Despite the large increase in U.S. income inequality, consumption for families at the 25th and 50th percentiles of income has grown steadily over the time period 1960-2015. The number of cars per household with below median income has doubled since 1980 and the number of bedrooms per household has grown 10 percent despite decreases in household size. The finding of zero growth in American real wages since the 1970s is driven in part by the choice of the CPI-U as the price deflator; small biases in any price deflator compound over long periods of time. Using a different deflator such as the Personal Consumption Expenditures index (PCE) yields modest growth in real wages and in median household incomes throughout the time period. Accounting for the Hamilton (1998) and Costa (2001) estimates of CPI bias yields estimated wage growth of 1 percent per year during 1975-2015. Meaningful growth in consumption for below median income families has occurred even in a prolonged period of increasing income inequality, increasing consumption inequality and a decreasing share of national income accruing to labor.
We know from public choice theory that lying is more rational for a politician than for individuals in other walks of life. A politician’s lies are less likely to be noticed or remembered by the “rationally ignorant” voter. Rational ignorance means that the individual voter has little incentive to invest time and money in gathering and analyzing political information because he will not be able, with his single vote, to change the election result. The politician running for office also has an incentive to lie when deprecating his opponents’ character. If he wins, there will be no way to know whether or not his opponents would have been as bad as he claimed. And since the politician has no property rights in his office, the discounted value of his political reputation over time is very low, giving him an incentive to trade long-term credibility for short-run victories.
Do globalization and free markets cause kids to be unhealthily fat? (HT Tyler Cowen)