We're Richer Today. Period.

by Don Boudreaux on November 4, 2007

in Data, Myths and Fallacies, Standard of Living

Tyler, Arnold, and other bloggers have mentioned this nice study by Terry Fitzgerald that appears in the Minneapolis Fed’s September 2007 issue of The Region.  (It’s the first of three articles; the remaining two articles by Fitzgerald on this topic aren’t yet published.)  In this opening number, Fitzgerald offers

a glimpse of the key findings from this article on wages.
Microeconomic statistics showing stagnation, and macroeconomic
statistics exhibiting growth, measure “wages” quite differently. When
the data are adjusted so that they more closely measure the same
conceptual object, the disparity between the microeconomic and
macroeconomic statistics largely evaporates, and I find that labor
income per hour for middle America has not stagnated. Rather, the
economic compensation for work for middle Americans has risen
significantly over the past 30 years.

This conclusion (and Fitzgerald’s analysis from which it follows) makes sense to me.  While being aware of the dangers lurking in the practice of drawing conclusions about complex reality from one’s own personal experiences, I nevertheless am certain that ordinary Americans today are immensely wealthier than they were 30 years ago.  I well remember the mid-1970s.  All telephones in middle America were attached to walls or desks; the television repairman was still necessary; going on-line was something New Yorkers did whenever they queued — which, back then, they did often in order to buy gasoline for their automobiles that broke down much more frequently than do today’s cars.  This was a time before cable t.v. was widespread, and before anyone but the super-rich could watch movies on demand in their own homes.  Prepared foods in supermarkets were tasteless and probably toxic.  And no one outside of New York City and a handful of other major metropolitan areas had any hope of browsing in a bookstore with a respectable selection of titles.

For further evidence that the 1970s was no golden age of abundance, come shop with me from a 1975 Sears catalog – and then let’s see how much these goodies will cost us.

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{ 17 comments }

Flash Gordon November 4, 2007 at 3:59 pm

I wonder if there is a parallel between the period 1870-1900 and 1970-2000? There was enormous technological advancement in both periods and economic growth at all levels, yet in both a raucous contingent developed decrying how the little guy got screwed.

In the former period it was claimed that only the so-called "robber barons" got rich and now we have the left-wing slogan holding that "the rich get richer and the poor get poorer." Both are demonstrably false yet widely believed. The former is still widely believed today, I think.

SheetWise November 4, 2007 at 4:53 pm

I was helping my parents move this past weekend, and was able to "reclaim" some of the treasures from my past. The 100 watt Pioneer receiver I paid $350 for in 1972 (under $200 in todays dollars, better quality and more features). JBL speakers, $300 each in '72. Baseball glove, $40 in 1966. Schwinn 5 speed stick-shift Stingray — $100 in 1966 (one speed with coaster brakes).

I then went a bought my youngest daughter a new bike at WalMart — $65 for an 18 speed mountain bike with hand brakes, shock absorbers, and even a water bottle. It probably even has a mounting for her cell phone and $99 MP3 player — I didn't look.

On the other hand — when I went shopping Friday, I noticed Campbells soup is now $1.69 a can. I can still remember paying $.10 when I was a kid. After moving, I ordered pizza for the four of us — 2 twelve inch pizzas cost $39, and I had to go pick them up (they were really good pizzas). I still can't find a decent sandwich in town for under $8, so I make my own.

Labor is expensive, but many of the things I used to pay for I now do myself. Almost all tools are literally cheaper today then they were 30 years ago — and they're better. As a hobbyist, the set of tools I have in my garage would put to shame the workshop of a professional mechanic 30 years ago — and I paid one-tenth what he would have paid (if they existed), and that's in inflated dollars.

Life is good. But you can make it bad if you really want to. It seems to me that will never change.

Student November 4, 2007 at 5:30 pm

Don,

The fact that you and Russ bring this issue up so often makes me feel like you think that serious people disagree with the proposition that absolute living standards have risen over the past 30 years.

