The Great Stagnation?

by Russ Roberts on October 3, 2011

in Standard of Living

Tyler Cowen, my colleague at George Mason is a wonderful thinker and a superb communicator of ideas. But I have not been convinced by his argument in The Great Stagnation that living standards for the average American have either stagnated or grown very slowly since the early 1970′s relative to the earlier part of the 20th century because we have picked all the low-hanging fruit–the best ideas have been exploited and the new ones are less transforming.

The term “stagnation” actually means static, stuck in a rut, not progressing and so on. Tyler often concedes that there has been growth in living standards since say, 1973, but that the rate of growth has slowed. This is an easier thesis to defend. But recently Tyler invoked the lack of change in median income since 1973 has evidence for his thesis. I challenged him in this post to explain what he means by that claim:


Does it mean that the person who was the median or family in 1973 continued onward at a constant standard of living without any gains despite enormous gains in per capita income? This is the way the story is usually told–the rich (as if they were a fixed group of individuals, an exclusive club) somehow managed to gain all of the gains of the intervening 38 years for themselves. This is clearly not true. If you look at any data that follows the same people over time, you will see that their lives improve as they get older and that they are typically better off than their parents. Better off in absolute terms, not relative ones. Some people move up relative to others. Some move down. But the entire distribution moves up.

Or does it mean that the typical family or individual in America today has the same standard of living as people back in 1973? Is the median a surrogate for the middle class? This is a different claim from the first one. The problem with this claim is the types of people in the middle in 1973 are different from the types of people now. There was a major demographic change in the 1970′s. The divorce rate exploded. Suddenly (and it was pretty suddenly) new households were created as couples divorced. The rate of household creation grew faster than population.

In the rest of that post, I argue that the rise in the divorce rate changes the number of families, particularly below the median, lowering the measured median and distorting the measure of progress. I also mentioned that inflation is overstated (thereby understating the rise in living standards) and I closed with a discussion of the returns to education.

Tyler has responded at some length, which I much appreciate. I will quote the middle of his response verbatim and comment along the way:

After introducing my discussion Tyler makes the following arguments:

1. I discuss household size in the footnotes to TGS.  Adjusting for it doesn’t make a huge difference and furthermore the rapid-median-income-growth 1960s were a time when household size was falling quite rapidly.  I blogged some of the details here.

The size of the households isn’t the issue. It’s the growth in the number of households and the kind of households they are. Yes, households are smaller than they were in 1973, so there is larger per-capita income within the household. That is the effect that is small. But the real issue is the growth in the number of households relative to population that pushes the median down (Taken from the decennial Census here):






The divorce rate exploded in the 1970′s. That’s one reason that 1973 (or sometimes 1978) looks so good in the data. After that time, there was a huge increase in the number of households headed by single adults. Many of the female heads of household were not expecting to work. They now did. They didn’t earn as much as the median and lowered the measured median income. (In this post I show that the same thing is going on in Canada.)

2. Immigration doesn’t seem to shift the median enough to create an illusion of stagnation, I blogged the numbers and details here.

I think Tyler is probably right. It’s a factor but not anything close to decisive.

3. CPI bias has likely fallen over time, which will make the true median income growth differential over time even greater than the numbers indicate.  Furthermore CPI measures are getting better over time and doing more to adjust for quality biases; that’s further bad news.  Most of all, a lot of CPI bias is offset by ‘wasteful spending on health care, education, defense, and government yet all counted in gdp” bias.

I have no idea if the bias has fallen over time. The estimates of Mark Bils are quite substantial. Here is the conclusion from his paper on quality changes and price measurement:

My results suggest that quality growth for durables has been understated by almost 2 percent per year since 1988.  With this addition, quality for durables, even excluding computers, increased by 2.5 percent per year from model changes, with higher rates of 3.3 percent for vehicles and 4.4 percent for consumer electronics.  To judge overall quality growth for durables it is important to also include the impact of consumers moving to better products, e.g., from a midsize to luxury sedan or from conventional to plasma television.  The analysis of price changes across BLS sample rotations suggests this contributes another 2.3 percent annually to quality.  Added to the estimated 2.5 percent from model changes, this yields overall quality growth for durables, excluding computers, of nearly 5 percent per year.

