We’re Much Wealthier

by Don Boudreaux on August 30, 2006

in Myths and Fallacies, Standard of Living

This editorial in today’s New York Times — entitled “Downward Mobility” — does its best to extract depressing news from the latest report issued by the U.S. Census Bureau.

I, too, have perused this report. It inspires me to do a mental experiment – an experiment related to one we’ve done before here at the Café.

Figure 1 on page 4 of the Census Bureau report shows the trend in real median household income from 1967 to 2004.  It reveals that real median household income has increased, with the expected blips and surges, over the past 38 years. But being 31 percent higher today than it was in 1967 is not very impressive. This fact means that real household income grew at an average annual rate since 1967 of much less than one percent.

But I ask: would you prefer to live in 1967 with today’s real median household income ($46,326) or live today with 1967’s real median household income ($35,379)?  (These figures are expressed in 2005 dollars, by the way.)

Given these two options, I’d choose to live today with only 1967’s real median household income. The reason is that the economy today offers so very many more options than did the economy in 1967 – or even the economy of that halcyon year, 1973. Today I can buy cell-phone service; today I can buy cable television with hundreds of channels, including ones that specialize in sports, cooking, history, and science; today even the cheapest automobiles are safer and more reliable than were the finest cars for sale in 1967; today I can buy telephone answering machines (with caller-ID), microwave ovens, CDs, personal computers, Internet service, and MP3 players. Today I can watch movies in my own home – in color – whenever I want without having to wait for one of the three or four available television stations to telecast a movie for viewing on a black-and-white television.

Today I can use GPS.

Today’s houses are bigger, on average, than a few decades ago, and better equipped – and more affordable.

Today’s coffee is indescribably superior to the coffee Americans regularly drank just a few years ago; the variety and quality of teas is much higher; a huge selection of books is available at the neighborhood Barnes & Noble or Borders – or through on-line retailers such as Amazon.com. The variety of foods available in supermarkets and at restaurants is much greater and, hence, more interesting. And much of this food is low-fat. (One-percent and two-percent milk were not available to the typical American back in the day.)

The average number of items offered for sale by today’s typical supermarket is 45,000 (up from what I believe was about 5,000 in the late 1960s).

Today I can buy an inexpensive quartz wristwatch that keeps time with remarkable accuracy.

Today, because of sites such as eBay, I have access to a thicker market for selling my junk.

Today I can buy – or get in a cereal box – a powerful electronic calculator. Today I can take digital photographs and digital videos and send them by e-mail, instantaneously, to family and friends around the world.

Today I can pay even for small purchases with a credit card – or if I prefer to pay with cash, I can get that cash from an ATM.

Today I can have packages delivered overnight.

Today, anesthesia is much better. (Those of us who had teeth filled in the 1970s and again much more recently can attest to the enormous improvement.) Many medicines available today were unavailable back then. Today I can wear not only soft contact lenses, but disposable ones that are cleaner and more convenient than standard lenses. And if I choose, I can have my vision restored to 20/20 through Lasik surgery.

Today — with Wal-Mart’s help! — I can check my cholesterol by myself, inexpensively and without fasting.

Today life-expectancy is longer.

Americans today spend fewer hours per day on the job, on average, then they did just a few decades ago. In 1960 the average length of the American work week was 38.6 hours; in 1973 it was 36.9 hours; in 1996 (the latest year for which I have data), this figure was down to 34.4 hours. (Note that from 1870 to 1996 the trend in the length of the work week has been steadily downward; no reason to think that this trend has reversed itself in the last ten years.) And because the average number of days worked per year has also fallen, the average American worker in 1996 spent nearly 200 fewer hours annually on the job than did his counterpart in 1973.  (These data are from W. Michael Cox and Richard Alm, Myths of Rich & Poor (1999), Table 3.1, page 55.)

Today, diapers are disposable.

Today I can google.

…..

Sure, I’m happy that I live today with today’s income – but, again, if forced to choose between living in 1967 (or 1973) with today’s higher income and living today with 1967’s (or 1973’s) lower income, I wouldn’t hesitate for as much as a nano-second to choose living today with the lower income from the past.

And I suspect that most people who reflect on this choice objectively would choose as I would choose. If I’m correct, then the growth in real dollar income between 1967 (or 1973) and today underestimates the improvements to everyday life brought to us by economic growth during the past 30 or 40 years.

