The Illustrated Guide to the American Economy

by Stein, Herbert

• ISBN13: 9780844741031
• ISBN10: 0844741035
• Edition: 3rd
• Format: Hardcover
• Copyright: 2000-01-01
• Publisher: Aei Press

Summary

This book is a valuable asset for anyone seeking to make sense of economic news or, more importantly, to place it in a broader context.

Author Biography

Herbert Stein had been for many years a senior fellow at the American Enterprise Institute at the time of his death in September 1999.

Table of Contents

Preface to The Illustrated Guide	xii
From the Introduction to the First Edition	xiv
Part One: A Rich Country
Total output in the United States has increased greatly from generation to generation.	4	(2)
Total output per capita is significantly higher in the United States than in other large ``rich'' countries---one-fourth higher than in Japan.	6	(2)
In this century, all countries that we now call advanced have grown at rates that are quite exceptional by comparison with longer periods of history.	8	(2)
Most of the world's population lives in countries where output per capita is far below that of the United States, but the gap has been narrowing for some of the largest countries.	10	(2)
Since 1973, per capita output has grown less rapidly than earlier in our history.	12	(4)
Part Two: Uses of the National Output
Most of what we produce as a nation goes for personal consumption.	16	(2)
From 1950 to 1998, per capita real consumption expenditures increased at an average rate of 2 percent a year.	18	(2)
Since the 1950s, the personal consumption share of real GDP has risen, the private business investment share has been roughly stable, and the government share has declined.	20	(2)
Since 1977, the share of food and beverages in personal consumption expenditures has declined, while the share of recreation has risen sharply.	22	(4)
Part Three: Who Produces the National Output?
Since the early 1950s, the business sector has increased in importance, while the government sector has declined.	26	(2)
The share of domestic production accounted for by service industries has risen faster than average at least since 1977.	28	(2)
Although pay in the service industries is below average, this category embraces many industries with above-average pay.	30	(2)
Except during the depression years, the farm share of total output has declined in the twentieth century.	32	(4)
Part Four: Distribution of the National Income
Gross product is only one way of measuring what we produce as a nation. Net product and national income are valid alternatives.	36	(2)
About 70 percent of the national income is compensation of employees. The share has risen over the long run but has drifted down since the 1970s.	38	(2)
The proportion of the national income for fringe benefits has risen, while the wage and salary share is about the same as in 1929.	40	(2)
The share of the national income for interest has fallen from its peaks in the 1980s.	42	(2)
Despite the decline in the 1990s, the share for interest is higher than it was from the early 1950s to the late 1970s.	44	(2)
In 1996--1998, corporate profits after taxes as a share of the national income approached the high points in the post-World War II period.	46	(2)
Stockholder reports of profits can be misleading. During inflationary periods, they may understate the cost of goods sold and depreciation. The national income version of profits adjusts for these and other distortions.	48	(2)
For nonfinancial corporations, the after-tax return---profits and interest---on tangible capital has averaged 5.8 percent since 1959.	50	(4)
Part Five: Productivity
Over the long run, the increase in real output has exceeded the increase in the input of labor or the combined increase in the inputs of labor and capital. Output per unit of input is called productivity.	54	(2)
The rise in the educational levels of workers has contributed to the growth in output.	56	(2)
Increased tangible capital per labor hour has been an important source of rising labor productivity. All types of tangible capital have increased.	58	(2)
Private capital owned by business is only part of the nation's capital stock.	60	(2)
Government capital is often excluded in analyzing the growth of private business output. Its contribution to the growth of output and productivity remains controversial.	62	(2)
Expenditures for research and development have expanded our scientific and technological knowledge, which has contributed to the rise in productivity.	64	(2)
Natural resources are part of the nation's capital. Estimating these stocks poses many difficulties.	66	(2)
Economists disagree about why the nation's output has risen faster than the combined inputs of labor and capital.	68	(2)
Relative to GDP, the amount of domestic saving available to finance private investment declined in the 1980s and 1990s until 1997, when it turned up.	70	(2)
In the 1990s, investment in the United States declined, relative to GDP, as domestic saving and the capital inflow both declined.	72	(2)
Personal saving has declined since the early 1980s.	74	(2)
The proportion of output saved is lower in the United States than in the other largest industrial countries, Japan and Germany.	76	(2)
The rate of productivity growth has not been constant. The slowdown after 1973, in the United States and other countries, is not well understood.	78	(2)
Since the early 1970s, growth in the amount of capital available to labor has also slowed slightly, but not nearly as much as output per hour of labor.	80	(4)
Part Six: Labor Force and Employment
The proportion of all working-aged women who are in the work force has increased, while the corresponding proportion of working-aged men has decreased.	84	(2)
For both men and women, rates of labor force participation vary directly with educational attainment. Changes since 1970 have accentuated the patterns.	86	(2)