These are huge differences. Yes, the BLS has tried to correct its numbers for quality changes. But Bils’s analysis (and he is not alone) using data from 1988–2006 suggests they have not been very successful. How strange is it that the pace of improvement in the products we enjoy makes it harder to measure the price level, which in turn makes a time of growth and innovation look like a time of stagnation? (Check out the latest EconTalk with Bruce Meyer for more on how the overstatement of inflation has led to an understatement in the growth of the middle class’s standard of living.)

4. Russ doesn’t mention the internet but it’s getting more monetized — and thus more counted in gdp — all the time.  The consumer surplus of the unpriced parts, once you eliminate double-counting, probably isn’t much more than two percent of income.  Not “two percent growth a year” but two percent period.  I could see it being three or four percent, for sure, but that still won’t overturn the basic slowdown.

Could be. I agree that the internet is being monetized. But the consumer surplus remains large.

5. Rising household debt and abysmal job creation since 2000 suggest to me that the quantity data are in line with the incomes data.  Around 1999-2000, stagnation suddenly becomes much worse.  The only good years since then are the bubble years, whereas across 1973-1998 there are some truly good economic years (partially offset by some very bad ones).

Certainly true.

6. 1995-1998 are a poster child for what a non-stagnating period should look like in terms of wages and median income.  Lots and lots of years since 1973 don’t look anything like that period.  When the growth is real, it shows up in all of the standard numbers and no mystery variables or invocations of biased measurements are needed.  I find this comparison illuminating.

I don’t get this. Tyler seems to be saying that when times are good (such as the 1990′s) we shouldn’t have to worry about mismeasuring inflation or distortions from family size. The gains should be obvious. So they’re not. When inflation is badly mismeasured or demographics are changing rapidly, it’s hard to assess progress by the median.

7. I discuss benefits in the book, for the time being I’ll note a) cradle-to-grave private sector jobs, with union-based pension benefits are rarer than they used to be, b) fewer people get health care through their jobs than used to be the case, c) most of the benefits are health insurance but don’t fixate on the size of the expenditure, rather consider that health progress has been slowing down, and d) last year health insurance costs rose by nine percent and no way should that be interpreted as equivalent to an increase in real income, rather it is a sign of system failure.  That all said, the text of TGS still leaves room open for a world where virtually all of the benefits of economic growth accrue to the elderly.  Such a world still will have a lot of TGS properties.

I don’t have much to say on this issue other than to note that longevity is not the only measure of health and health insurance is not the only measure of health care. I certainly agree with Tyler that by subsidizing health care in all kinds of ways, we have wasted resources.

8. Consumption data often selectively focus on the commodities which have become much cheaper (e.g., flat-screen TVs) and ignore the growth in debt, which now must be paid back.

True. We’ll have to see what happens when people save more to get back to a sustainable path of consumption.

9. The 2000-2011 case for stagnation is stronger and clearer than the 1973-2011 and there also has been more growth along the latter and longer period of time, plus numbers are easier to interpret across shorter time stretches.  I will ask Russ if he at least can buy into TGS for the last eleven to twelve years.

Yes, numbers are easier to interpret over shorter periods. When you pick the end of a boom as your start date (2000) and the near-trough of the worst recession since the Great Depression, incomes will fall for many people. That is not The Great Stagnation.

I don’t see panel data as offering a significantly different story from the above but if Russ tosses me a specific citation I will consider it.

Panel data that tell a different story? Go here for one example: when you follow the same people over time, you see that since the late 1970′s, children grow up to have a much higher standard of living than their parents, (even with lousy measures of inflation) and the biggest gains are for the poorest people. This is inconsistent with the Great Stagnation.

The other challenge to the Great Stagnation is that per-capita GDP is way up since the 1970′s. The left argues that the rich got all the gains. The mechanisms they propose to explain this (lower rates of unionization, slow growth in the nominal minimum wage) are not convincing. Unionization rates have been falling steadily since the 1950′s and the minimum wage never covered enough people to make it important. How does the left (or Tyler) then explain this disconnect between national growth and the effect on the middle? They don’t have a convincing story.

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Brian October 3, 2011 at 3:09 pm

I stopped reading Cowen when I his writing had moved from the realm of economic thought to that of economic policy. I don’t want to read policy, because all these so-called economists have the same policy prescriptions: more government by expert economists.

It’s too bad middle class Americans are all stuck with the same iPads, smartphones, high speed Internet, ebooks, in-car GPS/satellite radio, and LCD televisions that they had back in 1973.

