Does mismeasured inflation overturn a relative stagnation thesis?

by on January 24, 2011 at 1:17 pm in Economics, History | Permalink

In the comments, Slocum writes:

My skepticism is not that the nominal household income or GDP number are wrong, but that the inflation-adjusted numbers are wildly off because they fail to capture the innovations and transformational improvements in goods and services. Consider music. The music industry, measured in sales, is shrinking. 25 years ago as a college student, I bought a lot LPs and CDs (probably a few hundred $$ a year). Now I spend very little. Am I worse off as a music listener now? Obviously not — I am immensely better off. But judging by the gross dollar volume of the music business, you would reach exactly the wrong conclusion about 'stagnation'.

The fundamental fact is that U.S. real median income has risen at a lower rate since 1973, not that progress has been absent.  One might think that the CPI is skewed and there are reasonable arguments to be made in this direction.  But the CPI will be most skewed to underappreciate progress when truly new goods and services are being introduced into the marketplace or spreading to new regions.  And that is (roughly) the 1870-1950 period, more than any other time.  In other words, if you account for CPI bias, the slowdown in median income growth — the difference — is probably larger than the numbers make it appear, even though in absolute terms both growth rates will be higher than measured. 

When some people hear the relative stagnation thesis, their minds shoot to various bogeymen: Paul Ehrlich, ridiculous 1907 proposals to close the patent office, predictions of mass starvation, and so on.  The simplest version of the point is that technological progress is not uniform, and that is borne out by thousands of years of human history.  This isn't Lake Wobegon, so some periods have to have lower than average growth in living standards than other periods.  One of those periods happens to be now, since 1973, give or take.  And from that flows many propositions of importance, for politics too.

You can buy the eBook here.

Paul N January 24, 2011 at 9:39 am

I think this is a courageous message that must be hard to give when the crowd that follows you is largely obsessed with the "singularity" and the concept of *increasing* rates of technological progress.

albert magnus January 24, 2011 at 9:45 am

I was born in 1972, so maybe its my fault. I'll try and do better, I guess.

coyote January 24, 2011 at 9:46 am

I am certainly willing to believe the growth rate for median income has shifted — after all, does anyone expect the growth rate of median income in, say, China to continue on the same path forever?

However, I thought that, beyond the argument that the inflation numbers may be wrong because they don't account for changing technology or product reliability well, there was also an argument that different inflation rates may apply at different income levels. Call it the China/Wal-Mart effect, but the argument I have seen is that inflation for staple goods to the middle class has been lower than inflation to higher income brackets. In short, the price of a shirt at Walmart has risen less than the price of a room at the Four Seasons Resort.

I guess the other thing I always think about is changing demographics of the work force. If we have, in a period, 10 million new low-skill immigrant workers (legal or not) is that not going to bring down the median? If all of these workers come in below the median, doesn't that mean one really needs to count up 5 million names on the ranked list to find what the median would have been on a same-population basis?

And speaking of demographics, isn't there going to be some effect in the 1970s and beyond from absorbing a large influx of women into the work force? I presume the picture on this latter is complicated, but it would not surprise me to see a large expansion of the work force and shift of demographics affect median income growth.

Right Wing-nut January 24, 2011 at 9:57 am

Is "truly new goods and services" just a weasel phrase to swat away opponents, or have you become so jaded that honestly believe this to be the case? Tell me, in 1950, how easy was it to take your music with you on a hike up a mountain? The personal computer has come–and is retreating to an entire array of specialized devices. Smallpox has been eliminated, and my grandchildren will think of chickenpox about the way I think of the plague. Media has been redemocratized to a substantial degree, with far more to come. I traveled 1500 miles for a job interview in a four hours (house to hotel). When there was a problem with the flight, I thought nothing of charging it on my own credit card. When I got back, I had scheduled an interview for the next day while walking out of the air port. When I go to the store, I see over 100,000 different items on the shelves. The only way to guess when a fruit is in season is to notice the change in the price. I think nothing about chatting online with people all over the world in real time.

