Are we richer than we think?

Incomes aren’t stagnating for those who are still working, writes columnist ROBERT J. SAMUELSON

The Pew Research Center, a nonpartisan think tank, put out an interesting report the other day, where its main conclusion is this: Much of the Great Recession’s economic damage has been repaired. On average, most working U.S. households — there are many individual exceptions of course — are earning more than before the recession. To skeptics of the strong U.S. recovery (including me), this is powerful evidence to the contrary.

It’s also confusing. When Pew economist Richard Fry crunched the numbers of a recent Federal Reserve study, he found that most generations of working Americans now have higher incomes than before the recession. Even so, he also reported that median incomes for all U.S. households had actually declined about 3 percent since 2007.

How could this be? The findings seem contradictory.

The explanation is that income gains of working households are being offset by the income declines of retirees. When people retire, their incomes typically drop, even though Social Security and their savings — mostly homes, stocks and bonds — may enable them to live a comfortable life.

But this is almost certainly a reflection of demographics, says Mr. Fry. Thousands of baby boomers — many with well-paid jobs — are retiring every day. For many, if

not most, their incomes drop when they leave the labor force. As more baby boomers retire, they bring down boomers’ median income. The same process has already affected the Silent Generation.

Just the opposite may be happening to millennials (born 1981-1996). As is well known, they bore much of the brunt of the Great Recession. Marriage and homeownership rates dropped; many have continued living with their parents. But these younger workers, most in their late 20s and early 30s, are now moving up career ladders and receiving larger pay increases. That probably explains most of the millennials’ income gain of nearly two-fifths.

What’s more, savings rates have remained relatively high. The personal savings rate is defined as after-tax personal income minus spending. In 2005, it got as low as 3.2 percent, but from 2014 to 2017, it has averaged 7 percent. This suggests that many households are either saving more or borrowing less (borrowing is negative savings).

That’s probably good news for the economy. It suggests that households aren’t so over-extended with loans that any setback will tip the country into a long and deep slump. Companies and households have enough cash to withstand another recession without draconian cuts in either consumer purchases or business investment.

There’s another lesson, too: Our economic rhetoric has a negative bias. Given a chance of describing the economy, many politicians, pundits and economists of both the left and right embrace the worst possible interpretation.

Conventional wisdom holds that incomes are “stagnant,” even when — as the Pew study indicates — they’re moving ahead slowly. Who knows, we may be richer than we think.