Kausfiles Special

Infighting on the Left: Was the ’90s Boom a Bust?

“The dirtiest little secret about the Roaring ‘90s is that average working families gained almost no income.”

Robert Reich, Los Angeles Times, April 19, 2001“During the 1990’s, we discovered the virtuous cycle created when unemployment drops sharply. … It turns out that rising incomes for people in the middle and at the bottom of the economy have all sorts of positive social spinoffs.”– E.J. Dionne, Washington Post, April 20, 2001

Which “progressive” Democratic op-edsman is right? Can it really be that the ‘90s were a bust for average Americans? No. In any dispute about facts, it’s always sound policy to bet against Robert Reich, and this is no exception.

Reich cites Internal Revenue Service statistics (presented here) to the effect that between 1986 and 1997, “the average income of the bottom 90% of Americans rose just 1.6% to $23,815” after income taxes, and after adjusting for inflation. The trouble, of course, is that the “Roaring ‘90s” boom went on well past 1997–indeed, it may still be going on. The boom’s dirty little secret, if there is one, isn’t that workers at the bottom of the income scale didn’t benefit from years of low unemployment. It’s that it took them a long time to start benefiting. The boom began early in the decade, but the bargaining power created by a tight labor market apparently didn’t begin to translate into sharply higher incomes until around 1996 or 1997, as this Census table suggests. By excluding1998, 1999, and 2000, Reich excludes the main “roaring” years. According to the Census figures, for example, families in the bottom 80 percent gained 5 or 6 percent, after inflation, in just the two years of 1998 and 1999.

Reich says 1997 was “the latest year for which detailed Internal Revenue Service data are available,” but that’s no excuse. Other data was available, and Reich (who served four years as President Clinton’s secretary of labor) surely knew what his early cutoff was hiding. Indeed, this is an atypically sleazy use of statistics for him. Usually, his errors are mistaken examples of a genuine trend he’s spotted. Reich once argued, for example, that American-owned companies don’t necessarily create American jobs, claiming that Motorola designed its cellular phones in Malaysia while Honda actually exported 50,000 cars from the United States to Asia. It turned out Motorola designed its phones in Illinois and Honda exported fewer than 15,000 cars–but that was a relatively small matter. The general point was still valid: American companies were shifting work overseas. If Reich’s facts weren’t true, they would be soon enough–Motorola will probably design cell phones in Malaysia one of these days! In this sense, Reich was right even when he was wrong.

But here, Reich’s deception means he gets the larger trend wrong too–as Dionne notes, low unemployment eventually paid off for average workers. That means Reich is also wrong when he argues the boom must end because “typical American consumers”–having never benefited from it–can’t have any more money to spend.

If the boom keeps going, of course, even Reich may be forced to acknowledge that something happened after 1997. Like 1998.

Update: Reich recycles his “dirtiest little secret” line in the Washington Post this morning. But this time he says that 1998, not 1997, is “the latest year for which detailed IRS data are available.” Hmmm. Did the 1998 numbers suddenly become available in the four days between Reich’s two op-ed pieces? (No, they’ve been available here  since February.) And if Reich now has the 1998 income numbers for average families, why doesn’t he give them in his latest piece? Because the 1998 number, as expected, shows a big jump in the income of the bottom 90 percent–a 3.9 percent increase (in real, inflation-adjusted dollars) in a single year, bringing the total gain since 1989 to 5.2 percent. Add in the expected increases from 1999 and 2000, and the very IRS statistics Reich cites will vitiate his claim of “almost no income” gain.