Greg Webb October 3, 2011 at 3:43 pm


SweetLiberty October 3, 2011 at 3:52 pm

What today could be measured as a higher standard of living than playing Pong while listening to an 8-track tape of Captain & Tennille singing Muskrat Love? (On second thought, never mind.)

Chucklehead October 4, 2011 at 1:32 am

Best comment ever, and a great illustration of subjective value!

M.R. Orlowski October 3, 2011 at 3:57 pm

Let’s not forget to mention two-day free shipping that provides if you got Amazon student(which is free to all college students for the first year if you sign up), or you just sign up for Amazon Prime. Let’s also not forget our ability to purchase single songs and download them seemingly in an instant, our ipods, and our relatively cheaper amount of…almost everything (at least as Don and Steve Horwitz have persuasively argued).

kyle8 October 3, 2011 at 5:31 pm

no lie! I just got tee’d off that there were no rose tinted sunglasses in any store near me. So I ordered five pair off of Amazon. Damn, the convenience!

And only old people like me will appreciate it. the young people will take it for granted, little knowing that there were a whole horde of government types who would have liked to kill the internet in it’s infancy, or tax it out of existence!

SweetLiberty October 3, 2011 at 5:47 pm

I don’t think many politicians have completely given up on the idea of taxing the internet.

Methinks1776 October 3, 2011 at 5:53 pm

Like all vampires, politicians are always looking for new and creative ways to suck you dry.

vikingvista October 4, 2011 at 1:12 am

Yep. Politicians suck.

Brian October 4, 2011 at 11:54 am

Maybe Tyler could get rid of the Kindle and audio book versions of The Great Stagnation, take the hardcover version down from all the online retailers, and sell it the way books were sold in 1973 to prove his point about how there’s just no more low-lying fruit in the world of innovation.

He could even move his Marginal Revolution blog over to the local BBS, so people can dial-in and read his opinions at 1200 baud, just like in 1973.

Now that’s how you promote a book about stagnation.

Henri Hein October 3, 2011 at 4:00 pm

Brian, I stopped reading him as well. It is interesting to see your reasoning. My problem is that after a while, I felt he was more of a fox than a hedgehog. The fox always impresses at first, but less so over time.

Chucklehead October 4, 2011 at 1:33 am

When did Mercatus get taken over by Harvard progressives like Cowen and Goldstone?

muirgeo October 4, 2011 at 11:58 am

Here we see what happens when some one questions the group think… strays from the dogma… ewe it gets ugly quick. Professor Cowen better fall back in line… or be prepared to suffer the fate of a heratic!

Darren October 4, 2011 at 2:27 pm

I think what’s important is to first identify those items that would be considered ‘essential’ to a basic standard of living (food, a home, a car, clothing, etc.). Computers and electronics are luxuries. Then compare what could be bought in 1973 with a median income with what can be bought today with a median income. The same argument should be sustainable focusing only on ‘necessities’ (however you define this).

Darren October 4, 2011 at 2:30 pm

I should have said ‘transportation’ rather than ‘car’ to be more general.

Darren October 4, 2011 at 2:39 pm

Also, when I refer to ‘computers and electronics’ as luxuries, I mean personal computers and electronics. Computerization has certainly increased productivity and should have increased wealth for everyone, at least indirectly. Still, this should be reflected in increases in the standard of living over time. My main point is that any argument that the standard of living has increased over time should be able to focus solely on what are generally considered ‘necessary’ (the meaning of which changes) to a basic standard of living .

Phil Goetz October 8, 2011 at 5:27 pm

Yeah, the invention of iPads, smartphones, internet, ebooks, GPS, and LCD TV over a period of 38 years sure beats the invention of air travel, antibiotics, space travel, birth control, the polio vaccine, antidepressants, heart surgery, brain scans, nuclear power, the transistor, lasers, television, microwave ovens, portable radios, weather satellites, computers, the Internet, and rock and roll!

Chris October 3, 2011 at 3:18 pm

How do retirement rates affect median incomes? The number of people (perhaps even the percentage?) that are ‘unemployed’ due to retirement is rising compared to the 60s & 70s.

kebko October 3, 2011 at 3:23 pm

I’ve mentioned this before in the comments, so maybe I’m becoming an annoying broken record, but statistically, a society with broad-based wealth will LOOK more inequitable, because individuals will be free to have more non-productive time, and they will choose to take some of that time in lumps. So, the median income earner (over a lifetime) now spends several years in school and then retires earlier. This has the effect of lowering the statistical median income, but it is the result of higher lifetime expected earnings.