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{ 49 comments }

Patrick August 30, 2006 at 1:52 pm

Don: I know you've had to make this argument before but it's just silly that media and "conventional" wisdom bring this up year after year-usually around Labor Day, usually with grim statistics, and almost toeing the labor union, Galbrath/Keynes, quasi-Marxist theme playing subltly in the background. This nonsense and the silly income gap thing that most newspapers do (the rich are getting richer and gap is widening!!) make me so upset. The premise is so emotionally charged, nostalgic and totally dishonest it's almost not worth dignifying. But here I go: I most certainly remember being a teenager in the 1970's and it was far, far worse econimically than things are today. You had very limited choices in what job you got, where you lived and worked, what schools you went to, what you could buy and sell, how much access to information you had and the quality of your health and life. Almost all of those limitations, even for the dumbest and most misguided of Americans have disappeared. You can live, eat, work, drive, move, travel, buy, sell, discover, etc. almost anywhere/anything/anytime. We are so much wealthier in these times than just 30 years ago and in fact, we are wealthier than ever.

David August 30, 2006 at 2:04 pm

Typo alert:
"In 1960 the average length of the American workday was 38.6 hours" That's some day! It takes me a week to work that much.

Noah Yetter August 30, 2006 at 2:32 pm

My job (PL/SQL developer) didn't even exist in 1967. Codd's paper on the relational model wasn't even published until 1970.

Back on topic, I have lived in "today's" world with "yesterday's" income. Nothing could convince me the opposite would be preferable, except maybe the chance to see Black Sabbath or Pink Floyd in concert!

Mcwop August 30, 2006 at 2:35 pm

Noah – Seeing Sabbath would certainly rock! Might have even caught Hendrix! That kinda wrecks Don's argument. :-)

Swimmy August 30, 2006 at 3:12 pm

It's kind of funny how often the quantity and quality of available goods is used to define "standard of living" but are almost completely eliminated in measurement.

The importance of the internet cannot be overstated. Now you can largely have access to the same goods (but perhaps not the same services) if you live in any number of different countries. Online ordering and fast shipping have widely improved the quality of life all over the globe.

Kent Gatewood August 30, 2006 at 3:23 pm

Cars seem more expensive than in 1967. My 73 Camaro cost 3500 dollars (x3.5 = 12,250). I'm forced to buy more safety than I want. But I may be buying more miles with my purchase.

stevesh August 30, 2006 at 3:53 pm

If you were experiencing diminished page size, market share and credibility, and your stock value was tanking, you would be pessimistic too.

happyjuggler0 August 30, 2006 at 4:54 pm

Anyone with an ailment that was cured or ameliorated via advances in health care should be leaps and bounds happier living today than in the 60's, even if they were a billionaire in the 60's.

Martin August 30, 2006 at 4:57 pm

Professor –

Er, one small point – a bagatelle if you will.

If the houses are bigger, mightn't that mean a longer commute?

So the entire door to door to door working week could be longer than in 1967? And doesn't that represent not an acquisition but a diminution of wealth?

Kent Gatewood August 30, 2006 at 5:09 pm

How much wealthier would the working poor be if their entire (employee/employer) social security and medicare tax had gone into the stock market since 1967.

Bret August 30, 2006 at 5:51 pm

Don Boudreaux wrote: "And I suspect that most people who reflect on this choice objectively would choose as I would choose."

Hmmmm. I thought preferences of this sort were inherently subjective – not objective. No?

And unfortunately that means that for some people, the value to them of everything while living under democratic leadership is infinitely higher than the value of everything while living under republican leadership. Thus, they would subjectively (and rationally) choose more money in 1967, when the drugs were good and the love was flowin'. I suspect this cynical description happens to loosely describe many NY Times readers, so they really are worse off now – since there is no "objective" economic sense.

Aaron Krowne August 30, 2006 at 5:56 pm

This is a good discussion of the difference between relative and absolute well-being.

Over time, absolute well-being tends to increase due to technological and other forms of innovation.

Relative well-being depends on how present monetary wealth is allocated.

Discussants of well-being would do well (heh) to distinguish the two.

Those who are critical of a degredation of typical relative well-being have a point, in my opinion. There are systemic problems making society less equitable, and they originate from a lessening of freedom, and increase in intervention; not the reverse (as capitalist malcontents typically argue).

Unfortunately, the defenders of the capitalist free market system typically miss the mark in responding to them, either by denying that there is higher relative inequity, or by ignoring the important ways in which the current system is less free than it should be (and has been in the recent past).

xteve August 30, 2006 at 6:15 pm

"Seeing Sabbath would certainly rock! Might have even caught Hendrix! That kinda wrecks Don's argument. :-) "

I know you're kinda joking, but actually, I have greater access to FOOTAGE of Hendrix, Floyd, Sabbath, etc, than I did back in the day. Not the same, true, but it's something.

I would never have been able to see the Who Live at Leeds back then, but now you can get the whole concert on CD instead of the severly editted LP. I'm a big fan of 60s music, & there's so much more of available to me now than there ever was during the 60s. Obscure stuff & outtakes & rare b-sides, I can easily get this stuff now without leaving my house, all for reasonable prices, even for imports. I consider myself richer as a result.

