Skip to content

Structure Matters

June 10, 2011

Structure Matters

The way an economy is structured is of great importance.  The drivers of wealth creation and those who ultimately control that wealth need not be the same.  To the extent that workers are necessitated by life needs to spend a portion of their income, they are not free while those benefiting most from an inequitable economy have considerably more economic freedom.

People influence market forces in proportion to their wealth and not in human proportionality: each person has equal influence.  If public institutions encourage wealth hording amongst the best off the decisions of an economy are made by those with the most wealth and an economy serves to benefit these individuals.  The benefit delivered to others in a society is merely incidental.

The question is: are public institutions in the US serving to amplify the market power of wealthy individuals?  I suggest that looking at who benefits from a growing economy is a way to answer this question.  I looked at real median household income (soruce: the US Census Bureau, Selected Measures of Household Income Dispersion: 1967 to 2009, their summery here: Income, Poverty, and Health Insurance Coverage in the United States: 2009 page 6, both found here: from 1967 until 2009 and compare it with real US GDP per capita (source from 1967 until 2009.  This comparison is apt as it is comparing a median against a mean.  When the median rises compared to a mean it means that the bulk of a distribution is shifting downward and vice versa.  The differences in the two measures makes an examination of an individual year meaningless but there is value in comparing temporal changes.  To simplify maters I took the situation in 1967 to be a baseline which is an arbitrary distinction.  I wish I had pre-1967 figures but I was limited by what the Census Bureau provides.  I divide the median income level against the GDP per capita level to get the final ratio.  Graph to fallow the table:

Year Real GDP Median Inc Ratio
1967 1.00 1.00 1.00
1968 1.04 1.04 1.00
1969 1.06 1.08 1.02
1970 1.05 1.07 1.02
1971 1.07 1.06 0.992
1972 1.12 1.11 0.993
1973 1.17 1.13 0.967
1974 1.15 1.10 0.950
1975 1.14 1.07 0.936
1976 1.19 1.08 0.912
1977 1.23 1.09 0.887
1978 1.29 1.13 0.881
1979 1.31 1.13 0.862
1980 1.29 1.09 0.847
1981 1.31 1.08 0.820
1982 1.27 1.07 0.842
1983 1.32 1.07 0.807
1984 1.40 1.10 0.783
1985 1.45 1.12 0.773
1986 1.48 1.16 0.781
1987 1.52 1.17 0.773
1988 1.57 1.18 0.755
1989 1.61 1.20 0.749
1990 1.62 1.19 0.734
1991 1.59 1.15 0.724
1992 1.63 1.14 0.704
1993 1.65 1.14 0.690
1994 1.70 1.15 0.678
1995 1.72 1.19 0.690
1996 1.76 1.20 0.683
1997 1.82 1.23 0.676
1998 1.88 1.27 0.679
1999 1.95 1.31 0.671
2000 2.00 1.30 0.651
2001 2.00 1.28 0.636
2002 2.02 1.26 0.624
2003 2.05 1.26 0.614
2004 2.11 1.26 0.596
2005 2.15 1.27 0.590
2006 2.19 1.28 0.584
2007 2.21 1.30 0.587
2008 2.19 1.25 0.571
2009 2.11 1.24 0.588

US GDP and Income Growth
Income to GDP Ratio
It is important to note that while real GDP more than doubled during this time period, median income failed to grow more than 30% (and I’ve heard arguments that the growth is solely due to more hours worked) during the same time period.  Such slow growth in a median compared with such high growth in a mean suggests that the distribution got longer at the upper end while the figures were static for a large portion on the lower end.  This suggests that many families were materially stagnant in an expanding economy.

More to the point there is just about a constant decrease in the ratio during this time.  I take this to be an indication that there has been a constant relative accumulation of wealth amongst those already wealthy.  The economy of the past forty years has been one of stagnation for a large portion of people who need an economy to work for them the most while at the same time working quite well for those already well off.

I also looked at the rate for growth of the per capita GDP for a larger period.  I used the same source for the figures and I measured the year to year growth rate and the average annual growth rate over ten and thirty years leading up to a year.  I took the geometric mean, of course.
GDP growth

The graph seems to indicate a relatively constant rate of growth in GDP per capita at 2% per year from 1950 until 2010 with it being slightly higher in the 1960’s and slightly lower in the 2000’s.  It seems that income equality seams not to have had an impact on the overall growth in GDP in the situation looked at.  If anything a more equal distribution helped the GDP grow faster and a less equal helped it to grow slower.

The overall point remains, that the way an economy is structured determines who benefits and who does not.  A debate about how to structure an economy usually is talked about how the economy will grow the most but what the past forty years have had more to do with improving things for the most wealthy without regard to growing things for those less wealthy.  Structures both public and private are set up to this end yet an economy structured to help those in need of it most would likely be just as effective at that end as the current economy is at it’s end.


From → Economics

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: