Economics

Faking Real Income

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Brink Lindsey (author of the great cover story in the July issue of reason, excerpted from his new book The Age of Abundance: How Prosperity Transformed American Life and Culture) questions economic statistics based on "real income," especially those that conclude that median real income has fallen in America since the 1970s. Such stats imply that we are somehow as a nation worse off since then. Lindsey attacks this idea on a couple of fronts. First, the effects of immigration on national income statistics:

The share of the total population born in foreign countries has jumped from 5 percent in 1974 to 12 percent in 2004. Relatedly, people of Hispanic origin have climbed from 5 percent of the population in 1974 to 14 percent in 2004.

The huge wave of Hispanic immigration over the past generation has been good for the immigrants and their families, and good for the country as a whole. But this big influx of relatively low-skilled immigrants has to have depressed median income compared to what it otherwise would have been. Unfortunately, I'm not aware of good studies that quantify the effect.

This is not saying that immigration is "hurting America," unless somehow you think macrostatistics are more important than actual improvements in everyone's circumstances. Assuming immigrants are doing better for themselves in income terms than they would have in their home countries, their presence in America can drag down the nation's median income stats without anyone actually being worse off.

But that's not all that's wrong with statistics seeming to show a worsening in overall American economic circumstances, Lindsey explains:

Do your best job of coming up with a deflator that takes care of changes in the price level, and calculate the dollar income in 1800 that is the "equivalent" of an income of $100,000 in 2007. Then try with a straight face to convince somebody that the earner in 1800 and the earner in 2007 are equal in terms of material well-being.

Now let's go to the comparison that's at the heart of the stagnating median incomes argument: incomes today and incomes in the early 1970s. Do what you want as far as adjusting for inflation, but there's still the problem of all the goods that simply weren't available back then: personal computers, the World Wide Web, cell phones, cable and satellite TV, DVDs and iPods, airbags, anti-lock brakes, automatic teller machines, aspertame, LASIK surgery, CAT-scans, home pregnancy test, and ibuprofen, just to name a few.

………..

I don't see how anybody without an ideological axe to grind can maintain seriously that ordinary people in the '70s had the same material well-being as their counterparts today — yet that's the implication of saying that median real incomes have been stagnant.

W. Michael Cox and Richard Alm explored all the many improvements in American life that economic stats can miss back in reason's Aug./Sept. 2002 issue.

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  1. This is not saying that immigration is “hurting America,” unless somehow you think macrostatistics are more important than actual improvements in everyone’s circumstances.

    1. Of course we had recently arrived immigrants prior to 1974 also.

    and

    2. Slightly better off than Mexico is still better off than Mexico no matter how you slice it. If that is the standard.

  2. It is a good point that technological advances have made life a lot easier and our living standards higher independent of our income.

    The issue is not are Americans worse off than they were before the influx of immigration. The issue is forgone well being. Are Americans or some Americans worse off then they would have been had their not been such a large influx of immigrants. Looked at that way, no quesiton that lower skilled natives are worse off than they would have otherwise been even if though their standard of living may have increased. It didn’t increase as much as it could have.

    The same goes for the country as a whole. Is the country better off now that it was in the 1970s? Materially it certainly is. Would it be even better off today had there not been such a huge influx of immigrants? That is an interesting question that Lindsey doesn’t really address and involves more than just wages and money.

  3. I remember reading about an interesting experiment along the same lines to show how deceptive “adjusting for inflation” can be. Subjects were given a 1950 (Sears) Catalog and this years. They were then asked which catalog they would like to buy from. Even though they could buy a new refrigerator for like $50 it was a 1950 refrigerator. Almost everyone chose to purchase the new goods at much higher prices.

  4. Now let’s go to the comparison that’s at the heart of the stagnating median incomes argument: incomes today and incomes in the early 1970s. Do what you want as far as adjusting for inflation, but there’s still the problem of all the goods that simply weren’t available back then: personal computers, the World Wide Web, cell phones, cable and satellite TV, DVDs and iPods, airbags, anti-lock brakes, automatic teller machines, aspertame, LASIK surgery, CAT-scans, home pregnancy test, and ibuprofen, just to name a few.

    I pointed this out to joe and he said i was mad…or an idiot or both…i can’t remember. maybe i am just forgetful…but happily right about this.

  5. If the median wage earners of today were forced to live like the median wage earners of even 1977, to say nothing of 1967 or 1957, they’d riot.

  6. I highly doubt that, joshua, since I don’t see anything remotely objectionable in that statement. Maybe you’re thinging of someone else?