Stephen August 30, 2006 at 6:26 pm

Don,

Here is a link showing more recent average hours worked data. It appears the average workweek is around 33.7 hours.

ftp://ftp.bls.gov/pub/suppl/empsit.compwhs.txt

John Dewey August 30, 2006 at 7:28 pm

Martin: "If the houses are bigger, mightn't that mean a longer commute?"

Why would that be, Martin? Since 1967, hundreds of very large companies have exited the crowded center cities and moved to new suburbs – exactly where the big houses are located.

Slocum August 31, 2006 at 10:53 am

Don't forget travel — airplane travel is vastly more affordable than it was in 1967. Back then, people of ordinary means rarely or never flew.

USMC Ken August 31, 2006 at 11:59 am

This post dovetails with the dramatic series on CNN about poverty that is currently running. I saw a report this morning about the terrible poverty in Detroit which highlighted a woman who was only making $19k and had trouble making payments on electricity, water, phone, cell phone and cable tv. Poverty has never looked so good or been so comfortable.

3/4 of the world ooks at "impoverished" Americans and thinks: "they have it pretty good."

Bill August 31, 2006 at 12:33 pm

This post was interesting and a good reminder at how far technology has come and how it makes our lives better. However, I wonder a little bit at the post's relation to the findings on the median income.

By the way, household income today probably consists of more households where two adults work, or where there is only one adult in the household. As a result, there would seem to be a needed, but probably incalculable, adjustment for the loss of home production.

Anyway, the hypothesis that most people would probably not want to go back in time is interesting, but what does it have to do with the median income? I realize that one dollar today, while usually considered to be worth "less" than it was in 1967 might actually be considered to be worth "more" in absolute terms because technology has given us more cool, useful, fun, and life-saing or life-prolonging stuff. But I think a more meaningful comparison, at least to the extent that one is trying to glean some sort of policy/societal/distributive meaning from the numbers is a relative comparison. In other words, it might be more meaningful to ask, "relative to what?"

Such a comparison would, I think, be roughly conducted in this way: "what amount of generally considered needed and practical goods can be purchased with the 1967 median income according to 1967 information and understanding as compared with the current amount of generally considered needed and practical goods that can be purchased with the current median income?

In other words, assuming one thinks a car is practical and not a luxury, compare the average car in 1967 to the average car in 2006. Of course the 2006 one will be better, and also more expensive when adjusted for inflation, and probably still a better deal. Now do the same for other stuff. Relatively speaking, are people that much better off? I don't think they are, altough that is not "bad," because as as you point out, we're absolutely better off as a whole.

Still, I think your post got a little carried away with this realization. Poor factory workers in the 1920s were probably absolutely better off than average farmers in the 1890s or Kings in the 1700s. So what? The hypothesis that paying somebody about $10,000 will not be enough to make them go back in time, while probably correct, is anecdotal (in my opinion).

oldtory August 31, 2006 at 12:57 pm

"
3/4 of the world ooks at "impoverished" Americans and thinks: "they have it pretty good.""

You really want relative poverty to work in one direction, don't you? The proles are not be jealous of valiant entrpeneurs like Paris Hilton but are to measure themselves against paddy-field workers in China. (Though, of course, the field workers have it good compared to the Chinese gulags, so relativism works all the way down).

I am not quite sure that any working class in any industrialised country would buy the line " You are doing better than the third world, so shuddupaboutit" but if you think it so pretty maybe you should try living on that 19K in a major metropolitan area and see how far it gets ya.

Hint: dont get sick.

Dodd August 31, 2006 at 1:01 pm

Am I missing something? The really great news is we are living today with today's higher income. This reminds me of my Grandpa who use to say, "It is better to be healthy and rich than sick and poor."

carbuzzard August 31, 2006 at 1:04 pm

There are several other factors, however, that I don't see considered. Most households today are two income households, and need both to support that standard of living. Back in the bad old days, most moms were stay at home moms. Back in the bad old days, divorce was rare (but never safe). We didn't have MTV. We didn't have video games, the worst waste of life ever.
Yes, we have a lot of "things" now that we didn't have then, but we've also lost a lot.

oldtory August 31, 2006 at 1:10 pm

"The hypothesis that paying somebody about $10,000 will not be enough to make them go back in time, while probably correct, is anecdotal (in my opinion)."

Yes, the backward in time scenario could justify any amounts of poverty in a given time provided the human race progresses in knowledge. We could probably tell a homeless man that he has recourse to better healthcare than Alexander the Great, were he able to afford it. Which is true. Me, I'd live with living in the past rich than in the present poor, or median income, not least because were I living in the past it would be my present, and I would not know of the future.

People sorta factor in improvements. Nevertheless the original poster is free to take an annualised income cut for the rest of his life, secure in the knowledge that in twenty years even though he may not be able to buy as many fancy gadgets as he now can with his future real lower income, the few he will buy will be of better quality than the expensive ones he buys now.