You call it relative stagnation, others call it Future Shock

Phil S. January 24, 2011 at 10:05 am

Expanding and semi-correcting my comment above, re: automobiles.

Yes, they've become more commonplace in the last few decades.

But putting aside simple quantity, if you look at what a typical automobile-user can DO now as compared to 1950 or 1952 or 1929:

Once upon a time, autos were expensive to own and operate, unsafe at high speeds, relatively unreliable, and operated on a road network (i.e. our roads) which were way underbuilt compared to nowadays.

Traveling 15-25 miles might be a relatively major undertaking, far from the routine drive it is nowadays. Working 20 miles away from one's jobsite and depending on an auto for daily transport was, I would venture, quite rare in the first half of the twentieth century.

In turn, the improvements on many fronts led to a secondary set of consumer lifestyle improvements – the suburbs. Much as folks grumble about suburbanization, the ability for millions of people to live in a metropolitan area, yet spread out such that most can have their own green space and a modicum of separation from their neighbors, seems to be a significant improvement, on average, from typical urban living conditions in the first half of the twentieth century.

ORB January 24, 2011 at 10:09 am

The discussion on this book (and, sorry, but your constant hawking of it) have actually greatly diminished my interest in reading it. I'm no longer even certain what's being argued, and it's difficult to sift through the baggage it appears is being exorcised by Tyler and a few commenters.

To January 24, 2011 at 10:13 am

Argh.

Look at the graph of real productivity vs. time for the last half-century: it has been steadily going up. Productivity-enhancing innovation occurs all the time, although it isn't always publicized beyond the circles of engineers and highly-focused business execs, being of the obscure, rather than fashionable kind. Now, this did yield increasing aggregate real income, right ? But only a minority has had any sizeable share of that increase (you can quibble all you want about stagnation vs. small increase for middle classes, it is in any case a small fraction of productivity gains). Either median-income workers are no more productive now that they were in 1973, and the productivity gains are all due to a highly innovative elite, or they're getting screwed.

Now think about it: is the median US worker today doing the same job, with the same technologies and business organization as in 1973 ? Hum.

Note that the above discussion does not suppose anything about CPI, since it compares income vs. productivity (or if you prefer, median vs. aggregate income) at a given date. Nonetheless, I've seen many comments about how technology changed everything and we should be content with that. Consider instead the major lifetime expenses of a average person: housing, food, transportation, healthcare, education for some. Did any of these really get cheaper ? Today, the house has cable internet and the car is more efficient and safer, not to mention better-looking, but the main point is still to have a place to live and A to B transportation, respectively. Not everyone spends their lives having fun.

In other words, the little bread we had turned into cake. Yay !

dirk January 24, 2011 at 10:29 am

I'm curious if the stagnation argument is going to claim technological innovations are serially correlated. i.e., if the rate of innovation has decreased the past 37 years, does that increase the odds the rate will continue below average for the next 37 years? Or are these groupings of periods the arbitrary result of hindsight groupings of streaks, such as a hot shooting streak in basketball, which are statistically likely to occur but mean nothing more than that. Might one not expect a reversion to the mean to the average innovation rate since the start of the industrial revolution? Or is the stagnation itself a reversion to the mean in a larger historical context?

Russell L. Carter January 24, 2011 at 10:45 am

So, we've got technology stagnation AND structural unemployment. Or so you have been saying ad nauseum. How does that work?

Andrew January 24, 2011 at 10:50 am

Folks, if this concept were obvious to everyone and yet false Tyler wouldn't have written a book on it, it would have been in the New York Times.

Sergey Kurdakov January 24, 2011 at 11:04 am

truly new goods

and what about telepresence ( already invented and used )? I mean – it eliminates for many people the need in pictured 'new good'.

So what about electronic-era ( or info-era ) deflation? What happens if there are much cheaper ( and preferred ) new substitutions?