SweetLiberty October 3, 2011 at 3:46 pm

Interesting. Is there any data you can point to supporting that people work fewer hours per year now than in the ’70′s? I would think fewer women worked back then, so per capita hours worked would be more today, but that’s just a guess.

Don Boudreaux October 3, 2011 at 3:50 pm

Michael Cox and Richard Alm – in their 1999 book Myths of Rich & Poor present data to this effect (although, of course, only up to through the mid-1990s).

SweetLiberty October 3, 2011 at 4:35 pm

Hmm. I found a paper by Rones, Ilg, and Gardner that compares hours worked from 1976 to 1993. According to these authors, there was actually some increase in work hours over this period (more so for women than men). I wonder why the difference?

Average annual work hours: (Men / Women)
1976 …………………………… 1,805 1,293
1993 …………………………… 1,905 1,526
1976–93 change ……………….. +100 +233
Age-adjusted change ….. +62 +193

Economiser October 3, 2011 at 6:27 pm

Kebko’s argument isn’t based on the mean hours worked but on the distribution based on age.

To take a simplistic example, imagine one society where the median person is in the workforce from age 18 – age 65, then dies at age 68 (similar to 1950s America). This person will have 21 years of no income and 47 years of income.

Imagine another society where the median person is in the workforce from age 22 – age 65, then dies at age 78 (similar to America today). This person will have 35 years of no income and only 43 years of income.

The second society is so rich that it enjoys higher wages, more time off, and a longer median lifespan. However, taking a snapshot at any given point in time will make Society 2 look much more unequal. This is not inconsistent with the annual work hours data you posted.

SweetLiberty October 3, 2011 at 9:30 pm

Yeah, that makes sense.

kebko October 3, 2011 at 4:40 pm

Sorry, I don’t have a link. I think leisure time data actually shows high income people working more and low income people working less. But, my point isn’t so much that a head of household who is working will work fewer hours than before. It’s that there are many people today who don’t have significant income until their mid-20′s, or who only earn low wages from their mid-50′s on, and in the in-between period, their wages are higher. This would look, on paper, like a highly inequitable society. I’m not in my 50′s yet, but my earnings history looks like the worst kind of 3rd world mixture of haves & have nots.

Methinks1776 October 3, 2011 at 5:11 pm

I would think fewer women worked back then,

There is no job harder than raising your children, gentlemen. Women worked 24/7 before they had “jobs”. As far as I (and a lot of my female friends) are concerned, work that doesn’t include wiping up poop, vomit, reasoning with 2 year olds and quelling temper tantrums all day is a vacation. No wonder so many 50′s house fraus were on speed.

Before women found paying jobs, their lives were hardly leisurely. That’s something that should be considered when we talk about “hours worked”.

SweetLiberty October 3, 2011 at 5:42 pm

No offense intended. I greatly appreciate the enormous effort that goes into household maintenance and child rearing – by women and men who do it. I will rephrase to say, I would think fewer women found paying jobs back then.

Methinks1776 October 3, 2011 at 5:52 pm

Oh, no offense taken.

I just notice that a lot of people moan about the hours women are now paid to work to support the family. There’s an underlying assumption that the alternative was leisure. We work because we get something for it. Time away from the snot and diapers, some measure of economic independence and a higher standard of living. Living like a 50′s housewife is cheap (except the meth to get through the day) and requires only a single earner, but you’re still working.

vikingvista October 3, 2011 at 6:22 pm

“work that doesn’t include wiping up poop, vomit, reasoning with 2 year olds and quelling temper tantrums all day is a vacation.”

So, you would consider responding to muirgeo to be work?

Economiser October 3, 2011 at 6:29 pm


Methinks1776 October 3, 2011 at 7:23 pm

I’ll answer that as soon as I stop laughing.

Price B October 3, 2011 at 10:02 pm

Congratulations, you’ve beaten the internet.

John October 3, 2011 at 8:37 pm

Ok, so women have shifted away from unpaid work at home towards paid work outside the home. What happened to all the services that they had produced while working at home? There has been extensive substitution towards purchased services, in the form of day care, takeout food, and so on. The consumer packaged goods industry has successfully profited from the trend.
But I would find it hard to argue that this hasn’t been accompanied by some significant declines in quality of life, family cohesion, dare I say happiness?