We could factor this kind of thing into political speaches as well: the Republicans should field a candidate who argues thusly:

" We must devise an economic system that guarantees that in future years you will be poorer in real terms than now, but TV's and other electronic equipment may well be cheaper, better, and there may even be stuff that we dont have now!"

That kind of thing will sweep any politico to victory.

I am sure.

Steven Donegal August 31, 2006 at 1:22 pm

Professor~

I doubt very seriously if you would like to live today on $35K a year. While you list all the technological improvements over the last 40 years, you don't bother to mention how many of those a person (let alone a family) living on $35K could afford. Houses may be bigger, but you wouldn't own one. Medical treatment may be better, but it's a lot more expensive and if you have a job paying only $35K a year, I doubt if your medical insurance would be that great. You can certainly have a credit card today, and making $35K a year, would likely have substantial credit card debt. You would have virtually no job security and would in all likelihood be living paycheck to paycheck.

Given the choice, I'll take $46K in 1967. my folks (both working) made about $40K back then and we had a comfortable life. We couldn't do that today on $35K.

oldtory August 31, 2006 at 1:24 pm

And another thought! We need not have seen the collapse of communism had Gorbachev not realised his error. His error? it was, of course, to introduce perestroika just because Soviet incomes had stagnated from 1970 – 1990. He should merely have argued that the Great Socialist Project ( copying from the West, but what of it) had introduced Color TV's AND remote controls in the meantime, so stop the whining.

And the workers of the Soviet Union would be satiated, and go home happy, singing the Internationale and flying the red flag. They weren't really just as poor, after all!

Chris M August 31, 2006 at 1:30 pm

The analysis speaks to the the nature and amount of change in quality of life during a given time span. Historically change often moved drastically in a negative direction. At many points in recorded history the people living through would have happily turned back their clocks 20 or 30 years. Europeans in 1917 or 1945, or during the Black Plague; Americans in 1933. The merits of freedom, democracy, and a free market are again vindicated by a relative lack of desire among contemporary Westerners to live in the past.

Chuck Simmins August 31, 2006 at 2:09 pm

When we say foreign born, we mean Hispanic, right?

In 1991 the poverty rate for Hispanics was 28.7% and it was 21.8% in 2005. In 1991, 60.4% of Hispanics earned over $25k, and in 2005 it was 66.3%. It certainly seems that the last 15 years have been good to Hispanics.

The 2005 overall poverty rate of 12.6% is lower than the rates for all the years from 1980 through 1998. The poverty rate for blacks in 2005 of 24.7% is lower than the rates in the period from 1959 through 1998. The Hispanic poverty rate for 2005 of 21.8% is lower than the rates from 1980 through 1999.

The median income for all Americans rose in 2005 for the first time since 1999.

http://northshorejournal.org/index.php/2006/08/poverty-in-america-2005-overview

John Dewey August 31, 2006 at 2:15 pm

Stephen Donegal: "if you have a job paying only $35K a year, I doubt if your medical insurance would be that great."

Lots of folks today make $35K and enjoy the same health insurance as those who make five times as much.

Stephen Donegal: "Houses may be bigger, but you wouldn't own one."

That depends on where one lives. New homes are available across much of the South for under $130K. That's easily affordable for a family with two $35K earners. New townhomes can be found for $100K, which a single $35K worker can likely purchase.

Stephen Donegal: "You would have virtually no job security"

Why would that be true? Right now, today, is a $35K Fedex courier's job less secure than a $60K GM factory worker's job?

Sully August 31, 2006 at 2:21 pm

Excellent article, but you accept the premise that median income has increased as slowly as the statisticians claim.

The apparently slow growth of median income is so obviously bogus that it must be suspected of being arrived at by folks with their heads firmly buried in the sand.

Anyone who takes a drive to the poorest neighborhoods of their nearest city will be hard pressed to find a working person living at less than the median level which prevailed in 1967. How quickly we forget that in 1967 it was usual for the families of relatively highly paid union factory workers to live in tiny rowhouses and have a single car. And it was uncommon for anyone except the very rich to take more than a couple of day trips at the nearest seashore.

By sharp contrast today's working person considers him or herself severely deprived if unable to spend a week at the shore, usually jetting off to Florida or South Carolina or the Bahamas to do so.

And the thought of a single car for a working family is today preposterous.

John Dewey August 31, 2006 at 2:28 pm

oldtory: "We could probably tell a homeless man that he has recourse to better healthcare than Alexander the Great, were he able to afford it."

That homeless man can enjoy better health care overall than any pre-1970 ruler anywhere, whether the homeless man can afford it or not. Virtually every city in the U.S. has at least one non-profit hospital that provides medical care to the indigent. Advances in medicine and treatment the past 40 years, generally available at such hospitals, nearly equal those accumulated since the time of Hippocrates.