Then again – it is possible to show – having already existing things – income may be times more for people in the world, including US. So why ridiculous look for 'new' goods?
Example – it is possible to grow tissue – it is still not applied to cure kidney, heart etc diseases. But it will be soon. Will it improve life – significantly.

We already invented change of organisms – will it make 'cheap' fuel in near future – more than probable. Again – nothing new – but still – no Paul Ehrlich envisioned problems.

it looks more and more like wrongly posed problem. Of cause, I think Ehrlich is wrong. But still he is wrong not in relation to any new products. He is wrong in the potential to resolve problems with current tech.

Of cause – possible new products might add to the growth. But still – significant improvement is no way tied to new products.

It is just a coeff in Solow model which blinds thinking, as if this coeff is only driven by tech improvements – but actually the structure of this coeff was never revealed, or we would have not Solow – but, say, Tyler Cowen equation.

Silas Barta January 24, 2011 at 11:10 am

It works both ways. Non-hi-tech products have been degrading and suffering debasement in a way that CPI doesn't measure, nor even try to. Have you noticed bags and packaging for products getting shoddier, toilet paper rolls shrinking, meat products being debased with fillers, etc.? Even the MSM is catching on (HT mises blog), although I think some of their examples don't work if the BLS counts the price per unit mass/volume. Then again, it may be in error to give them even that much credit at this point.

So I can buy a second iPod for the same nomimal price as my current one but have it hold more songs … so what? How does that enable me to get my weekly, less-avoidable groceries any cheaper? Is that any consolation in the face of 70% meat price increases in the past 5 years? Didn't think so.

John January 24, 2011 at 11:22 am

I think it would be interesting to know why Jones (from the original post which generated Slocum's comment) thinks we will not be able to gain significant benefits off prior innovations today as occurred during his period of inquiry. Seems to me that quite frequently innovations take substantial periods of time to reach their true potential. Consider computers — first just number crunchers, then they became office tools, then file sharing tools, then communication tools, then ABS systems, engine management systems, facility management systems, traffic management systems (old tech for rail transport).

John

Miller January 24, 2011 at 12:01 pm

Consider instead the major lifetime expenses of a average person: housing, food, transportation, healthcare, education for some. Did any of these really get cheaper ?

Yes, they all got a lot cheaper. That is why we have so much more of them and/or so much higher-quality versions of them today than previous generations of Americans did. The claim of stagnation is just utter nonsense.

Andrew January 24, 2011 at 12:20 pm

Technology doesn't matter. You need to look at the cost of an hour of someone's time denominated in units of your time (or vice versa). That's pretty close to median income.

Andrew January 24, 2011 at 12:23 pm

Rational basis for a bet.

Slocum January 24, 2011 at 12:25 pm

But the CPI will be most skewed to underappreciate progress when truly new goods and services are being introduced into the marketplace.

Agreed. And it strikes me that there has been an explosion of truly new good since the 1970s, for example:

- personal computers / graphical computer interfaces
- the internet, email
- mobile cellular phone and data services
- digital audio and video
- GPS
- digital cameras

And even in boring categories like automobiles, is the CPI even close — is it even in the ballpark? Here's what $14,500 in 2011 dollars would have bought you in the mid 1970s:
http://www.amcpacer.com/images/print/sundowner1.j

And here's what it would buy today:
http://www.hyundaiusa.com/elantra/

Do those two cars seem rougly equivalent — would you be equally happy driving either one (which would mean the CPI is about right for cars)?

When I compare 2011 to 1976 (which I remember quite well), 'stagnation' is just not what comes to mind.

Mr. Econotarian January 24, 2011 at 12:44 pm

I think we are more likely to "notice" innovations that affect us physically.

Mass automobile use is very noticeable. Mass passenger aircraft use is very noticeable. The incredibly decrease in mortality of infectious diseases (and resultant huge increase in life expectancy) due to antibiotics is very noticeable.