Methinks1776 October 3, 2011 at 9:10 pm

My mother was a graduate student when my brother and I were born. After obtaining all of her degrees, she worked full time her entire life (she’s still working). I never noticed a decline in the quality of life resulting from my mother’s employment. In fact, unlike my friends’ mothers, she had neither time nor energy to snoop through my belongings or whine about an empty nest. Although, she is well traveled, always interesting. has interesting friends and I learned things from her other than how to cook pasta and mop a floor. No housewife could have ever brought such colour into the lives of her children.

My quality of life was improved because my mother was a highly educated professional and it would have been improved if she worked in any capacity. Why do you assume that women must be tethered to the daily drudgery of menial household labour for the family to be cohesive and happy and what makes you think that forcing motivated, intelligent women into the position of permanent maid and short order cook makes them happy?

SweetLiberty October 3, 2011 at 9:36 pm

… what makes you think that forcing motivated, intelligent women into the position of permanent maid and short order cook makes them happy?

I know guys who would respond: Make the woman happy? I don’t understand the question.

Methinks1776 October 3, 2011 at 9:50 pm

Ha ha ha!!

muirgeo October 3, 2011 at 3:49 pm

“In the rest of that post, I argue that the rise in the divorce rate changes the number of families, particularly below the median, lowering the measured median and distorting the measure of progress.”

You keep bringing this up but divorce rate has not changed much over the last decade or two. Further, the majority of families over this same time frame are far more likely to need 2 incomes to get to that median and you seem to leave that out even though it is likely a bigger factor.

Here with the income data like the climate change debate/data there is a motivation for free marketers to question the data. I wonder what it means if the data IS true.

The Other Tim October 3, 2011 at 5:56 pm

Heaven forbid people be allowed to question data if it might be true. Best to get a panel of central planners together to decide which data is true, and forbid all dissent from the orthodoxy.

Fred October 3, 2011 at 3:56 pm

I was born in 1973 and in my lifetime I have seen standards of living greatly improve for most everyone.
When I was a kid frozen food was gross. Now look at the frozen food aisle.
Video games didn’t exist until I was a teenager. Now the average person uses their video game console to order movies that they watch on their digital flat panel television.
I remember when a bicycle with shocks was a novelty. Now it’s pretty much standard.

One can use statistics to argue anything. I’ll go with what I see with my own eyes.

Ken October 3, 2011 at 4:42 pm


I think it’s a mistake to see your own living standards improve. They should. Your life as a 38 year old should be better than they were at 21. You’ve had 17 more years to work and accumulate things.

The better metric is to compare yourself to your parents or your friends’ parents when they were 38. It’s clear that I, and my siblings have a substantially higher standard of living that our parents when they were similarly aged. It’s clear that we, along with my friends, have a higher standard of living than all of our parents when they were similarly aged. I’m assuming the same is true for you and your parents.

Of all the people I know, only a handful or worse off than their parents were. But their lives are still fine and all but one are because of the choice to work less and play more.


PS: I’ll try not to let you down and get the last word in this thread. After all I wouldn’t want you to accuse someone of being pathological, then it turn out that you’re wrong.

Josh S October 3, 2011 at 9:35 pm

I’m a grad student, and I live like a king compared to how my adviser lived when he was my age.

Fred October 3, 2011 at 10:13 pm

Perhaps you should reread the first sentence of my post. There’s the word “everyone” in there.

Maybe when I wrote “when I was a kid” you failed to connect that to “when my parents were my age”.

Perhaps you should think a little before playing the part of the arrogant douche bag.

Unless you’re not playing a part.

Ak Mike October 3, 2011 at 10:11 pm

Fred – you are answering the wrong question. The issue is not whether there has been improvement since 1973. The issue is how that improvement compares with the improvement from 1935 – 1973, the prior 38 year period. And there is no doubt that the earlier period saw much greater improvement. Not only was there vastly greater technological and scientific progress, but the lives of ordinary people were more profoundly affected by those changes (and that’s quite apart from the fact that the early period begins during the Great Depression).

Fred October 3, 2011 at 10:14 pm

Good point.

