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US incomes fall to 1989 levels. How did that happen?

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Economists haven't reached a consensus about what forces have caused the middle-class stagnation, but they have pointed to some that may be involved to varying degrees:

  • Globalization: The rest of the world is playing catchup to the nation that came to dominate in technology and sheer productive muscle during the 20th century. In theory, the US can still prosper as emerging nations from China to Brazil rise, but recent years have seen fierce global competition. America needs to boost its skills faster to stay in the game.
  • Technology: As with globalization, in theory this isn't a job-destroying force, just one that causes the nature of jobs to change. But some argue that rapid technological advances are having an especially hard impact on many middle-wage jobs that can be largely automated.
  • Inequality: A wage premium for the educated, the decline of labor unions, and the failure of the minimum wage to keep up with inflation have been among the factors widening the income gap between the rich and the middle class or poor. Some economists say that gap makes for a less vibrant nation. "Lack of opportunity means that its most valuable asset -- its people -- is not being fully used," Joseph Stiglitz of Columbia University has argued. When the rich are able to win big tax cuts it "leads to underinvestment in infrastructure, education and technology, impeding the engines of growth."
  • Debt and government: Another line of reasoning, taken by some conservative economists, is that economic growth is slowing as America becomes more of a European-style welfare state, with more people receiving public services and government spending accounting for a larger share of the economy. Some say the rising level of public debt, in particular, is emerging as an obstacle to be reckoned with. Others cite high levels of regulation and "crony capitalism," in which government policies favor some industries or companies at the expense of others.

Two other factors, mentioned by Census officials as affecting the recent data, are demographic aging of the population (income typically goes down as people hit retirement age) and a skewing of new jobs in 2011 toward the lower end of the wage spectrum.

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