Daniel August 31, 2006 at 3:02 pm

I'm guessing some of the posters here are figuring they're worse off now because there are much better people to envy today than there were thirty years ago. But the fact remains the people of even below average means have more and better goods and services than people of the past, or than people of most other countries.

"I am not quite sure that any working class in any industrialised country would buy the line 'You are doing better than the third world, so shuddupaboutit'…" In the past there was such a thing as humility and graciousness with respect to what little wealth people possessed.. wealth which was hard earned, and laughably slight by today's standards. If you think about it, does it really make sense to base your happiness on how rich you are compared to someone else? Does it really make a difference to you personally whether Bill Gates has a million dollars, or a billion, or a trillion, with your wealth being the same in all three scenarios? If so, why? The working class should look at the situation they are actually in and base their happiness on that. Someone in a gulag: that situation absolutely sucks no matter who you have to compare with. An average person in the third world: that situation also absolutely sucks, even if it is better than the person in a gulag. A working class person in America: that situation is not bad, but not great either. In most parts of America you have little fear of violence (inner cities are often an exception), no fear of random animal attacks, no fear of contaminated and unsafe water supplies, absolutely no fear of famine, reasonably little fear of major diseases, especially widespread plagues.. most of the sources of death and disability in the past have been greatly reduced. In addition to all this safety, we have the ability to find likeminded acquaintances and friends all over the world using the internet, and to easily travel great distances to interact with them in person (60 miles being now only a modest impedement, forcing you to make a day trip, while most of us could easily make a trip across the country for an annual visit or across the world for a one time trip).

It seems to me though, that most of what we have lost in that time is cultural: we've made it an assumption that women will work, with the downside that prices for many goods are adjusted to assume a two-worker family (families need the same number of homes, but make more money by having two workers, therefore the price is naturally bid up..) and with both parents working, the traditional work of the wife (or "home-maker") has to be purchased in the form of day-care and dining out, etc. That reduces the synergy of the home (in which traditionally the wife takes care of all of the family's non-monetary needs, while the husband brings in the cash, and between the two of them they get everything taken care of. In that case, roles and responsibilities are clearly defined, and a purely cooperative rather than competetive scenario is created). Beyond that though, we seem to have less interaction with our neighbors, and a generally more impersonal society than in the past. This is purely a matter of individual choices: the only thing about today that makes it harder to be sociable with those around you is that many of those around you will choose not to reciprocate.

I'll shut up now.

MarkD August 31, 2006 at 3:19 pm

In 1967, draftees and volunteers were dying by the thousands in Vietnam…

John Dewey August 31, 2006 at 3:29 pm

"That reduces the synergy of the home"

Daniel, I agree with almost everything you just wrote. But I think the liberation of women had some enormously positive impacts we should not ignore.

Women are no longer totally dependent on their spouses' incomes. That's allowed millions of women to get out of bad marriages. It's also provided widows with a better economic situation that what life insurance and Social Security might have provided.

The most important impact, though, has been the introduction to the workforce of a talented group of humans previously excluded. Some of our brightest executives, physicians, and engineers would not have been available to us had the norm for women continued to be the housewife role. I'm convinced our standard of living has greatly increased as a result of the liberation of women.

oldtory August 31, 2006 at 4:04 pm

I wonder, though, how we would offset new inventions against declining, or static incomes. For instance, Gillette have just introduced a new five blade razor, plus another blade on the back. That must be worth a slight reduction in the median income, to offset it all, and yet let us argue that life is still improving.We need to know the exact mathematical formula that works out the offset though.

And it stikes me that communism might well get another bye, not just at the end of it's life but it's entire term. For it is true that the Soviet Union was a hopeless economic experiment, but nevertheless during it's lifetime stuff was definitely invented. So not so bad after all, then. We could legimately say to Soviet Workers at the end of the experiment that they never had it so good, what with people continuing to invent stuff during the interim.

Marvellous.

Or else we could measure the Soviet Union against America in median income growth during it's lifetime and find it lacking, just at we could measure America's median income gowth in the last 30 years against the previous 30 years ( or any similar timeframe) and find it severely lacking.

And the difference between income growth at 1% a year, and 2.5% a year is enormous over the time periods involved.

Compound, dont you know.

So why did that happen, even if we have more razors in our blades, now – and isn't the point of this post to obstufcate this issue?

Aaron Krowne August 31, 2006 at 4:05 pm

Python:

You've made a total muddle out of my absolute/relative distinction. Let me try again; as I still think it is necessary for understanding

By an "absolute improvement" in wealth, I mean that the median wealth today is (generally) higher than it was in some arbitrary past year.
This I acknowledge and agree with: this is the effect of innovation over time.

Interestingly, this kind of wealth is nonmonetary; it manifests in things like more freedom, better health, longer lives, more free time, more gratifying entertainment, whatever.

Relative wealth, however, is measured monetarily; the actual "apparent qualities" mentioned above are only secondary, depending on how much monetary wealth is available to the individual. This is why distribution at a given point-in-time (e.g. the present) matters.