Eric Hammer October 4, 2011 at 7:24 pm

I don’t know that I agree with that. The advances in chemicals, medicine, transport and communication that happened in the last 40 years compared to the 40 before do not seem obviously a lesser improvement. Consider for example how many people are employed doing creative work, or at least work in an air conditioned office, compared to before ’73.

I would probably argue that many of the changes in standard of living for us have been away from stuff and more towards comfort and interest. That is to say, away from things that are easily measured in dollars and towards those more difficult to quantify. I would much rather work 40-50 hours a week at my office job I often do from home rather than 40-50 hours a week on an assembly line or some other hot, sweaty labor. I might pay for that preference in some way, but since it isn’t directly in cash, it isn’t too obvious.

Henri Hein October 3, 2011 at 4:04 pm

I had a recent blog post related to this (“Inflation, Schminflation”), inspired by some of your other posts on the issue. I spent some time looking at census and bls data over the period. All the numbers agreed: we eat out more, we travel more, we ski more, etc, etc. “The Great Stagnation” is the Great Lie.

grinless October 3, 2011 at 4:07 pm

I was born in 1974 and I fully agree with Fred.

No amount of statistical “artistry” will make me believe standards of living have not significantly increased since the 70s.

SweetLiberty October 3, 2011 at 4:08 pm

Comparative living standards is one of those questions that, given the myriad variables involved, seems virtually impossible to truly answer.

For example, I would also think age demographics would have a lot to do with determining comparable living standards between two disparate decades. What percentage of seniors were supported by pensions, health care (government and private), welfare, etc., which constitutes higher net consumption when comparing the 70′s to today?

John Dewey October 3, 2011 at 4:33 pm

“Many of the female heads of household were not expecting to work. They now did. They didn’t earn as much as the median and lowered the measured median income.”

Would you consider changing slightly the wording of the first sentence?

“Many of the female heads of households were not expecting to be paid for their work.

Housekeeping, food preparation, and child-rearing are real work. The big shift I’ve seen is that those tasks have been moved from the unpaid sector to the paid sector at the same time that those single-parent households were created. We imported millions of workers over this time period – many legal and many not – who now perform those previously unpaid tasks. Millions of immigrant households composed of low-skilled workers were simply not in the population mix three and four decades ago.

John Q Liberty October 3, 2011 at 4:34 pm

As SweetLiberty suggested, “this is one of those questions that…seems virtually impossible to truly answer.”

First of all, any adjustment for inflation is, at best, an approximation. Compounding the errors in inflation adjustments over decades makes those long term comparisons highly suspect.

Second, even if you could calculate that adjustment perfectly, what yardstick do you use to compare an ipod to that 8-track? Or, my 1998 Honda to the 1977 Ford Fairmont (which I’m old enough to have had to drive as a rental car – “Fix Or Repair Daily, indeed!)

My observations aren’t original. They’ve appeared in Cafe Hayek before. Same goes for the following:

Compare what’s in the average household of today to the average household of 1973. Today’s better, hands down.

John Dewey October 3, 2011 at 4:50 pm

“I don’t have much to say on this issue other than to note that longevity is not the only measure of health and health insurance is not the only measure of health care.”

Longevity is a worthless measure of health care effectiveness. Life expectancy in developed nations is much more influenced by lifestyle and genetics than by health care expenditures.

What have we been spending so much money on if not to promote longevity? We’ve been spending to imporve quality of life. We developed surgical techniques which have cut recovery times to a fraction of what they were four decades ago. We invented ways to allow humans deaf since birth to hear for the first time. We learned how to re-attach severed limbs. We augmented breasts and reinserted scalp hair and lifted faces and realigned teeth. One major reason America spends so much for “health” care is because we have so much to spend. Contrary to Tyler’s assertion that our increased health care expenditures is a sign of failure, the U.S. continues to spend health care money on exactly what it wishes to spend on: making living more comfortable and people more attractive.

Darren October 4, 2011 at 2:46 pm

We augmented breasts

It’s good to know we have our priorities straight. :)

vikingvista October 3, 2011 at 5:08 pm

“I also mentioned that inflation is overstated”

What do you mean by “inflation”? Are you saying its magnitude, or its effects on living standards, is overstated?

kyle8 October 3, 2011 at 5:27 pm

I agree to some extent with Cowen, but not that we have picked all of the low hanging fruit. I believe the culprit, as usual, is government. Too much goddamn government involvement, holding back individuals and companies.

