Editorial: Little traction for working Americans

One of the big mysteries of the current economic expansion is why Americans remain so gloomy when inflation is low, growth is solid and jobs are plentiful.

This summer's manic stock market is one explanation, of course, but another lies in the U.S. Census Bureau's annual report on income and poverty, released last Tuesday. It shows that most Americans, Minnesotans included, are running on a treadmill -- or falling behind -- despite six years of economic growth. It's a sign that something remains deeply wrong in the state and national economies.

The headline news from the census report was that household income rose in 2006 and the nation's poverty rate fell. That's good news, and exactly what you expect in a growing economy. But unpack those numbers and the results are not nearly so encouraging. Household incomes rose only because Americans worked longer hours. Median hourly wages, when adjusted for inflation, are lower today than they were three years ago. As for poverty, the rate fell only among Americans over age 65. The poverty rate for children and working-age adults remains stuck where it was during the last recession -- something that has never happened in a post-war economic expansion.

Readers who follow economic history will remember that this same predicament faced the U.S. economy for much of the 1970s and 1980s -- the great wage stagnation that vexed economists and presidents for nearly two decades. It let up in the late 1990s, toward the end of a long, slow economic recovery, and the experts thought the U.S. economy finally had its mojo back. Apparently not.

This time, the frustration is compounded by an even scarier statistic from the census report. The number of uninsured American leaped by 2.2 million in 2006, reaching an all-time high of 47 million. What once was a footnote in the census survey now commands headlines because monthly insurance premiums can break a household budget and one serious illness can leave a family in bankruptcy.

Harvard professor Richard Freeman, the preeminent labor economist of his generation, meditates on these trends in a new book called "America Works." Freeman says it's time to assess American economic performance in a global context and notes that the United States has the most lightly regulated labor market in the developed world. This strategy pays off with dynamism and flexibility -- labor productivity is high and unemployment is low compared with other developed nations. But it comes at a cost. A job in the United States offers no measure of economic security -- job loss is common, wages are low and one in five full-time workers has no health insurance. On most measures of the gap between rich and poor, Freeman adds, the United States stands with Third World countries, not First World societies.

"Our safety net is full employment," Freeman said last week. "As long as we keep full employment we do OK -- not great, but OK -- by the average worker. But if we get into a recession, watch out."

The laissez-faire philosophy served the United States well for three decades after World War II, when the economy produced unprecedented prosperity and distributed it widely. Since then, the gains have been slow and highly uneven. Smart societies study the competition to see what they could do better, and Freeman's book suggests the United States has some lessons to learn.

Of course one reason Americans are among the world's richest people is that they work so hard; they take shorter vacations than Europeans and put in more hours than the Japanese. Holidays are rare, too. So savor the leisure this Labor Day.