Money, in fact, is only a bookkeeping tool used by society to produce the improvement-through-time sort of wealth that comes from innovation. Whatever ongoing monetary distribution produces the most progress of this sort is the "best".

Now, you say:

>> One problem with your complaint is that our "system" which encourages development and innovation is the same "system" that tends to have rich people who did the innovating.

This is a straw man. I'm not saying a system that produces some monetary inequity is a problem per se, but that we have reached a level where the inequity is too high. The only reason this topic is being discussed is because the problem is so apparent. That itself proves the social strife is growing.

Some metrics? The US Gini index is rising. The CEO payout ratio has skyrocketed (now 400:1), and now in the US dwarfs every other country in the world, including laissez faire zones like Hong Kong (that should give free marketeers pause right there). At the same time, incidentally, studies show zero to negative correlation of CEO compensation with company performance. We've got Buffet, as one man, with a fortune so great that his gift to the Gates foundation was larger than the charitable bequests of all the Robber Barrons of the late 1800s/early 1900s combined. Generous, indeed, but why centralise all that wealth in one man when others could be making more from it? We've got a Treasury Secretary who was almost certainly not tens of thousands of times more productive than the rank and file of his own Goldman Sachs, but you sure wouldn't know it from his near-billion dollar fortune, now being escrowed tax-free. You get the picture.

Folks, I am not against the US system. At least not what the US system used to be. The country I live in today, residing in the same physical space, largely consists of looting and payouts to the chieftans of the government, banks, military-industrial complex, and anyone who will be their supplicants.

Oh, a huge non sequitur in this argument is that a transition to "knowledge work" is producing the income disarity. That doesn't square with the fact that more people are getting college/advanced educations, or the fact that this transition has been ongoing for a century and didn't start (apparently) producing an accelerating income disparity until around the mid-70s.

Which is right when the monetary system was let loose off the rails, incidentally.

python August 31, 2006 at 4:57 pm

Aaron Krowne,

I used to have a friendly argument with a guy about this very topic and he would also claim I was building straw men and then he would go on to cite the Gini index. You aren't him are you? :-)

One thing we can agree on is that you can find some number to show almost anything that you want. You've got your Gini, somebody else has their favorite stat. I always go back to 2 things in this argument: 1) longitudinal studies show that individuals in the US in the past 200 years have had a progressively higher quality of life as time passes – and just looking at medians or bottom quartiles doesn't allow you to see how individuals themselves move about. 2) Please show me a change that will improve something and not have larger adverse affects (unintentional consequences) elsewhere.

Are the rich getting richer? Yes. Are the poor getting poorer? No. Are there a bunch of "poorer" people coming to the US and another bunch of graduating High Schoolers joining the work force at low wages to consistently lower median income figures? Yes.

Of course we all have sympathies toward people who are having hard times in life. But it is my personal experience that in general there is a very strong correlation between what you put into life (effort, education, cooperation) and what you get out of it (income, friends, GameBoys).

Some people see the past 5 years as some signal that the US is getting weaker. But tell me, what country could endure a massive economic bubble and 9/11, then within 5 years have people basically forget that it all happened? I think it's a sign of strength. The OECD says that the EU countries' GDP has grown annually at 1.6% since 2000, whereas the US's has grown 2.3%. Not bad considering 9/11 was in 2001.

–Python

jag August 31, 2006 at 4:57 pm

In 1967 the best golfer couldn't make $2 million in a year (even with endorsements). Tiger Woods will make $200 million. The Rolling Stones probably made ten times the amount they earned at the peak of their popularity, in the last couple of years. Does anyone imagine the biggest TV star making anywhere near as much as Oprah makes?

Income "inequality" has grown because so many people, in so many fields, can make Carnegie like fortunes virtually overnight in today's, international, marketplace. The experience of the "Harry Potter" author is perfect; on welfare she writes an international best seller. Its made into a hit SERIES of movies (as well as merchandise). She's now a billionaire, in what? Less than ten years?

That is the essence of the vast distance between middle income and the highest incomes. Sure, everyone would like the middle to grow faster. But the reason why the upper 5% has exploded simply has to do with the internationalization of market potential combined with multiple ancillary opportunities to earn related income and fees. Have a "hit" idea or talent and you'll make a fortune beyond any 1967 conception. Is this because of anything nefarious or simply an astounding expansion of earnings opportunities in today's, global, instant "to market", economy?

Oh, and don't we forget how the whole thing can end pretty fast too, can't it? The Hunt brothers were among the richest people in the world BEFORE they "cornered" the market in silver back in the 80s. They, like M.C. Hammer are now broke, no?

Don't envy Paris Hilton. Chances are, no matter what she earns she likely won't avoid Mr. Hammer's fate unless she marries that shipping heir.