The Internet and cell phone are a little tougher to notice, until you forget how your life was before them. I really can't remember how I arranged travel before the Internet (I did make several trips before it). Or imagine planning something complex with multiple distributed participants while you were in the car without a cell phone.

I'm now seeing large amounts of pre-cut/pre-washed vegetables in the grocery store, dramatically reducing the prep time of a healthy meal.

lemmy caution January 24, 2011 at 12:58 pm

Technological growth is a "take what they give you" type of thing. For example, the number of important new pharmaceuticals developed in the twenty first century has been pretty unimpressive compared to the efforts involved. That isn't the drug companies fault; they are working hard and the incentives are strong. It is just hard to do.

Information and communication technology are booming now, but after a while the low hanging fruit will be gone.

Lord January 24, 2011 at 1:19 pm

Considering the major lifetime expenses is indeed the measure, not technology, but they haven't gotten that much cheaper recently, especially in comparison with how much cheaper they got in the preceding era. You really need dramatic falls in things like food and energy costs for all that technology to amount to much. Not that it isn't nice, but you really have to affect the basics and in large ways for it to be significant. It is virtually impossible to reproduce an era that saw food fall from 42% (1901) or 29% (1950) to 19% (1972) of income to that of 13% (2003). Transportation has increased. Housing has increased as well but that is partly due to its being an asset.

C January 24, 2011 at 1:32 pm

I say look at the numbers: median income is now growing more slowly. Is anyone disputing that?

No, but "relative stagnation" really is a crappy choice of words. Exponential growth is exponential growth. I'll never complain that it's a little less awesome than before.

I suppose what I object to is that you encourage economic illiterates to interpret you the wrong way. And what do the rest of us get? A post that is accurate in a lawyer-y way but doesn't really seem in spirit with the truth? Plus a bunch of morons saying, "see, Tyler agrees with me"? It's anti-hedonic!

Cyrus January 24, 2011 at 1:46 pm

@Lord: The ad absurdum version of your argument is, The sum of all slices of the lifetime-expenses pie chart is 100% every year. Ergo, stagnation. The argument you've actually expressed is not terribly different.

Andrew January 24, 2011 at 2:01 pm

The map isn't the map factory.

And yeah, I can't stand the morons either.

russell12000 January 24, 2011 at 2:06 pm

http://seekingalpha.com/instablog/820862-stephen-

This (recent) take on affairs is not as sanguine.

If I am understanding it correctly we have dipped (slightly) into negative growth when subtracting for debt, and have had ever decreasing growth since WW2.

You wonder if without the WW2 buildup and then reconstruction if we ever would have come out of our funk.

Miller January 24, 2011 at 2:26 pm

Hardly. Food is an excellent measure because demand is fairly inelastic. The question is why it isn't free if we have had so much progress. It should be under 10% if we had continued at the same rate.

As someone else pointed out, your income share numbers are irrelevant. They merely show changes in relative prices or demand for different kinds of product. They don't tell us anything about changes in quality or absolute levels of consumption. I don't have the numbers to hand, but I'm pretty sure there has been a huge increase in the quality, variety and availability of food since the 1970s.

Anon. January 24, 2011 at 3:13 pm

"And that is (roughly) the 1870-1950 period, more than any other time."

Please. Not to go Ray Kurzweil on your ass, but the rate of technological innovation since 1870 until now has been clearly exponential.

dirk January 24, 2011 at 3:37 pm

So does it come out at midnight or what?

Chris T January 24, 2011 at 3:54 pm

United States gdp per capita growth has indeed declined, but global gdp per capita hit a record high during the 2000's since at least 1971. The pressure on energy, material, and food prices has been significantly upwards to say the least.

Benny Lava January 24, 2011 at 5:10 pm

"If real income data does not reflect this growth, then there is something wrong with the income data.

