Latest Census Numbers on Household Income Show Long-Term Progress in an Era of Increased Globalization

https://www.cato.org/blog/latest-census-numbers-household-income-show-long-term-progress-era-increased-globalization

The Census Bureau reported this week that real median household income in the United States fell in 2022 for the third year in a row. We can debate the underlying causes of the setback, but the report shouldn’t obscure the long‐term gains made by American workers and families during recent decades of expanding globalization.

One data point—highlighted by AEI scholar (emeritus) Mark Perry in a chart posted on X—exposes the myth that decades of growing trade have somehow “hollowed out” the American middle class. Going back to 1967, Perry shows that the share of American households with earnings between $35,000 and $100,000 (in constant 2022 dollars) has indeed shrunk, but so too has the share of households with earnings below $35,000. Meanwhile, the share of households earning more than $100,000 has nearly tripled.

(Getty Images)

I document the same phenomenon in a new essay, “The Misplaced Nostalgia for a Less Globalized Past: The ‘Great Again’ Economy Wasn’t so Great.” The essay is part of an ambitious new Cato Institute project called “Defending Globalization.”

Looking at the same Census series from 1970 to 2021, you can see in the nearby chart that the number of both poor and middle‐class households has been shrinking as a share of total households, while those with incomes above $100,000 in constant dollars have been rising. The American middle class in the era of globalization has been moving up, not hollowing out!

In fact, when we account for changing household sizes as well as more accurate measures of price inflation, median household income in the United States has increased by 50 percent since 1967. Meanwhile, real average hourly earnings have risen by 74 percent in the past 50 years. The time that Americans must work to acquire basic household goods such as food, clothing, and appliances has fallen steadily as technology and trade have combined to make goods more affordable.

The essay goes on to show that Americans are not only earning more on the job but are safer from workplace injury and death. Women workers have benefited in our more globalized era from rising levels of education and more opportunities in the workplace. The rising level of prosperity has benefited minorities as well with falling levels of poverty; inequality as measured by the Gini co‐efficient has actually decreased slightly in recent decades.

All this has occurred over decades of rising levels of foreign trade and investment as a share of U.S. gross domestic product. Despite the recent turbulence, Americans today are better off than they were 50 years ago, not despite globalization, but in significant measure because of it.

You can check out all the essays as they roll out as well as Scott Lincicome’s introductory talk at the “Defending Globalization” website.

“Foreign Debt” or “Foreign Investment”? How the Trade Deficit Reflects America’s Strength as a Haven for Global Capital

https://www.cato.org/blog/foreign-debt-or-foreign-investment-how-trade-deficit-reflects-americas-strength-haven-global

Daniel Griswold

America’s annual trade deficit continues to be among the most misunderstood features of the nation’s economy. Trade skeptics tend to blame the deficit for a range of problems, real or imagined, when in fact the current deficit in important ways reflects America’s underlying strength and influence in the world.

The latest example of misplaced worry about the deficit is a recent essay from The Claremont Institute on “Restoring American Manufacturing: A Practical Guide.” The essay attempts to pin at least part of the blame for the relative decline of U.S. manufacturing on persistent U.S. trade deficits. Author David P. Goldman argues that trade deficits also mean the accumulation of unsustainable “foreign debt”:

During the past thirty years, from 1992 through May of 2022, America’s trade balance on goods was a cumulative negative $18 trillion. That is exactly equal to America’s net foreign investment position, also $18 trillion. We have exchanged $18 trillion worth of Treasury bonds, corporate stocks, real estate, and other assets, for $18 trillion worth of goods.

A better term for “foreign debt” is “foreign investment.” In a new Cato Policy Analysis released today, “Balance of Trade, Balance of Power: How the Trade Deficit Reflects U.S. Influence in the World,” co‐author Andreas Freytag and I explain that what ultimately drives the U.S. trade deficit is the annual net inflow of foreign investment to the United States. Through a persistent surplus in the financial account, foreigners help to finance a share of the federal government’s annual borrowing needs, while also investing in the productive private sector. As we explain in the paper:

The financial account surplus demonstrates confidence in the United States as a haven for global savings. Foreign investment keeps interest rates lower in the United States than they would be otherwise and provides capital to launch new businesses, to fuel research and development, and to expand output for existing firms.

America’s net international investment position is easily sustainable. As we note in the paper, Americans run an annual surplus of more than $200 billion a year in primary income—U.S. earnings on foreign assets compared to what is paid out on foreign‐owned assets in the United States. As we conclude, “The abiding confidence of global investors remains one of America’s greatest national assets—and the trade balance is a symptom of that strength.”

We go on in the paper to debunk myths about the deficit and “deindustrialization,” the alleged “de‐dollarization” of global commerce, and the supposed decline of U.S. competitiveness. (The trade‐skeptical American Compass raised similar fears about the trade deficit, which I critiqued in a previous blog post.)