    I view the problem of stagnating wages among middle- and working- class people since the 1970s as a problem of social justice and the related issue of economic inequality turning into political inequality and inequality of opportunity – not as a problem in the material living conditions of median income-earners.

  7. Will Allen,

    My grandfather was a pretty wealthy rancher when I was a kid in the 1970s. We used to gape in amazment about how he owned three color TV sets and bought a new car every three years. This compared to my decidedly middle class parents who drove used cars and had one color TV set. Today, even the ghetto fabulous have flatscreens and cellphones, things unheard of to the middle class just 20 years ago.

  8. “I view the problem of stagnating wages among middle- and working- class people since the 1970s as a problem of social justice and the related issue of economic inequality turning into political inequality and inequality of opportunity – not as a problem in the material living conditions of median income-earners.”

    And your sollution to that problem of social justice is to import millions of low skilled Mexicans reducing the value and wages of the unskilled and lower classes? Wouldn’t a better sollution be to limit immigration so that there is a lower supply of low skilled workers artifically raising their wages and standard of living?

  9. joe,

    What is the difference, as a practical matter, between middle class and working class? Also, if they, too, are getting richer (in terms of improving quality of life if not nominal wealth) over time, why does it matter if the richer are getting even richer faster? Finally, in what sense is income inequality “turning into” political inequality or inequality of opportunity? What I mean is, hasn’t that always been the case? What makes right now any different?

  10. One thing folks today have that wasn’t as available in the ’70s is the financial assests aging parents. Intergenerational wealth transfer will keep everything afloat for a while.

  11. …personal computers, the World Wide Web, cell phones, cable and satellite TV, DVDs and iPods, airbags, anti-lock brakes, automatic teller machines, aspertame, LASIK surgery, CAT-scans, home pregnancy test, and ibuprofen, just to name a few.

    I won’t be satisfied until I have home LASIK surgery and an automated Penn & Teller machine.

  12. Warren | May 31, 2007, 12:48pm | #
    I remember reading about an interesting experiment along the same lines to show how deceptive “adjusting for inflation” can be. Subjects were given a 1950 (Sears) Catalog and this years. They were then asked which catalog they would like to buy from. Even though they could buy a new refrigerator for like $50 it was a 1950 refrigerator. Almost everyone chose to purchase the new goods at much higher prices.

    Here’s a couple of classic posts from Cafe Hayek on Sears and inflation:
    A 1975 Sears catalog

    Working for Sears goods

  13. The issue is forgone well being. Are Americans or some Americans worse off then they would have been had their not been such a large influx of immigrants. Looked at that way, no quesiton that lower skilled natives are worse off than they would have otherwise been even if though their standard of living may have increased. It didn’t increase as much as it could have.

    And in a nation where Elementary and Secondary education is effectively free to those “lower skilled” natives, who’s fault is that? Why should a blockade on labor be installed just to make the “lower skilled native workers” wealthier at the expense of the more skilled “middle class”?

    The same goes for the country as a whole.

    Would it be even better off today had there not been such a huge influx of immigrants?

    I believe that it would actually be worse off without the immigrant influx. If “lower skilled native workers” didn’t have the competition within the construction industry, particularly house framing and roofing, I doubt so many McMansions would have been built in the last 20 years. The cost/sqft of a house in relationship to the average dollar earned has decreased rather significantly in the last 50 years and I suspect a fair bit of that is competition for wages within the laboring class of workers.

  14. I read the other day about gas prices. If you adjust for both inflation and standard of living (meaning you look at the percentage of an average person’s earnings it took to buy a gallon of gas), gasline today would have to cost $4.77 a gallon to cost the same as it did in the good old days 1960s.

  15. John,

    We don’t “import” anyone. Please stop refering to immigrants as if they are things.

    My solutions have nothing to do with levels of immigration – although the vulneratibility of undocumented immigrants to exploitation is very likely part of the problem. Workers who can bargain without their employers dangling imprisonment and deportation for them and their families tend to command more on the labor market.

    As far as overall numbers of immigrantsl, their effect on wages and employment of native-born workers doesn’t seem to have been definitively answered one way or the other.

    D.A.,

    “What is the difference, as a practical matter, between middle class and working class?”

    Middle class people make more money. With the old “blue collar/white collar” paradign breaking down, “working class” has pretty much become a synonymn for “lower middle class.”

    “Also, if they, too, are getting richer (in terms of improving quality of life if not nominal wealth) over time, why does it matter if the richer are getting even richer faster?” See my previous comment.

    “Finally, in what sense is income inequality “turning into” political inequality or inequality of opportunity? What I mean is, hasn’t that always been the case? What makes right now any different?”

    I guess I could have used clearer language there. Read “turning into” as “being converted into,” like a currency transaction, not “becoming,” as in something new developing.

    Yes, it has always been the case that wealth is converted into political influence. That’s why those of us who believe in political equality tend to support efforts to promote economic equality and equality of opportunity, and/or incorporate protections into the political system itself which will either make the “conversion” harder, or which boost the capacity of the non-rich to influence the political system in order to provide a check to the political power of the wealthy.

  16. What is the difference, as a practical matter, between middle class and working class?

    I’ve always assumed working class was blue or pink color and middle class was white colar.

  17. And your sollution to that problem of social justice is to import millions of low skilled Mexicans reducing the value and wages of the unskilled and lower classes? Wouldn’t a better sollution be to limit immigration so that there is a lower supply of low skilled workers artifically raising their wages and standard of living?

    Why? Economically, why would we limit labor mobility? Reducing the supply of anything to increase its price isn’t a common goal among economic libertarians.

    Ethically, what sound distinction can be made between an unskilled random Mexican and an unskilled random American? Tribalism, nationalism — what should we call the impulse that leads rational Americans to believe that denying immigrants a 300% increase in income and a chance at survival is justified in order to grant unskilled Americans a 15% increase in income and a chance to obtain a discretionary good or service? I hesitate to use the phrase “social justice,” but surely your solution doesn’t qualify: new blenders for those lucky enough to be born in Dallas, starvation for those born a couple hundred miles south, and let’s just ignore willingess to work, etc.

  18. I think we should apply the same thinking to the tax burder.

    Sure, you’re paying more in real dollars for your taxes. Sure, you’re paying more even in inflation-adjusted dollars for your taxes.

    But the amount you have left over can buy you all kinds of neat stuff that didn’t exist in 1960, so shaddap!

  19. “And in a nation where Elementary and Secondary education is effectively free to those “lower skilled” natives, who’s fault is that? Why should a blockade on labor be installed just to make the “lower skilled native workers” wealthier at the expense of the more skilled “middle class”?”

    If you are an amoral corporate righest, then fuck them let the immigrants in. My view is that not everyon can or wants to be an office drone. Further, the government owes it’s own citizens. It owes the citizens of Mexico nothing, just like the government of Mexico owes Americans nothing.

    I will give you credit Kwix at least your honest enough to admit the elitist vitrol behind the support for mass immigration. It really is about screwing America’s own underclass in the name of getting cheap labor. Perhaps I really am a pinko commie leftist at heart, but I don’t see how having a perminant low paid underclass that is constantly refreshed and enlarged by influxes of immigrants from abroad is particularly good for the country.

  20. “As far as overall numbers of immigrantsl, their effect on wages and employment of native-born workers doesn’t seem to have been definitively answered one way or the other.”

    You can link to different studies and get different results depending on which side of the issue the writter is shilling for. That said, even the pro immigration folks agree that immigration has a negative effect on wages of low skilled workers and high school drop outs. It makes sense that it would. Immigration is not an issue of overall well being or health of the economy. It is an issue of what to do about those at the bottom that are most effected by future immigration.

  21. Further, the government owes it’s own citizens.

    Is that because you pay taxes or simply because you’re a “citizen”? If it’s the later, I’m not accustomed to being owed anything by virtue of being born, but that’s how 95% of us become citizens. If it’s the former, then we shouldn’t really care about immigrants as long as we ensure that they pay taxes.

  22. Just because you can buy cooler and better stuff now than you could in 1974 doesn’t change the fact that the median real income trends have been, well, stagnant.

    It ameliorates the impact, yes, but it does not explain the stagnation.

    In the 1947 – 1970 span average year over year growth in real income was over 3%. Since 1971 it’s been about 0.3%

    Did new products suddenly become so much cooler and better in 1971? Did Hispanic migration make a sudden noticeable impact on previously rising real income levels then?

  23. “Is that because you pay taxes or simply because you’re a “citizen”?”

    Because you are a citizen. We have governments to provide for the common good. If it was about paying taxes, the government would owe nothing to the sick or indigent because they don’t pay taxes. If you think that the U.S. government should be concerned about people who want to move here then please explain the duty other governments owe to Americans. Or does it just go one way?