I don't have the numbers to hand, but I'm pretty sure there has been a huge increase in the quality, variety and availability of food since the 1970s. "

You keep making the claims for this but you always come up short on actual numbers. Why don't you show some actual numbers to prove your claims. Because others have put up the numbers that demonstrate stagnation.

To January 24, 2011 at 6:16 pm

Miller,

The plots use CPI but the argument doesn't depend on it. I could have used median income as a deflator and looked at prices (which is probably the sensible thing to do)

In 1973, only 12.6% of Americans 25 years and older had completed 4 years or more of college. By 2009, 29.5% of Americans 25 years and older had completed 4 years or more of college (source). College enrollment rates are up dramatically too. How was this possible if education has become less affordable? What have Americans cut back on to allow them to afford to go to college at these much higher rates?

Short version: cut on <a hbref="http://assets.opencrs.com/rpts/R40647_20090901.pdf">savings (PDF), and increased debt.

Next: US household debt vs. GDP. Remember that median income has grown slower than GDP.

<img src="http://research.stlouisfed.org/fred2/graph/fredgraph.png?bgcolor=%23B3CDE7&chart_type=line&drp=0&fo=ve&graph_bgcolor=%23FFFFFF&height=378&mode=fred&preserve_ratio=checked&recession_bars=On&txtcolor=%23000000&ts=8&width=630&id=CMDEBT_GDP&scale=Left&range=Max&cosd=1947-01-01&coed=2010-07-01&line_color=%230000FF&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=a%2Fb&fq=Quarterly&fam=avg&fgst=lin&transformation=lin_lin&vintage_date=2011-01-24_2011-01-24&revision_date=2011-01-24_2011-01-24&relative_vintage=_&nd=_"/&gt;

I don't deny that lots of things have become nicer. But the net effect of these highly visible niceties is marginal. We couldn't live without them today, but people 40 years ago just did things differently. For health care, there certainly have been improvements, but look at the costs ! We gained 5 years of life expectancy since the seventies (unequally distributed at that). The really important medical techniques were already available.

To be clear my points are:

* Comparing prices across 40 years is tricky, but CPI is as good as anything else. It is a sensible running estimate of the variation in living costs.

* The median household income has been stagnating. Life has changed on many qualitative levels, but the wealth of middle-class Americans is not much better nowadays than 40 years ago in quantitative terms. Much of the lifestyle improvement is paid for by reduced savings and increased debt, not income.

* GDP per capita has not been stagnating (otherwise you have to admit that median income has been shrinking). Technology is not the culprit. Advances are made as we speak, but of a more and more arcane nature. They often become widely publicized years after the fact (example)

* Middle-class workers did not get monetary benefits from their increased real productivity (whatever you call "real").

Benny Lava January 24, 2011 at 7:10 pm

Miller,

As an addendum I will remind you that some of your unsubstantiated claims are also evidence of stagnation. I wasn't going to reply because there was no citations or evidence, but I'll go for it anyways.

"Do you deny that transportation has also improved enormously since the 1970s?"

Yes, commuting times are longer than the 1970s.

"Do you deny that the quality, variety and availability of food and beverages has improved dramatically since the 1970s?"

Yes, as food is becoming less nutritious, the reduced price is negated by reduced quality.
http://www.guardian.co.uk/lifeandstyle/2005/may/1

"Do you deny that the quality of healthcare has improved enormously since the 1970s?"

Has the increased quality come with a tradeoff in quantity? Has the percent of households with insurance increased or decreased? Hint: decreased.

"Do you deny that communications, information and entertainment products and services have improved enormously since the 1970s?"

No but do you deny that these are largely luxury goods and thus not really relevant to the issue of wages vs cost of living?

Miller January 24, 2011 at 7:45 pm

Benny Lava,

Yes, household debts have increased, but so have household assets. If you're claiming that the dramatic increase in consumption has been funded by taking on more unsecured debt, then produce data substantiating that claim. If Americans are taking on more debt that they cannot repay, how is it that they're able to retire earlier?