I also want to say that the USA has not declined in absolute terms, we have declined in relative terms. As other nations embraced freedom and free markets they have also grown and prospered. Their prosperity does not diminish ours, it enhances it.

Methinks1776 October 3, 2011 at 5:41 pm

I think back to my expensive pink polyester leisure suit that melted when someone accidentally dropped cigarette ash on it, my 1970 chevy malibu with no A/C, no rearview camera or navigation system, the joy of finally saving enough money for that breakthrough in technology called a walkman and dragging myself to the library to do research that I typed on a fancy electric typewriter, hunting for nasty pay-phones to call home when I was out (gross and so basic they didn’t even have “Angry Bird” on them!) and I realize we haven’t declined in any terms.

We haven’t stagnated. It’s just so easy to forget what a joy it is that you don’t have to look like a polyester Miss Piggy in danger of having her clothes melted permanently to her skin!

muirgeo October 4, 2011 at 12:03 pm

Wow the upper 1% hasn’t declined in “any terms”… LOL.. Grrrreeeeatttt point.

Methinks1776 October 4, 2011 at 8:34 pm

My second hand, polyester weave pink leisure suit’s IQ was at least 100 points higher than yours. Maybe 140. I’m pretty sure your IQ is negative.

brotio October 4, 2011 at 11:53 pm

Yasafi’s IQ only reaches triple-digits if you measure to the one-thousandth.

Chucklehead October 4, 2011 at 1:49 am

“Too much goddamn government involvement, holding back individuals and companies.”
“And one of the consequences of regulation is regulation prohibits real innovation, because the regulation essentially defines a path to follow—which by definition has a bias to the current outcome, because it’s a path for the current outcome.”-Eric Schmidt, executive chairman of Google.

Methinks1776 October 4, 2011 at 9:11 am

Regulation is designed to make markets permanently inefficient. The more regulation, the less efficient the market. Those inefficiencies are then pointed to as a flaw in the market which requires more regulation and other government “solutions”. It’s all very handy for politicians.

muirgeo October 4, 2011 at 12:05 pm

Yes and that explains why the last time I asked you and everyone else here to point out a specific regulation that has made things so bad there was no reply… just chirping crickets.

Fred October 4, 2011 at 12:31 pm

Something about being unable to see the forest…

muirgeo October 4, 2011 at 8:22 pm

Something about …just making sh*t up…..

Methinks1776 October 4, 2011 at 8:29 pm

God, you’re a rare imbecile. I told you reg sho rule 204, for a start. You’re just too stupid to read, f%#ing moron.

Now, go look it up and write a report about its effects by the end of the week.

Dan H October 4, 2011 at 9:09 pm

How about CAFE standards? Businesses are forced to make products nobody wants, and then they don’t profit, and then we bail them out. Wow! How awesome is that!

Jim October 3, 2011 at 5:39 pm

There is a lot of noise in the data, but I challenge Tyler to consider that he under-emphasizes both sides of the argument; the innovation occurring today is more foundational and advancing in fits and starts, and so it is not as obvious as say, the introduction of the car. But it will up-end our cultural and psychological mores regarding learning and interaction, and therefore our productivity and innovation rates. It is hampered by cultural and bureauratic inertia and government rules.

On the other hand, what would middle class living standards be if health care, education and other government service costs would have declined (like everything else) since the 1970s, instead of rising exponentially?

Tyler may under-estimate this government crowding, even on how taxes effect enumeration (which research does not always measure). Here we can all agree with Elizabeth Warren: the cost of education, health care and taxes and regulations of owning a house are robbing us of all gains.

Social Security is a good example, where we take 14% of a person’s life time wage and jerry-rig the return while using the funds as a stop gap for exhorbitant spending. Many of these costs began sky rocketing in the 1970s. As in many command and control situations, it is the government’s intrusion and control that prevents the very advancement that it tries to manufacture. And the opportunity costs of government is gargantuan.

Finally, as to American job creation, analysts seem partly befuddled by global evolution; USA is now a competitor instead of the only game in town. The explosion of regulation and taxes since the 1970s exacts a terrible, compounding toll on society, which business passes on to customers and employees as they can, or avoids altogether by offshoring. As the world pulls itself out of the muck, business can now flee to safer harbor for assets, labor AND customers. “Mature markets” are just another word for milieus that are so encumbered by rules that they can no longer grow.