  24. John,

    “That said, even the pro immigration folks agree that immigration has a negative effect on wages of low skilled workers and high school drop outs.”

    12 million of those immigrants are undocumented. How many workers is that, 5 million? 6 million?

    I agree, under the status quo, immigration lowers the wages of the lowest earners. Let’s get rid of the actual “permanent underclass” we have in this country – those people whose status makes it impossible for them to rise in the world or even to operate a free actor in the economy – by legalizing them.

  25. That said, even the pro immigration folks agree that immigration has a negative effect on wages of low the lowest skilled workers and, i.e., high school drop outs.

    There. Fixed it.

  26. If you think that the U.S. government should be concerned about people who want to move here then please explain the duty other governments owe to Americans. Or does it just go one way?

    I also support free migration in other countries. Mexico and other countries ought to allow U.S. citizens to cross its border as well.

  27. I view the problem of stagnating wages among middle- and working- class people since the 1970s as a problem of social justice and the related issue of economic inequality turning into political inequality and inequality of opportunity – not as a problem in the material living conditions of median income-earners.

    Yup you missed it joe…again…Bill Gates cannot buy a better ipod then an average consumer…ie middle and working class (what the hell is the difference?) If you do not see social justice in the equalizing effects of free markets and the goods and services they provide then you are blind as a bat.

    It is not just that the poor can buy cooler stuff now then they could in the 50’s it is that the stuff they can get now is the best at any price. Bill gates can buy a $10,000 ipod but its utility compared to a 100$ ipod would be exactly the same.

    Measures in income differences DO NOT TAKE THIS INTO ACCOUNT!!!

  28. joe,

    Fair answers. I’m not accusing you personally, but the “working class / middle class” distinction strikes me as bogus, carrying some connotative baggage I don’t think it merits. AI understand why white collar / blue collar doesn’t work, either (e.g., a county librarian vs. a union plumber), but why not say lower-middle class and be done with it?

  29. If you are so unskilled that you can’t compete with someone who has a third grade education and can’t speak English, you may want to save some money and go to a vocational school.

  30. If you are so unskilled that you can’t compete with someone who has a third grade education and can’t speak English, you may want to save some money and go to a vocational school.

    Third grade education is a relative term…I went to collage and i do not know how to frame a house or operate and fix the engine of a d-6 cat…many immigrant workers i have run across do know how to do those things.

  31. Third grade education is a relative term…I went to collage and i do not know how to frame a house or operate and fix the engine of a d-6 cat…many immigrant workers i have run across do know how to do those things.

    Which is why you ought to do something else, right?

  32. You mean the “better/worse off than other generations” standard is not a function of who was President? I knew Al and Hillary were trying to pull a fast one!

  33. Which is why you ought to do something else, right?

    I don’t know…I have driven a D-6 and I always liked shop….this stuff is not degrading work and the people who do this work are not unprivileged and unhappy or lacking in opportunity…hell many of them end up buying land, making homes on that land and selling it at a handy profit…just because joe sys so does not make it so….this whole idea that there is a permanent underclass incapable of ever achieving is complete and utter bullshit.

  34. Another big piece of the puzzle (or pie, it works either way) that a lot of these longitudinal studies of income miss is benefits.

    Ask any employer, and they will tell you that benefits account for at least 1/3 of their cost for each full-time employee.

    Treat benefits as compensation to the employee, and I think you’ll get some different results.

    Oh, and joe’s 1:37 comment has got to be a contender for Non Sequitur of the Week.

  35. Third grade education is a relative term…I went to collage…

    Which is why you ought to do something else right.

  36. I think we should apply the same thinking to the tax burder.

    Sure, you’re paying more in real dollars for your taxes. Sure, you’re paying more even in inflation-adjusted dollars for your taxes.

    But the amount you have left over can buy you all kinds of neat stuff that didn’t exist in 1960, so shaddap!

    Did the government invent anti-lock brakes and the ipod before or after Al Gore invented the internet?

  37. I will give you credit Kwix at least your honest enough to admit the elitist vitrol behind the support for mass immigration. It really is about screwing America’s own underclass in the name of getting cheap labor.

    Aaah yes. John the ever so productive military lawyer whipping out his tried and true “anti-intellectualism” and “anti-elitist” stance. Since you and I have gone over this before I will spell it out in simple terms that even you can understand.