The fact that there is more student debt is irrelevant. People are willing to take on that debt because a college education is so valuable. If the benefits of a college education were not worth the costs, college enrollment wouldn't have grown dramatically.

The housing bubble is also irrelevant. The trend of bigger, better houses, and growing consumption more broadly, long predates the housing bubble.

Frank January 24, 2011 at 7:52 pm

The most important question–who is the median?–is never addressed. The median family in 1970 is not the same as the median family in 1980, 1990, and so on. What happened to median families of the 1970's over time?

Anyway, long run, though I like the interwebs, the greatest invention ever was the flush toilet!

joan January 24, 2011 at 8:08 pm

If you look at the ratio of nominal median wage to nominal GDP per capita or per worker you see that is smaller now than it was in 1972 even if you include the cost of benefits provided by the employer. That is the people in the bottom 50% are getting smaller piece of the economic pie now, and playing around with the how to measure of the CPI or the GDP deflator does not change that. One could argue the the real GDP growth is either lower or higher than the official numbers because they over estimate the value of financial services or underestimate the value of technology.

Miller January 24, 2011 at 8:59 pm

I did, read the links you lazy ass. Bigger houses and more housing debt:

No you didn't, you obnoxious blowhard. The article you link to is about debt among young adults, primarily as a result of going to college. More adults are going to college and incurring debts to pay for it. But a college education is a huge asset for lifetime income. Are you now denying this, and claiming that ordinary Americans would be better off if we went back to the much lower college education rates of the 1970s?

Government debt. This time read the links

None of your links show that the broad and long-term trend of earlier retirement is being funded by government debt. They're all about specific budget problems in specific locations. There is certainly a long-term problem in retirement funding, but that is because the traditional retirement funding mechanisms were designed for a time when people started working earlier in life and died at a younger age.

MNM January 24, 2011 at 9:33 pm

"truly new goods and services "

Yours, truly

dirk January 24, 2011 at 10:24 pm

well, fuck. i can't get this shit to work. it's the 25th in my time zone (central), i pre-ordered it and i can't fucking get it. i was looking forward to it too. reminds me of camping out for Van Halen tickets. and this ain't no fucking Van Halen. i know that because rock-n-roll started stagnating in 1973, when Dark Side of the Moon came out.

i'm feeling the great stagnation viscerally.

dirk January 24, 2011 at 10:41 pm

here's my hypothesis for why we have the great stagnation: lazy fucks who work at amazon. the technology exists, but everyone is too fucking lazy to press a button!

sorry for that outburst.

(but really, they are too fucking lazy. and you know in your heart that we are stagnating because of that.)

dirk January 24, 2011 at 11:02 pm

no offense to Andrew or Steve Sailer. i realize that it is purely a coincidence that the Roissy fan white nationalists give Sailer the salute whenever they get a hard-on. Sailer wants nothing to do with the white nationalists and you are (I am) a racist for implying otherwise.

Andrew January 25, 2011 at 3:43 am

Dirk,

My "white nationalist bullshit?"

I would hope, but I know you aren't kidding, but for me to be mentioned in the same breath with Steve Sailer is a high compliment. But of course not for what you apparently think or for reasons you seem to comprehend.

But that doesn't mean we can't still be buddies.

Andrew January 25, 2011 at 4:10 am

Dirk,

Next time try this:

Steve Sailer: "There are differences between people who are obviously different"

Dirk: "Okay."

(silence)

The longer people deny the uncomfortably obvious, the longer Steve Sailer has a niche. More power to him, or less, I don't care, I just try to describe the world as it is (emphasis on 'try').

Michael Foody January 25, 2011 at 4:47 am

The first 50 years of the last century got us common automobiles, expensive commercial air travel, common electricity, television, telephone, cinema, refrigeration, commercial radio, recorded music, and radically more efficient manufacturing processes.