Employment increases at different rates in different industries, and even in a period when total employment is increasing, employment in some industries is declining.	88	(2)
As the industrial composition of jobs has changed, blue-collar jobs have declined in importance, and white-collar jobs have become more important.	90	(2)
Agricultural employment as a share of total employment has fallen sharply in the United States, and much more in other industrialized countries.	92	(2)
The work year has become shorter. About 7 percent of the hours for which an employee is paid represents paid vacations or other paid leave.	94	(2)
Increased longevity and a shorter working life have lengthened the period of retirement for men.	96	(2)
Participation rates of black male teenagers in the labor force have fallen, as rates of black female teenagers have risen.	98	(2)
Population growth in this country has slowed since the earlier post-World War II years. The changing distribution by age points to many problems in the twenty-first century.	100	(4)
Part Seven: Personal Incomes
Real compensation per hour has risen roughly in line with real output per hour.	104	(2)
Different definitions and measurements yield different pictures of recent developments in real wages.	106	(2)
Some commonly used measures give an inaccurate picture of the course of real employee compensation in recent decades.	108	(2)
Slower productivity growth is reflected in a slower rise in family real income. Using better price measures and accounting for smaller family size improve the estimated results.	110	(4)
Part Eight: Distribution of Income
As has been true in all times and all places, the distribution of income in the United States is unequal. The change in the United States in the past twenty years is hard to interpret.	114	(2)
Estimates of the distribution of income depend heavily on the definition of income.	116	(2)
The distribution of annual consumption expenditures is less unequal than the distribution of annual income and may not be getting more unequal.	118	(2)
The incomes of households with young household heads, relative to those headed by householders in their prime earning years, have declined.	120	(2)
The median income of blacks and Hispanics remains significantly below the national median.	122	(2)
The deficiency of the wages of black men compared with those of white men of similar schooling is much smaller than it was sixty years ago, but the gap has not lessened in the past twenty years.	124	(2)
The earnings of workers with more schooling have increased substantially, relative to the earnings of workers with less schooling.	126	(2)
In the 1980s and 1990s, the earnings of working women have come closer to the earnings of working men.	128	(2)
Differences in income per capita among states are large.	130	(2)
Regional disparities in income per capita have decreased.	132	(4)
Part Nine: Poverty
There is no objective definition of poverty and no objective way of measuring how many people are in poverty. The numbers differ greatly according to different plausible definitions and methods of measurement.	136	(2)
Whether poverty in America has been declining or rising in the past twenty years is uncertain, and is a matter of measurement and definition.	138	(2)
When a single absolute poverty level is used for all countries, the proportion of the population below that level is lower in the United States than in other advanced countries.	140	(2)
Relative to the poverty rate in the nation as a whole, the poverty rate among blacks has declined substantially since 1973 but remains high.	142	(2)
Poverty in America has increasingly become a problem of persons in families headed by females.	144	(2)
The poverty population includes a smaller group, sometimes called the underclass, that constitutes a special problem.	146	(4)
Part Ten: The Structure of the Economy
More than half of U. S. workers are employed in firms with fewer than 500 employees. In manufacturing, the importance of the largest firms varies, depending on the criterion used to measure size.	150	(2)
Concentration trends have been mixed. Concentration in manufacturing has changed little in recent decades, but in banking it has increased in the 1990s.	152	(2)
Several industries whose structure had been essentially fixed for much of the twentieth century are now being transformed because of a changing regulatory environment and new technology.	154	(2)
Outside of agriculture, the number of self-employed persons has been rising since the late 1960s.	156	(4)
Large firms as well as small firms create new jobs. The basic question is, Which jobs have the longer life?	160	(1)
Most large U. S. industrial firms are multinational firms, with substantial operations in foreign countries.	160	(2)
Union membership as a share of employment has declined since the 1950s.	162	(4)
Part Eleven: Wealth and Debt
Many people view the behavior of the stock market as the most important indicator of the nation's economic health.	166	(2)
Household net worth has increased faster than GDP or disposable income since World War II, especially in the 1990s.	168	(2)
Forty-one percent of families owned stocks directly or indirectly in 1995, with a median value of $13,500, according to the most recent Federal Reserve survey. Since then, these figures have risen.	170	(2)
Ownership of corporate stock broadened with the growth of employer pension plans and mutual funds.	172	(2)
For much of the postwar period, the debt of nonfinancial corporations, relative to what these companies produce, has been rising.	174	(2)
In the 1970s and 1980s, corporations increased their use of debt relative to equity for their external financing. A decline in the debt proportion did not come until the 1990s.	176	(2)
In 1995, half of U. S. households had a net worth of $56,400 or more. The ownership of wealth is highly concentrated.	178	(4)
Part Twelve: Economic Fluctuations
The U. S. economy, like most other industrial economies, fluctuates around a rising long-term growth trend. This country has experienced thirty cycles of expansion and contraction since 1854 and nine since World War II.	182	(2)
