Here’s the abstract of an excellent new paper by Scott Winship and GMU Econ alum Jeremy Horpedahl:
The Cost-of-Thriving Index (COTI), developed by American Compass executive director Oren Cass, asks whether families can afford a middle-class lifestyle. It compares the costs of five goods and services to the income of a typical full-time male earner. Cass concludes that the cost of thriving has increased dramatically, from 40 weeks of work in 1985 to 62 in 2022. Our improvements to Cass’s estimates indicate the cost of thriving rose by 10 weeks rather than 22. After accounting for the better quality of the goods and services he tracks, the increase was four weeks. The cost of thriving declines when we account for falling federal taxes or include all full-time workers. The after-tax cost of thriving for this broader group fell by 7.5 weeks. These improvements aside, we reject the COTI approach as inadequate for assessing changes in living standards. While Cass’s estimates imply that male earnings have fallen by 36 percent relative to costs, conventional analyses indicate a rise of 19 percent, without accounting for taxes, and an increase of 34 percent after taxes. For the broader group including all full-time workers, the after-tax increase was 53 percent.
And here’s a related essay, at the The Dispatch, by Winship and Horpedahl. Three slices:
More than any other organization, American Compass has blurred the lines between conservatism and progressivism by trotting out the same factually incorrect doomerism the left has relied on for decades.
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Cass’ approach mostly fails to account for changes in the quality of goods and services over time. Take housing costs. He compares rents for three-bedroom apartments in Raleigh, North Carolina, in 1985 and 2022, but he ignores the possibility that the typical three-bedroom rental in 2022 is much nicer or larger than what was typical in 1985. An increase in what families typically spend that reflects their ability to afford nicer things is not an increase in costs. When we adjust for quality change using price indexes to translate the improved 2022 costs into 1985 dollars and then re-estimate the change in COTI, we find it increases by just four weeks.
Cass looks at pre-tax earnings of full-time workers and only considers men at least 25 years old. But people pay costs out of after-tax income. And if the focus is narrowed to full-time workers (eliminating complications related to students’ and mothers’ work participation), there is no reason to exclude women or those under 25.
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Even official statistics using an inflation measure that overstates the rise in the cost of living find that income rose by 21 percent from 1985 to 2021 among families with a sole breadwinner. Because marriage has declined, single-earner families have become more common since 1985 relative to multiple-earner families, not less common. Median earnings have risen both for men and women. None of these facts suggest that it has become more difficult for a sole breadwinner to afford essential goods and services.
Cass’ claims bear no relationship to reality. The doomerist basis of national conservatism is empirically unfounded, and therefore so are many of the policy priorities it has borrowed from liberal doomers, such as protectionism and industrial policy. Elected conservatives should think twice before following American Compass down a road that proceeds from such a dubious signpost.
Noah Rothman is rightly critical of “anti-market Republicans” – such as Oren Cass, Marco Rubio, and J.D. Vance – who “luxuriate in a left-wing loveliest.” Here’s his conclusion:
“Capitalism” is a ripe target. It gets the blame when a train car traveling on America’s federally regulated rail lines careens off the tracks, compelling federal environmental regulators to burn off its chemical waste to not contaminate groundwater. When emerging economies experience rising violent crime rates, it’s a problem of “fledging capitalism.” Gauche displays of conspicuous consumerism are a gaudy byproduct of “late capitalism.” Taken together, these incompatible rationalizations suggest there are incentives – political, financial, or social – to apply a respectable intellectual gloss onto what is otherwise just a fashion.
“For many people, anti-capitalism is an emotional issue,” the author Rainer Zitelmann wrote for the National Interest. “It is a diffuse feeling of protest against the existing order.” But the existing order has created wonders, material benefits for both rich and poor (categories that have never been more fluid), and a stable social compact that has withstood the test of time. It’s not popular right now to say any of this, which is why it falls to conservatives to say it. It won’t get you invited to the poshest cocktail parties on the circuit, but it has the inestimable virtue of being true.
This letter in today’s Wall Street Journal by Jonathan Coburn is excellent:
There is no way to reconcile environmental, social and governance investing with the fiduciary duty of investment managers unless it can be claimed that ESG won’t result in lower investment returns (“Red States Have Slowed the ESG Juggernaut” by Andy Puzder, op-ed, June 15). BlackRock goes further by claiming ESG investments will provide “better long-term financial outcomes.”
Any such argument flies in the face of conventional investing wisdom. Voluminous research attests to both the folly of trying to predict investment returns and the benefits of diversification in providing higher risk-adjusted, long-term returns. Yet ESG proponents blithely assert that a less-diversified investment approach will provide superior returns. If this were the case, coerced ESG investment wouldn’t be necessary; unless investment managers were incompetent or criminal, they would all embrace ESG.
By hijacking other people’s money to pursue outcomes they haven’t agreed to, coerced ESG investing is a form of theft. Voluntary ESG is already an option and, if the predictions of higher returns are correct, it will become increasingly popular without the need for regulation.
Jonathan Coburn
Apex, N.C.