But I just can't think of any serious person that would actually object to that statement. Even Paul Krugman's latest book focuses on the middle class falling behind in RELATIVE terms. You may believe that relative income carries no moral weight, but that is a different argument all togther.

If you are not addressing these posts to serious individuals like Krugman, and are instead hoping to change the minds of the Dennis Kucinichs of the world, then I should inform you that they probably don't read your read blog. But I suppose there's also a strong change you both enjoy preaching to the choir. *shrug* If you don't, please come up with new material to harp on.

jsalvati November 4, 2007 at 8:30 pm

Is that median wage that Tyler cites compensation or wages? If it's wages that 30% growth over 30 years actually seems pretty low (that's .82%/year)

muirgeo November 4, 2007 at 9:29 pm

Again what's the point? To compare our lives to the 70's and claim "we're richer" means what? Is this some sort of tribute to regulated markets? It can't be a tribute to free markets…we don't have those. How does the comparison hold up for communist China? Can't they say the same thing? How about Mexicans? Cubans? Chileans?

It's a bogus comparison. My point would be that in the 70's relative to the rest of the world we were the richest nation. Our middle class was the strongest. Now many nations have far passed us up and our middle class is losing ground in comparison to the middle class of other developed nations.

The trends around the world suggest that indeed capitalism works but well regulated capitalism works better then deregulated capitalism.

Wes Johnson November 4, 2007 at 10:52 pm

Muirgeo, again, I hardly know where to start. I'll just address one statement I believe you are wrong about.

"in the 70's relative to the rest of the world we were the richest nation. Our middle class was the strongest. Now many nations have far passed us up and our middle class is losing ground in comparison to the middle class of other developed nations."

Why is this bad? We can't lord it over other countries the way we used to? Most countries in the world, like the UK, Germany, and especially "Communist" China vastly deregulated their economies over the past thirty years and benefited tremendously. I am happy for them, even if it means that we are not as much richer than them as we used to be.

muirgeo November 5, 2007 at 12:20 am

Wes,

Let me try this. Hey we are all richer then in the 70's that must be because we have a progressive tax structure….right? So why are you all upset with progressive taxation…we're all richer.

SaulOhio November 5, 2007 at 7:20 am

We are richer because capitalists find ways to increase the productivity of labor. They create new tools and machines, reorganize workers to further the division of labor, and invest more capital to take advantage of economies of scale. Government regulation and progressive taxation do nothing to promote this process. In fact, they retard it.

muirgeo November 5, 2007 at 8:06 am

Government regulation and progressive taxation do nothing to promote this process. In fact, they retard it.

Posted by: SaulOhio

You saying this over and over simply does not make it so. Government regulation and taxation DO contribute to a successful economy.

Again my point…in the 70's we were richer relative to others and regulation and taxation were NOT less. ON top of that wealth was shared more equally. And YES that does matter because its a fact that wealth distribution IS somewhat policy driven and since its been proven in our past and Europe's present that economies can do as good or even better with rules that create greater sharing of the productivity then why not pursue those rules?

Saul why do guys like you fret solely about progressive tax and care little about the middle class and how the rules are set up that determines how the pie is sliced. You make NO sense because you're so stuck to an ideology that holds some weird religious belief that in the free hand….yes the Hand…..there's no stupid Hand already. Smart people plan their future and don't believe in silly things like letting The Hand "do the job".

The hand didn't get us here planning did. Oh I said planning…ewe that's such a bad word…do you all ever realize how ridiculous you can be? You're like stubborn little 2 year olds. It's my money..it's ALL my money …I made it all by myself and I don't want to share with anyone….

Saul you ARE NOT an independent being. You, like Ayn was, are completely interdependent on the society around you (society, another bad word right?)
Again your statement above is completely false.

tiger November 5, 2007 at 9:09 am

"We're Richer Today. Period."

