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Ben Bernanke Highlights The Indicator That Shows U.S. Economic Growth Is Slowing

Ben Bernanke Highlights The Indicator That Shows U.S. Economic Growth Is Slowing

Former Federal Reserve Chairman Ben Bernanke and economist Peter Olson co-wrote an op-ed for the Brookings Institute titled "Are Americans better off than they were a decade or two ago?"

For starters, a report by the Bureau of the Census showed that real median household income rose by 5.2 percent in 2015 and found that the middle class "has finally gotten a raise." However, Bernanke and Olson believe this conclusion isn't telling the full story, as it does not include taxes, transfers and non-monetary compensation and it is based on surveys rather than tax and administrate data.

The op-ed continued and noted that a better tool to examine if Americans are better off today is to account growth in per capital consumption along with changes in working time, life expectancy and inequality.

According to the metric, which was initially developed by Charles Jones and Peter Klenow, Americans do enjoy a higher level of economic well-being compared to other countries and their well-being has indeed improved over the past few decades.

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However, the rate of improvement in financial well-being has also slowed down in recent years.

From 1995 to 2007, economic welfare of Americans improved at a rapid pace at more than three percent per year, driven by per capita consumption, improvements in life expectancy, rising consumption inequality declining and changes in leisure/work hours per person.

However, a change was observed starting in 2017 as the pace of improvement fell to just 0.9 percent due to a decline in the growth rate of per capital consumption.

"In other words, disappointing economic growth, including the slow improvement in consumer spending power, is the dominant reason for the decline in the pace of welfare gains, even by this broader measure," Bernanke and Olsen wrote. "Life expectancy has continued to improve since 2007, adding about a half percentage point to welfare growth; however, the contribution from this source is less than in the pre-crisis period, a difference that accounts for about 0.6 percentage points of the slowdown. The longer-term trend toward inequality continued and intensified slightly after 2007, subtracting about a quarter percentage point from welfare growth."

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