This fact is one of the cornerstones of economic policy
in the United States
. The people who manage our economy have said quite openly that they will make sure the standard of living
for American workers never increases.
This is the answer to the supposedly perplexing question of why so many people are being left behind in the new economy
. The new economy
--and all other American economies--are designed to leave them behind.
The explanation is quite simple. The Federal Reserve and other American policymakers have to balance between economic growth and inflation. Economic growth is a measure of the number of dollars spent from one year to the next. Inflation is a measure of how many dollars need to be spent to buy everyday goods. These two numbers are tied together--if there are more dollars in the economy, the value of those dollars will naturally decrease and things will become more expensive.
If you have 2% economic growth and 2% inflation, your net gain is 0--the extra dollars in the economy are being used just to keep up with the higher prices. So the goal is to keep the gap between economic growth and inflation as wide as possible.
As a result, for the last several years the government has been acting to slow the economy whenever it appears that inflation might rise. Unfortunately, one of the biggest causes of inflation is an increase in wages--because if ordinary people have more money, they're going to pay more for things and inflation is going to begin. Therefore, whenever wages start to rise much faster than inflation the government acts to slow the economy down.
The result is that working people are never able to benefit from economic growth--since, as soon as the benefits of growth trickle down to the masses in the form of higher wages, the government slows down the tap.
The answer to the problem isn't immediately clear. Economists will tell you that if you allow wages to skyrocket, inflation will go up even faster--and then working people will be poorer in real terms even if the numbers on their paychecks are bigger. If that's true, then some other kind of solution is needed to get the benefits of economic growth to people who are just working. Mutual funds are an attempt to solve this problem; they allow everyone to become owners, and blur the line between workers and owners. A more progressive tax structure would be another useful tool, but that's not something we're likely to see anytime soon.