AMEN

wes johnson November 5, 2007 at 9:52 am

Muirego, I think you are really a Boudreaux sock puppet, setting up easy arguments for his readers to refute, just to get some interesting commentary going. If, so, I'll play along for a while.

"in the 70's we were richer relative to others and regulation and taxation were NOT less."

Plain and simply untrue, as you probably know anyway.

In the seventies, we had more regulation than now, but we still had relatively less than the rest of the world, which was why we were relatively wealthier.

Are you "forgetting" that for example, the UK was an almost completely planned economy int he 70s, with govt's ownership of major industries and massive full employment programs? And that it was an economic disaster. Mosat of the planned economy was jettisoned in the late seventies and early eighties, and the country is thriving as a result.

Mark November 5, 2007 at 10:53 am

Muirgeo,
Maybe you should read Adam Smith before you talk about "the free hand" and make a fool out of yourself. "Letting the hand do the job" has nothing to do with not planning for the future.

John S. November 5, 2007 at 2:26 pm

Murigeo:

Talk to the hand.

SheetWise November 5, 2007 at 5:24 pm

… why do guys like you fret solely about progressive tax and care little about the middle class and how the rules are set up that determines how the pie is sliced.

The rules regarding how the pie is sliced are, those who bake the most pies get the biggest piece. What's wrong with that rule, as long as everyone gets a piece of the pie they didn't bake?

vidyohs November 6, 2007 at 10:44 am

Re: muirduck,
One can read anything he/she /it writes, close you eyes and stab your screen and it is guaranteed that where ever your fingertip hits the words will be utter gobbledegook.

"Smart people plan their future and don't believe in silly things like letting The Hand "do the job"."
Posted by: muirgeo | Nov 5, 2007 8:06:15 AM

The girl/child/village idiot has not a glimmer of understanding that smart people planning their future, which must include their participation in markets, is evidence of "the hand" working

Progressive taxation: When I filled out my first 1040 I saw the tax tables progressions run clean across the page and continued on another page…..there were that many progressions. The top of course being 90% on those "rich".

Check out the tax tables today, and you see six progressions.

Thanks to Reagan's leadership those progressions were reduced and the top percentage was brought down to about 35%.

More money in the individual's pocket means more to invest. More to invest means more expansion of and vitality in the markets. More markets and market vitality means more income back to all the people who particiapte. More income back to the indidivudal means more money to invest and around it goes again.

In every way shape and form government interference with the market in the form of regulation and taxation means less for everyone because it kills expansion and kills the vitality of the markets.

Only a socialist evangelical can be stupid enough to believe that one can still get golden eggs from the goose that isn't fed, not only continue to get eggs but more of them, the more you starve the goose!

But, muirduck does provide comic relief in the otherwise repetitive scape that "student" mentioned above.

Where does muirduck get her/his/its knowledge of the middle class? Lord only knows. This nation from the beginning has always had a middle class, from the colonial days right through to today. And, the middle class has always been very substantial. It isn't going away, it is growing. Street evidence tells you that, just get out and move through a community or city and see how much disposable income people have today compared to what they had fifty years ago, or even thirtyfive years ago.

skh.pcola November 7, 2007 at 2:10 pm

I see that muirduck is still stuck on s/he/it's favorite "WE DON'T HAVE FREE MARKETS!!11!" meme. Broken record playing the same 3 seconds of pap, wash, rinse, repeat. *sigh*

vidyohs November 7, 2007 at 8:21 pm

Sorry to say it, sir, but actually, she/he/it is correct in that statement, "we don't have free markets", because in no shape or form do we. Our markets are regulated in some of the most ridiculous fashions one can imagine.

However, sir, what muirduck takes as a tactic is that since we don't have free markets we should all stop yearning, hoping, and working for them, and just settle for the socialist crap that we do have.

In blunt words of the street, muirduck's position is that since we up to our chins in crap we should just accept it and stop trying to pump the cesspool. We are equally buried in crap and that makes her/him/it happy.

Needless to say that is why I label him as the village idiot.

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