The next 50 years got us the internet, logistical improvements, globalization, cheaper air travel, mobile phones, cable, netflix, amazon. These things are great. I like them a lot. I'm the kind of guy predisposed to like them a lot. Then again you have to realize that 35 years gets you almost boardwalk empire to mad men (starting a little earlier to avoid the great depression) that's a huge difference. 35 years gets you from what the Jeffersons to today?

Miller January 25, 2011 at 7:34 am

Benny Lava,

You argue that consumption has increased, and this is evidence of increased wages. I argue that most of the increased consumption you cite is fueled by increased debt.

No, I point out that consumption by ordinary Americans has increased greatly over the past 40 years and that this demonstrates that the standard of living of ordinary Americans has increased greatly. If this huge increase in the standard of living is not reflected in income data, then there is something wrong with the income data. Or, at least something wrong with using income data to try and measure changes in standard of living. Given this huge increase in consumption, the claim that living standards have stagnated is absurd.

You keep repeating the same irrelevant claims about debt that I have already addressed. Yes, household debt has increased, but so have household assets. Total household net worth has increased substantially since the 1970s, both as a percentage of GDP and, even more so, in dollar value (source). Even now, in the aftermath of the housing bubble and the financial crisis, household net worth is substantially higher than it was in the 1970s.

You also keep repeating the same irrelevant claim housing prices. What matters is affordability, not prices. If housing had become less affordable, houses wouldn't have been getting bigger and better.

You haven't been able to identify even one major class of goods and services for which ordinary Americans today are no better off, or only slightly better off, than ordinary Americans of 40 years ago. Goods and services in every major area are either much more abundant today, or of much higher quality, or both.

Silas Barta January 25, 2011 at 7:45 am

@Miller: The overwhelming majority of people's transportation is their communte: a few hours every workday. This dwarfs all their (perhaps more efficient) errand runs, vacation travel, driving to entertainment, etc.

"To" and Benny_Lavaa are right that you are being deliberately obtuse by ignoring these metrics. What good is a fancy car if you have to spend that much more time in it every day just to get to work?

Yancey Ward January 25, 2011 at 8:13 am

I propose we move forward to the 1970s. Clearly, things really, really suck today.

Miller, Slocum, admirable effort, but you will never convince these people (To, Benny) that things haven't totally stagnated since the 70s. Never.

Benny Lava January 25, 2011 at 9:01 am

Miller,
 
You state "I point out that consumption by ordinary Americans has increased greatly over the past 40 years and that this demonstrates that the standard of living of ordinary Americans has increased greatly".
 
So increased consumption = increased standard of living = increased progress, therefore no stagnation.  Yes?
 
"If this huge increase in the standard of living is not reflected in income data, then there is something wrong with the income data."
 
But you've never presented any evidence for this second part, that income data is wrong.  You just assume it is wrong because consumption has increased therefore income must have increased.  Ok, so prove it, and prove that increased debt and working hours haven't fueled increased consumption.
 
"Total household net worth has increased substantially since the 1970s, both as a percentage of GDP and, even more so, in dollar value."
 
But your link doesn't even demonstrate this.  It shows a huge run up on assets in the 90s and early 00s that has collapsed to levels no higher than 1986 or 1961.
 
"Even now, in the aftermath of the housing bubble and the financial crisis, household net worth is substantially higher than it was in the 1970s."
 
You're going to have to demonstrate that this is true.  Be careful how you define net worth and assets.
 
"If housing had become less affordable, houses wouldn't have been getting bigger and better."
 
This is a circular argument.  I again challenge you to demonstrate this, as I have shown that while housing sizes have increased, housing costs as a percentage of household income have increased as well.  Isn’t that the definition of decreased affordability?
 
"You haven't been able to identify even one major class of goods and services for which ordinary Americans today are no better off, or only slightly better off, than ordinary Americans of 40 years ago."
 
