#LifeStrategy : Lost Dream: 90% Of Americans Are Worse Off Today Than They Were In The Early 1970s….Recent Study Show 90% of Americans Earns Roughly the Same Real Income Today as they Earned Back in the Early 1970s

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For the vast majority of Americans, their nation’s economy is in a prolonged stagnation, far worse than that of Japan. When it comes to real income that is–income adjusted for inflation. 90 percent of Americans earns roughly the same real income today as they earned back in the early 1970s, according to a recent study released by The Levy Economic Institute (Figure 6).

Clockwork

Japan’s economic stagnation reaches back to the early 1990s.

Economic stagnation didn’t reach the remaining 10 percent of the population, which has seen a sharp rise in their real incomes over the same period.

Things were quite different in the decades preceding the 70s, a period that stretches back to the late 1940s, when real incomes rose for both groups – with the 90 percent group staying ahead of the 10 percent group in real income gains.

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Simply put, for the vast majority of Americans, the dream of a better life was lost back in the early 1970s.

What can explain this big shift in the income distribution in the last four decades?

The clue is in the time frame of the shift, which coincides with the growing openness of the American economy to international trade and investments. Thus, globalization is the first suspect that comes to mind.

An open economy pitted American entrepreneurs and workers against overseas peers.

For the top 10 percent of the population, those with the right skills, an open American economy was a good thing, a source of efficiency and opportunity that translated into higher real incomes.

For the bottom 90 percent of the population, those with the wrong skills or little skills, the openness of the US economy was a bad thing, a source of job losses and lower incomes.

But there’s another clue. The shift in income distribution became worse in the aftermath of the Great Recession, which brings up the second suspect: the ultra-low interest rate monetary policy, which boosted the prices of stocks and bonds, benefiting the top 10 percent, which was very likely to own these assets.

It should therefore come as to no one’s surprise that so many people are rallying behind Donald Trump and Bernie Sanders who blame both globalization and Wall Street of depriving them of the dream for a better life.

Forbes.com | April 23, 2016 | Panos Mourdoukoutas