most of today’s high-income, college-educated, married Americans who are now in their peak earning years were in a lower-income quintile in their prior younger years when they were single and before they acquired education and job experience. It’s also likely that individuals in today’s top income quintiles will move back down to a lower-income quintile in the future during their retirement years, which is just part of the natural dynamic lifetime cycle of moving up and down the income quintiles for a majority of Americans. So when [we hear] the incessant chatter from the mainstream media and progressive politicians about an “income inequality crisis” in America, we should keep in mind that basic household demographics go a long way towards explaining the differences in household income in the United States. And because the key income-determining demographic variables are largely under our control and change dynamically over our lifetimes, income mobility and the American dream are still “alive and well” in the US.
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