Two themes about the American economy have dominated the 2016 presidential campaign: The rich are dragging down the income of everyone else. And global trade hurts the middle-class. Yet new data from the Census Bureau should help change this narrative while shining a spotlight on a wholly different issue about prosperity.
Data released Tuesday shows median household income in 2015 rose at the fastest rate – 5.2 percent – since the Census Bureau began keeping track in 1967. What’s more, the income gains were larger for the poor and middle-class than for the wealthy, thus cutting into inequality.
Household income rose to $56,516 last year, helping reduce poverty by 1.2 percentage points. While the higher income level is still below the peak of the inflation-adjusted $57,909 in 1999, it reflects the steady if slow economic recovery in the United States since the last recession. And the gains were spread across most age categories as well as racial or ethnic groups.
Despite the progress, the Census report points to a difficult challenge: The income for people living outside metropolitan areas actually fell 2 percent, down to $44,657. If political candidates want to sing a new tune, it would be that rural folk must not be left behind by the advances in jobs, innovation, and productivity in the nation’s cities.
Why are cities doing better? One big reason is that America’s knowledge-intensive service economy relies more than ever on the generation of new ideas by large groups of experts who can easily exchange information and feed off each other’s work. “The larger the community of thinkers, the faster ideas evolve,” writes economist Edward Conard in a new book, “The Upside of Inequality: How Good Intentions Undermine the Middle Class.”
These urban-based communities of innovators breed new technologies and ways of working that accelerate growth. In the world’s wealthiest countries, 300 metropolitan areas of more than 500,000 people account for fewer than half of the those countries' population but create more than half of the gross domestic product, according to the Organization for Economic Cooperation and Development.
The importance of such cities, the OECD states in a recent report, goes far beyond simple math: “Nested within countries and linked to both surrounding and distant regions, cities are hubs of productivity and innovation, goods and service providers for their local area and they play a critical role in providing skills and creating environmental efficiency for sustainable and inclusive growth.”
These wealth generators, which push the frontier of ideas, can influence a region up to 200 miles away, finds the OECD. Beyond those boundaries, people need help to participate fully in the drivers of a growing economy.
Election campaigns should focus on issues such as the location of universities, access to broadband, and ease of transport. An inclusive economy is one that expands the community of thinkers beyond cities, thus reducing geographic disadvantages. Now that would be a new topic for this year’s election.