Chucklehead October 4, 2011 at 1:56 am

Brilliant, but I still choose not to agree with Elizabeth Warren.

dsylexic October 4, 2011 at 3:42 am

really well written.!

muirgeo October 4, 2011 at 12:09 pm

” taxes and regulations of owning a house are robbing us of all gains.”

Federal taxes are down not up…. and specifically which new rule regulating home ownership are you referring to?

Eric Hammer October 4, 2011 at 7:58 pm

I think Tyler did state that he thought one of the problems causing the stagnation was the increase in government activities. Perhaps it was just in the Econtalk interview he did after and not in the book itself. I read it a while ago and might be forgetting. I think it can be true that we are both introducing a lot of innovation and wealth creation, but at the same time the government is pissing it away nearly as fast, resulting in stagnation. I don’t know that we are actually there since the 70′s, but I think it is possible to happen.

Yergit_abrav October 3, 2011 at 8:15 pm

Tyler’s thesis seems designed to sell and plays to inherent human biases about lost golden ages. It’s a contribution to leftist parlance. Whether he intended this or not I simply cannot say. Having been a reader of his since marginal rev started I really hope not.

However my honest thought reading marginal rev on policy (as referenced above) and then tgs is that the parallels between cowen and krugman are becoming very worrying.

Quite simply there is enough evidence to be worried.

dsylexic October 4, 2011 at 3:38 am

cowen is a super thinker and communicator? -i guess in the sense that he can hold 2 mutually contradictory ideas in his head and be perfectly ok with running with the rabbit and chasing with the hounds at the same time.

he first claimed to be affronted when someone called him he calls himself autistic in the einstein,jefferson sense. nice try.

muirgeo October 4, 2011 at 12:11 pm

I applaud him for having the guts to be an objective thinker when surrounded by so much ideological thinking.

charles October 4, 2011 at 3:42 pm

It is obvious that comparitive living standards have been stagnant. After all half of us are still below average. ;)

jorod October 4, 2011 at 10:03 pm

The great stagnation is caused by high energy prices. If we want manufacturing to return, drill drill drill… lower those energy prices. Get rid of these ridiculous biofuels….

Phil Goetz October 8, 2011 at 5:30 pm

If you get to cite the growth in the number of households, then Tyler gets to cite the plunge in wages when measured per worker instead of per household.

Charlie October 9, 2011 at 10:05 pm


Your link to the Pew study shows middle income white families in 1968 with real wages of $55,800 have children in 2006 with real wages of $73,700. That’s an annual growth rate of .75% and total growth of 32%. In contrast, real gdp grew 3% annually over 300% total. That seems quite compatible with TGS.

Phil Goetz October 10, 2011 at 3:49 pm

All these people saying their standard of living is higher than their parents’, because they have iPods and video games – My parents lived in a single-family home, which they bought when my dad was about 30 years old; and my mom didn’t need to get a job. Now, I’m in my 40s, with no kids to support, with a similar job to my dad’s, and more money in the bank than that house cost, total; and I still can’t afford to buy a similar single-family home.

Standard of living has only gone up if you ignore 3 things: 1. Cost of education has skyrocketed. 2. Cost of housing has gone up. (I know the official figures show they haven’t! Yet my father could afford a house when he was much younger and had a “lower” income and 6 times as many people to support as I do, while I can’t.) 3. Families now have 2 jobs instead of 1.

Methinks1776 October 10, 2011 at 4:40 pm


Do you happen to live in a different part of the country than your parents? Also, what does it mean that you can’t afford a house? “Afford” is a little subjective. I didn’t feel comfortable buying a house until I had a certain amount of assets outside of that purchase. Maybe (driven by the need for stability necessitated by family) your dad was willing to take a mortgage with less in the bank.

Also, single people like you subsidize families. Your parents got a lot of deductions that you’re not getting. And speaking of deductions, judging by your age, your parents bought the house before the tax reform act of 1986. They got A LOT of tax deductions. I don’t know their tax bracket or your tax bracket, but all of those things could come into play.

Lastly, you are still richer. Your car is safer, you have access to better medical care, you can do a lot of stuff online that you used to have to take a lot more time to do, you have better products and better access to a wider variety of clothing and food at lower prices.

Don’t worry about buying a house. As long as you must put down 20%, you do not win financially by buying vs. renting. The real value of the house is the value to you of owning vs. renting. That value is highly individual.

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