    I worked for over a decade in the food-service and construction industres as a “low skilled”, run of the mill laborer. Wait, let me spell this out in detail so you can understand. I have been a dishwasher, a cook, a dietary aide(cook’s bitch), a handy-man, a house painter, a computer cable installer, an air conditioning duct worker, a pizza delivery-guy and a ditch digger. I have worked with both native Americans and immigrants of both flavors of legality. While your ass was sitting in law school, gaining its Intellectualism-Elitist cred, mine was helping to build those McMansions and I am damned proud of it and of the wages I earned doing it.

    I used those wages to increase my status, put myself through school and got out of the industry into something more to my tastes. I got tired of dealing with jobs that hired 10pt IQs and drunks, where the only hard workers were the ones trying to better themselves, like me and my newly arrived immigrant friends. I have no contempt or “vitrol”(sic) for people in the “labor class”. Indeed, I have great respect for those who thrive in it. The guy who mows my lawn, white, dumb as a sack of rocks. His boss on the other hand is a smart immigrant from Guatemala, come over illegally and eventually secured citizenship. I have great respect for the guy who leveraged a life of nothing into a business that affords him a good living and paying wages for other folks.

    As Joshua Corning stated above, there are people who like doing what they do, and if that is the case they figure out how to make a good living doing it. If they are not smart enough to figure that out, it isn’t my place to hand it to them. That is the socialist wealth-redistribution model, and I’m sorry, it just ain’t my cup of tea.

  38. That said, even the pro immigration folks agree that immigration has a negative effect on wages of low skilled workers and high school drop outs. It makes sense that it would. Immigration is not an issue of overall well being or health of the economy. It is an issue of what to do about those at the bottom that are most effected by future immigration.

    So what do you want to do about low-skilled workers and high school dropouts?

    We could use the power of the government to close the border and protect them.

    We could use the power of the government to extract taxes from those better off so that we could fund education and job training for them.

    We could tell them to get off their butts and take care of themselves.

    Tell me anyway the government can get involved that doesn’t effectively result in government sanctioned discrimination in favor of American-born residents against foreign-born residents.

  39. John says: “Perhaps I really am a pinko commie leftist at heart, but I don’t see how having a perminant low paid underclass that is constantly refreshed and enlarged by influxes of immigrants from abroad is particularly good for the country.”

    Perhaps? There’s some doubt?

  40. I view the problem of stagnating wages among middle- and working- class people since the 1970s as a problem of social justice and the related issue of economic inequality turning into political inequality and inequality of opportunity – not as a problem in the material living conditions of median income-earners.

    joe is a “bang for the buck” denialist. Which is convenient, since denying that gets him a free pass to pimp for all kinds of wealth-redistribution “justice” and other half-baked schemes to grab power in the name of other photo-op ready people.

    But hey, you’re spot on with legalizing the lot of illegals. I can see that “having a perminant (sic) low paid underclass that is constantly refreshed and enlarged by influxes of immigrants” is a good thing. Ditches won’t dig themsleves after the previous influx moves up the ladder.

  41. You know wages have been stagnant when half the population makes less than the median income.

  42. joshua,

    You’re arguing with yourself again. Nothing you wrote is remotely relevant to what I wrote. Get back to me when you actually read my argument and can formulate a response.

    D A,

    “why not say lower-middle class and be done with it?” It’s more awkward, and the term “lower” carries with it a judgement value that “working” doesn’t.

    RC,

    “Another big piece of the puzzle (or pie, it works either way) that a lot of these longitudinal studies of income miss is benefits.”

    Which raises the question of how we should count the renumeration of someone whose employer pays 10% for exactly the same health plan when the insurer raises premiums. Did my compensation just go up? Did my material well-being go up?

    And for the record, the non-sequitor of the week is joshua corning’s, “Did the government invent anti-lock brakes and the ipod before or after Al Gore invented the internet?”

    At least my statement about after-tax income relates to the original point about material well being increasing because of technological advancement.

    It’s funny you should say that, JW, because I don’t have any opinion about you. Whatsoever.

  43. er, “…pays 10% more…”

  44. I don’t have a problem with the basic argument presented in the article…

    However…

    Given that in the 1960’s most homes had one income earner working around 40 hours per week and current household typically have 2 income earners working around 80 (combined), it seems the typical family unit has to (or chooses to) work harder in order to support its standard of living.

    The question of the cool new toys seems tangential somehow…

    Not that I’ve worked this out in my head in any detail.

  45. NM,

    Two points.

    Can one income earner bring in enough money to support a household at the material level of a 1972 household?

    And let’s say they can: the cheaper-but-less-desireable stuff that people were living with in 1973 laregely isn’t available anymore, even for those who would prefer to purchase it instead of modern stuff.