But that isn’t my argument at all.  Wages have stagnated.  Increased consumption was fueled by increased work and increased debt.  Household consumption was increased through greater leverage and greater working hours.  This demonstrates that wages did not appreciate in a corresponding manner.  Perhaps we are talking past each other here because I haven’t read Tyler’s book, but I’m assuming that the stagnation he’s referring to is wages, whereas you are referring entirely to consumption.

Tom Grey January 25, 2011 at 9:30 am

median income is now growing more slowly. Is anyone disputing that?
Well, of course the second time you forgot to mention "USA".
The BigMac index for median workers in most places has been going up smartly. What would it have been pre-1986? I can easily believe, but dont' know, that the number of BigMacs per day of labor grew faster in earlier times.

World median income is growing MORE QUICKLY, by far.
China and India, among others.

The "morality" of free market growth remains quite strong.

Some of that growth comes from a reduced growth in revenue from US workers. Some of the growth comes from lower prices to goods US folk buy.

Also, of course, slower growth in the richer countries is a requirement if poorer countries are to ever catch up. That's one of the inequalities that does matter, and is moving in the right direction of less difference.

Miller January 25, 2011 at 10:49 am

Benny Lava,

But your link doesn't even demonstrate [Total household net worth has increased substantially since the 1970s, both as a percentage of GDP and, even more so, in dollar value]

Are you blind, Benny? The chart clearly shows a substantial increase in household net worth. In the 1970s, it averaged around 325% of GDP. In the 2000s, it averaged over 400% of GDP. Even at its recent nadir in 2009, in the immediate aftermath of the housing and financial crises, household net worth was still at 350% of GDP. And the increase in the dollar value of household net worth has been even greater, because GDP has increased dramatically since the 1970s.

But that isn’t my argument at all. Wages have stagnated. Increased consumption was fueled by increased work and increased debt.

No, increased consumption has been fueled by increased wealth. Assets have grown more than debts, so net worth has increased.

dirk January 25, 2011 at 11:34 am

I buy the low hanging fruit theory, but I’m still trying to understand how slow median GDP growth relates to it.

Imagine this scenario: Someone invents a teleportation machine. They happen to be cheap to manufacture, don’t use much energy, and nobody has a monopoly on making them. Suddenly, they are everywhere. Society is revolutionized. Nobody needs to reside in a crowded city anymore. You put your house wherever you want on the globe, teleport to a work environment anywhere on the globe, attend business meetings or lectures anywhere on the globe, go out on a date with anyone anywhere on the globe, eat lunch and dinner at any restaurant on the globe, and return home at the end of the day.

In such a scenario would median GDP growth necessarily increase dramatically? If not, then I don’t see how the rate of median GDP growth is a good proxy for increases in standard of living.

(Admittedly, I’m still on chapter 1.)

Dan H. January 25, 2011 at 1:04 pm

Why should luxury items be excluded? It only makes sense that as we meet our basic needs, more and more of our income will go into luxury items. In any event, the line between a luxury item and a staple of life is pretty blurry. After all, all you really need to exist is a cave and a haunch of meat. Everything else is gravy.

If a Starbucks coffee is a luxury item, is a microwave oven also a luxury? Both are means of getting something you want to eat/drink in less time and with less effort. Where's the line?

When I was a child, one of the main differentiators between the rich and the rest of us was that the very rich could afford servants to mow their lawns, clean their houses, look after their kids, take care of their laundry, answer the phone and take messages, etc. Because back then, these chores were very time consuming. We didn't have frost-free refrigerators, self-cleaning ovens, microwave ovens, automatic washers and dryers, central vac, Roombas, cheap digital telephone answering machines, teflon-coated cookware, etc.

Today even the poorest people in America have most of those things. Are they luxuries? Shouldn't it matter that people now have teflon-coated pans which saves them 10 minutes of scrubbing every day? If technology has reduced housework by 10 hours a week, and the average person makes $10/hr, isn't that functionally equivalent to an additional income of $5200 per year? Shouldn't any measures of economic growth factor that in?

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