Which Is It?

by Don Boudreaux on November 26, 2007

in Current Affairs, Myths and Fallacies, Standard of Living

In his column appearing in today’s edition of the New York Times, Paul Krugman wonders why Americans in 2007 allegedly are deeply worried about the economy.  This worry, according to Krugman, is largely a result of the growing “inequality” during the presidency of G.W. Bush.  And it’s a worry that Americans of ten years ago didn’t suffer.  Here’s Krugman:

[T]he real explanation for the public’s pessimism is that whatever good economic news there is hasn’t translated into gains for most working Americans.

One way to drive this point home is to compare the situation for workers today with that in the late 1990s, when the country’s economic optimism was almost as remarkable as its pessimism today. For example, in the fall of 1998 almost two-thirds of Americans thought the economy was excellent or good.

The unemployment rate in 1998 was only slightly lower than the unemployment rate today. But for working Americans, everything else was different. Wages were rising, yet inflation was low, so the purchasing power of workers’ take-home pay was steadily improving. So, too, were job benefits, including the availability of health insurance. And homeownership was rising steadily.

It was, in other words, a time when Americans felt they were sharing in the country’s prosperity.

I did a double-take when I read Krugman’s description of the fate of workers during the late 1990s.  (Before I write another word, I acknowledge that I agree fully with Krugman that American workers back then gained quite nicely.)  I recall the late 1990s as a time when what I call “the myth of ’73” really grabbed hold of the popular mind — or at least of large segments of the punditry.  This myth is the one that says that ordinary American workers (or, depending upon the version of the myth, ordinary American households) are no better off now — or pathetically little better off now — than they were in 1973.  Regular patrons of the Cafe know that Russ and I often challenge this myth.  This “myth of ’73” continues, and Krugman is one of its most vigorous champions.

I remember also that championing this myth is no new sport for Krugman; he’s been at it for some time.  That is, he has long argued that ordinary workers are getting virtually nothing from the growing prosperity in America.

A quick Google search revealed this October 17, 2005 NYT column of his — “The Big Squeeze” — in which Krugman asserted that “it has been a generation since most American workers could count on sharing in the nation’s economic growth. America is a much richer country than it was 30 years ago, but since the early 1970’s the hourly wage of the typical worker has barely kept up with inflation.”

It is very difficult (although, I concede, not impossible) to square Krugman’s now-rosy memories of the late 1990s with this statement of just two years ago that real wages have been stagnating “since the early 1970s.”

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