Steven Donegal August 31, 2006 at 5:17 pm

John Dewey~

No way to know about comparative job security, but my guess is that a GM worker in 1967 had quite a bit of job security.

Don Boudreaux August 31, 2006 at 5:27 pm

On the job-security issue, see this recent post on Greg Mankiw's blog:

http://gregmankiw.blogspot.com/2006/08/are-long-term-jobs-disappearing.html

It points to evidence that Americans today have just as much job security as they had back in the 1960s.

Bill August 31, 2006 at 6:03 pm

Sully,

Where are you getting your statements from? here is some conjecture from me, all of which I hold to be true:

I can think of a lot of working households with only one car, and many working households, although granted many of them are households with just one adult, with no car.

People working consider themselves deprived if they don't spend a week at the beach? That could be true, but that means a lot of people consider themselves deprived.

People used to live in small row houses? People still do. Take a look to your right and left when driving on expressways through rural areas, and also maybe get off the expressway and explore the west and south sides of many cities, as well as all of Detroit, Flint, and Pontiac, Michigan.

Are things getting better? Yes.
Are times so awesome right now that we should applaud ourselves and stop striving to improve ourselves and society? No.
Have median incomes risen all that much? No.
Are we absolutely better off? You betcha.

As for the other poster who noted that historically things go backwards, that is pretty not true. Not that the plaque, World War I, and the Depression were good, by any means. As far as the dark ages, they were called the dark ages to explain the unusual phenomenon of society backsliding, wheras before it usually at least treaded water. So lets all congratulate ourselves for not being in the middle of a pandemic, an intra-European war, and not being reuled by feudal lords and a superstitous Catholic church. (none of which, coincidentally, was the case in 1967, when median income was apparently pretty close to what it is now.)

Chuck August 31, 2006 at 9:26 pm

What a simple minded post. It is simple minded because you take one single extra statistic and add it to a single statistic and act like you've revealed ultimate truth. Recognize it for what it is: you are a True Believer, and you don't reason, you rationalize.

What's happened to consumer debt since 1967? What's happened to the number of people who had to work in a household to achieve that median income?

The real issue is that regular people aren't benefiting from productivity gains in the economy because the very very rich are becoming very very very rich.

Here's my time machine experiment. Let's go back in time and tell the younger versions of the very very very rich of today that in the future they'll only be half as rich as they'll actually become. Let's see if they just throw in the towel and walk away because they've been disincentivized.

Bill Gates: "What! I'll only make $13 billion dollars from all the stuggle and stife of starting Microsoft? Forget it, I'll just go on welfare!"

python August 31, 2006 at 10:44 pm

"What's happened to the number of people who had to work in a household to achieve that median income?"

Is this a joke? Do you know what 'median' means? How can a society struggle to reach a median? Belly laughs all around.

"The real issue is that regular people aren't benefiting from productivity gains in the economy because the very very rich are becoming very very very rich."

This may be one of the most ignorant posts I've read on the web in a long time – and that's saying something.

Of course "regular people" (whoever they are) are better off now. Only a fool or someone with an agenda wouldn't admit it.

You make a list of all the things a median income family could do/buy in 1967, and I'll make a list of we can do/buy now, and we'll compare.

Medical, transportation, communication, entertainment are all so much better now than 40 years ago that even arguing this point is utterly ridiculous.

And to all those who say that modern technology has de-humanized us, or pulled us apart, we are not required to buy iPods and Plasma TVs and cell phones – we choose to. If we had those choices in 1967 we would have been buying them then also.

Watch what you call simple minded.

JohnDewey September 1, 2006 at 6:38 am

Steven Donegal,

Perhaps I misunderstood your earlier post. You had argued that a $35K worker today would have virtually no job security. I assumed you meant because he only made $35K he had no job security.

A Fedex courier today has as much job security as blue collar workers in any industry had forty years ago. A Honda plant worker in Ohio has as much job security as any blue collar worker had forty years ago. Same for today's refinery workers in southeast Texas. Registered nurses today likely have more job security than any blue collar worker at any time. By carefully choosing industries and companies we can "prove" that jobs are either more secure or less secure than forty years ago.

phwest September 1, 2006 at 7:00 am

I find these reports ignore far to many factors to be terribly useful. By ignoring non-cash compensation, it neglects the increasing fraction of total compensation that covers benefits, the pension component of which in particular is driven by increases in life expectancy. It ignores shifts in the distribution of taxes and government spending. As others have mentioned it ignores hours worked. Non-wage income is becoming increasing important to the median household (which after all, owns it own house now). National median income ignores large variations in cost of living around the country, which distorts people's view of the information. I'm not trying to say all these issues understate true income – you can see effects that drive things both ways, But I just don't believe a straight comparision of cash wages between now and 40 years ago is worth much – too many things have changed.