The length of fluctuations in the economy is highly uneven, and there does not seem to be any ``normal'' duration. But expansions are much longer than contractions.	184	(2)
The 1929-1933 contraction was unique, as measured by the decline in output and employment and by the rise in unemployment.	186	(2)
Although the causes of the Great Depression are uncertain, the big decline in the money supply was probably an important factor.	188	(2)
In 1998, 4.5 percent of the civilian labor force was unemployed. Of these workers, about 45 percent had lost their jobs.	190	(2)
Since the late 1960s, the median duration of unemployment has averaged 6.8 weeks. It was 6.7 weeks in 1998.	192	(2)
Unemployment rates for persons with white-collar jobs are typically much lower than for those with blue-collar jobs.	194	(2)
A fairly large proportion of the labor force experiences some unemployment during any year.	196	(2)
The rate of unemployment consistent with ``high'' employment rose during the 1950s, 1960s, and 1970s, but declined thereafter.	198	(2)
For several years, the unemployment rate in the United States has been lower than rates in other major countries.	200	(2)
Before World War II, inflation was unusual in the United States, except in wartime. Since World War II, inflation has continued, even in peacetime.	202	(2)
Management of monetary policy in the short run encounters many difficulties.	204	(4)
Part Thirteen: Government Expenditures, Taxes, and Deficits
Total government expenditures, relative to GDP, are now more than three times as high as they were before the Great Depression.	208	(2)
Real federal expenditures in 1998 were 6.5 times as high as in 1948.	210	(2)
Before the Great Depression, state and local expenditures were much larger than federal expenditures, but, since 1939, that situation has been reversed.	212	(2)
Defense spending as a percentage of GDP was lower in 1998 than in any other year since the 1920s.	214	(2)
The rise of nondefense spending has been dominated by expenditures for health, income support, and education.	216	(2)
Federal payments directed specifically to low-income persons have risen substantially in the past decades and are now about 2.2 percent of GDP.	218	(2)
The ratio of benefits received under Social Security to the taxes paid by any individual depends on his earnings, his time of retirement, his family status, and his longevity.	220	(2)
Since the early 1950s, federal employment has declined substantially as a fraction of total employment.	222	(2)
Total federal revenues have fluctuated within a narrow range since 1960, as the increase in payroll taxes has offset the decline of all other taxes combined.	224	(2)
Federal income taxes were a little lower in 1996 than in 1985 for families at a wide range of income levels, and much lower for those qualifying for the earned-income credit.	226	(2)
Total government expenditures and receipts as a percentage of GDP are low in the United States compared with other industrial countries.	228	(2)
During most of our history, significant deficits in the federal budget have resulted only from wars or recessions.	230	(2)
The rise of the federal debt, relative to GDP, since the early 1970s stopped in the 1990s.	232	(2)
Fluctuations in the economy increase fluctuations in the deficit or the surplus.	234	(2)
Different plausible definitions yield very different calculations of the size of the federal deficit or surplus.	236	(4)
Part Fourteen: Health
National health expenditures were $1.1 trillion in 1997, or 13 1/2 percent of GDP.	240	(2)
Increases in the prices and output of the health services industry have slowed in recent years, but the data leave many questions unanswered.	242	(2)
Since the 1960s, the out-of-pocket share of expenditures for health care has declined, while the share of third-party payments has increased.	244	(2)
Most persons who have health insurance provided by employers enjoy a large subsidy.	246	(2)
In 1997, 16 percent of the population was not covered by health insurance.	248	(4)
Part Fifteen: Price Indexes and the Quality of Life
Conventional measures of economic progress---such as real GDP or consumption per capita---leave much to be desired, despite their usefulness.	252	(2)
Price indexes with fixed base-period weights have an upward bias.	254	(2)
In price measurement, the treatment of innovations or new products is perhaps the most difficult aspect of handling quality change.	256	(2)
Aside from the difficulties of price measurement, GDP is not a measure of welfare.	258	(2)
Environmental issues highlight the difficulties economists have in assessing how welfare has been affected.	260	(2)
Attempts to construct indexes of economic welfare have not gained widespread acceptance.	262	(4)
Part Sixteen: The United States in the World Economy
Since the 1960s, U. S. international economic transactions have increased greatly as a percentage of GDP.	266	(2)
Since the early 1980s, U. S. payments abroad, excluding capital transactions, have exceeded U. S. receipts from the rest of the world---a highly unusual situation for the United States in the twentieth century.	268	(2)
Since 1981, as both imports and exports have increased, the geographical composition of foreign trade has changed greatly.	270	(2)
More than one-third of U. S. foreign trade is between companies affiliated here and abroad.	272	(2)
Net American payments to foreigners for imports equal net investment by foreigners in the United States.	274	(2)
The dollar exchange rate rose sharply in the early 1980s but then fell back to about the level of the 1970s.	276	(2)
Assets owned by Americans abroad have increased greatly, and assets owned by foreigners in the United States have increased even more.	278	(2)
A Note on the Gross Domestic Product in Constant Prices	280	(2)
Sources	282	(1)
References	283	(2)
About the Authors	285