- Cafe Hayek - https://cafehayek.com -

Middle-Class Stagnation is a Myth

Tweet [1]

Here’s a comment – that, alas, I discover that I’m unable to post – on a response by “Matthew A.” to Scott Winship’s devastating analysis of the latest from Oren Cass’s shop, American Compass:

Matthew A.:

I write in response to your comment [2] on Scott Winship’s thorough exposé [3] of the many flaws in American Compass’s latest portrayal of the American economy. I here focus on your assertion that official measures of inflation intentionally undercount the dollar’s devaluation.

While I’m the last person to doubt government-officials’ scurrility, I believe that the Boskin Commission finding [4] remains valid – namely, that the Consumer Price Index overcounts (or, you might say, “inflates”) inflation.

But we needn’t quibble over this matter. When reckoning changes in living standards, a way to avoid the need to adjust for inflation is, first, to calculate the amount of time that an ordinary worker today must toil to purchase various goods and services, and then, second, to compare these findings to the amount of time that an ordinary worker in the past had to toil to purchase these same items. We can perform this comparison using only nominal wages and prices. If workers today must toil longer for most goods and services, living standards are lower than in the past; if not, not.

A quick Google search turned up this list of prices of 16 familiar grocery items along with their nominal prices in both 1990 and 2020 [5]. And FRED has, for each of these years [6], reliable records of the nominal hourly wages of private-sector production and nonsupervisory workers. And so we can then divide the nominal price, for example, of a pound of beef in 1990 ($2.81) by the nominal hourly wage in 1990 ($10.22) to determine how long an ordinary worker in 1990 had to toil to earn enough income to buy a pound of beef (16.5 minutes). After performing the same calculation for 2020, we can then see if a worker today has to work longer or less, compared to a worker in 1990, to earn the requisite purchasing power.

In the case of beef, priced at $4.35lb in 2020, an ordinary worker in 2020, earning $24.67 per hour, had to work only 10.6 minutes to earn enough income to buy a pound of beef. That’s 36 percent less time – or nearly six fewer minutes per hour – than he or she had to work to earn the same ‘beef’ purchasing power in 1990.

I performed this calculation for each of the 16 grocery items listed at the above-mentioned link. The amount of time that an ordinary worker today must work to earn income sufficient to purchase each and every one of these products is lower than it was in 1990.

Of course, the fact that ordinary workers today don’t have to work as long as did their counterparts of 30 year ago to buy these 16 grocery items itself doesn’t prove that middle-class Americans today aren’t worse off than they were decades ago. But it does counsel some skepticism of your assertion that, unlike in the past, to maintain a middle-class lifestyle today “most wives are forced to work.”

In the near future, The Age of Superabundance­ ­– a brilliant, data-drenched book by Marian Tupy and Gale Pooley – will be published. The authors document beyond any doubt that each hour of work on the job today by an ordinary American worker yields that worker far more purchasing power, across a wide range of goods and services, than was yielded just a few years ago. (Here’s an essay [7] that gives you a flavor of the book. And you’ll find here my own, more-modest efforts [8] that point to the same happy conclusion.)

The only reason women ‘must’ work today to maintain a household’s middle-class living standard is that what we regard today as a middle-class living standard is far more luxurious than it was in 1990, and made so by the voluntary participation today of more women in the labor force.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030