Chuck September 1, 2006 at 9:34 am

me:"What's happened to the number of people who had to work in a household to achieve that median income?"

pyton:"Is this a joke? Do you know what 'median' means? How can a society struggle to reach a median? Belly laughs all around."

python – we're talking about median HOUSEHOLD income. In 1967, it was typically one worker who earned $35k, today it is typically two workers who earn $46k.

me:"The real issue is that regular people aren't benefiting from productivity gains in the economy because the very very rich are becoming very very very rich."

python:"This may be one of the most ignorant posts I've read on the web in a long time – and that's saying something."

python – poorly worded, but not ignorant. regular people aren't benefiting from productivity gains to the degree that they used to. If worker productivity goes up by 5% a year, it would seem reasonable that each worker see a 5% increase in standard of living rather than just the very rich. From 2003 to 2004, real average income for the top 1 percent of households shot up by 17 percent. For the remaining 99 percent, the average gain was under three percent.

When an economy is leaving most of it's participants behind, it can hardly be called healthy.

Of course things are better off today. That one would want to return to 1967 was "the professors" false choice, not mine. I want to make choices for the future so that when an economy grows, everyone who participates benefits.

John Dewey September 1, 2006 at 10:05 am

Chuck: "today it is typically two workers who earn $46k."

Is today's household typically two workers earning $46K? I think the median two worker household earns quite a bit more than the median of all households, which is $46K. Please remember that "all households" includes those with one fulltime wage earner, those with one parttime wage earner, and those with no wage eaners at all.

Freder Frederson September 1, 2006 at 10:11 am

A Fedex courier today has as much job security as blue collar workers in any industry had forty years ago. A Honda plant worker in Ohio has as much job security as any blue collar worker had forty years ago.

This of course is nonsense. A blue collar worker forty years ago usually had the protection of a union, a comprehensive health care plan, and a defined benefit vested pension plan. Those things, especially the pension, are becoming rarer and rarer. Companies are abandoning pension plans in droves for 401Ks or even no plan at all.

John Dewey September 1, 2006 at 10:28 am

Freder Frederson,

About my claim that Fedex and Honda employees have job security: how is that nonsense?

How much job security has the United Auto Workers provided its members since 1970?

Fedex has never laid off a U.S. employee in its 35 year history. Its couriers have never been out of work due to a union strike.

How secure is the defined benefit vested pension plan of the today's bankrupt airlines? Only as secure as the maximum allowed by the Pension Benefit Guaranty Board, which is less than what those employees were promised by those airlines.

401K's, on the other hand, are owned by employees. Only those foolish enough to invest 401K funds in company stock lose when a firm goes bankrupt.

Comprehensive health care plans are not rare at all today. My guess is that every Fortune 500 company offers one.

John Dewey September 1, 2006 at 10:31 am

Here's some median income facts from Alan Reynolds (WSJ, May 18, 2005):

"Median income for households with two full-time earners was $85,517 in 2003 compared with $15,661 for households in which nobody worked. Median income for households with one worker who worked full-time all year was $60,852, compared with $28,704 for those who worked part-time for 26 weeks or less."

It doesn't appear that the $46K median income represents a two worker family at all.

More facts from Mr. Reynolds:

"Real median income among families with two full-time workers was $85,517 in 2003 and $75,707 (in 2003 dollars) in 1987–a 13% increase. But median income among families in which neither spouse worked ($27,130 in 2003), was just 1.4% higher than in 1987."

http://tinyurl.com/p2hzt

Chuck September 1, 2006 at 10:50 am

John,

I agree that if you select the subset of two earner households, that will have a higher median.

However, when comparing 1967 wages to today and saying how much better off we are today financially, you have to consider demographic changes as well. If more households have two earners today than in 1967, then that is going to skew our median up (don't forget that the 1967 data includes two-earner families also), but not because our standard of living is better, it is because we are simply working more.

An illustration: 5 households with one worker make $1000, 2000, 3000, 4000, and 5000. The median is $3000. The $2000 household puts mom to work and now the 3 households make $1000, 3000, 4000, 4000, and 5000. The median is now $4000. So my point is valid, one has to account for number of workers in a family if one wants to say something about if we should be satisfied or not about our median household income.

My dispute isn't that we're not better off today than 1967, we are. But the post states that even though growth in household income has sucked over the last 30 years, we're better off that we were, so we should be happy. I contend that is simple minded because there are lots and lots of other variables to consider when trying to decide if we're better off or not. This "were better off" notion is little more than an appeal to nostalgia.

I googled a bit to try and find statistics on the number of earners per household and how it has changed, and I didn't find much, but I did find one site that contended that divorce and reduced marriage rates has caused the number of single earner households to *increase*. That doesn't jibe with the MSM narrative of two earners struggling to get by, but that would be one explanation for apparently lagging household income.

But my point is not to explain lagging household income, my point is to explain what a weak analysis this post is.

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