  46. Given that in the 1960’s most homes had one income earner working around 40 hours per week and current household typically have 2 income earners working around 80 (combined), it seems the typical family unit has to (or chooses to) work harder in order to support its standard of living.

    You are missing two important points here:

    1. The spouse who stayed home in 1965 worked at least 20 hours on household duties. In reality, the pay for 40 hours’ labor of the spouse who earned a paycheck should probably be divided by 60 hours, since that’s how much work it was really buying.

    2. There are more single parent households today than in 1965. And the single parent can live better off the median income today than in 1965 because of mechanization of household chores and cheaper child care services.

  47. You’re arguing with yourself again. Nothing you wrote is remotely relevant to what I wrote. Get back to me when you actually read my argument and can formulate a response.

    Actually it does and your response is to ignore it…other here understand it quite well and by trying to dismiss me you only make any claims you make less believable.

    So here we go again. At one time in the past if you were wealthy you could get more stuff that did more things for you then someone more poor then then you. Like lets say you could get horse which can carry you farther faster with more stuff then someone who could not afford a horse. But now cars are relatively cheap…so although bill gates can get a car that costs him $1 million a relatively poorer man can get a car for $2000 that has exactly the same utility. What you fail to recognize is that a greater equality in the cost of utility…(ie not only has the cost of doing things dropped but the ability to have higher utility then the lowest priced goods and services has declined)…has also translated in equalizing political power.

    I think you fail to see this because of your particular bias towards socialism…equally super-powered individuals tend not to favor socialism. Socialism wains and you cry foul because your group is losing claiming the rich are stealing all the power from the poor when in fact everyone is getting rich and simply ignoring the likes of you.

  48. And let’s say they can: the cheaper-but-less-desireable stuff that people were living with in 1973 laregely isn’t available anymore, even for those who would prefer to purchase it instead of modern stuff.

    Name one item or service. Better make it good Joe…your whole claim of a permanent underclass rides on it

    This is possibly the most bogus of any claim Joe has made…and that is saying a lot.

  49. joshua,

    From my very first comment:

    “I view the problem of stagnating wages among middle- and working- class people since the 1970s as a problem of social justice and the related issue of economic inequality turning into political inequality and inequality of opportunity – not as a problem in the material living conditions of median income-earners.”

    Let me repeat the relevant section, as repetion has proven to be an effective method of teaching the mentally challenged:

    “not as a problem in the material living conditions of median income-earners.”

    Stop bothering me with your yammering about material living conditions.

  50. “Name one item or service.”

    An automobile with manual windows, no processors, and an analogue AM radio, in new condition, at the inflation-adjusted price it would have sold for in 1973.

    Wow, that was easy.

  51. Maybe if you were more interested in ideas than in smiting the wicked, joshua, you wouldn’t make an ass of yourself with such dependable regularity.

  52. Which is why you ought to do something else right.

    URKOBOLt is a spelling nazi now?

    ..well he was cool for about a min and a half.

  53. An automobile with manual windows, no processors, and an analogue AM radio, in new condition, at the inflation-adjusted price it would have sold for in 1973.

    That is it?!?!

    That is your social injustice that needs massive government intervention to solve, this horrendous market failure that you can’t roll your window down manually in death trap that gets 10 miles to the gallon?

    Well sorry joe…you will just have to buy a used old car with a new engine for less then the 1973 inflated adjusted price.

  54. “not as a problem in the material living conditions of median income-earners.”

    neither am i…

    lets play the which is cheaper game

    flying to DC…cheaper in 2007

    calling your representative…cheaper in 2007

    emailing your congressmen….cheaper in 2007 (in fact you could not even do it in 1973)

    printing full-colored flyers on political subjects…cheaper in 2007

    making a political blog or website…cheaper in 2007

    How again are people less empowered now that doing anything political is cheaper then ever before?

  55. “It’s more awkward, and the term “lower” carries with it a judgement value that “working” doesn’t.”

    [quibble]

    actually, “working” carries another set of judgments in it.

    the working class is doing, you know, work.

    what are all the other classes doing?
    [/quibble]

    i’m not really sure what the original article is trying to say – at first glance it seems kinda…specious – though i’d rather be alive now than in 1970 or whatever. (and thankfully, i am alive now and don’t have a time machine so the 70s are safe!)

  56. It’s funny you should say that, JW, because I don’t have any opinion about you. Whatsoever.

    :::sniff::: It hurts so when you tell me how much you don’t think about me.

  57. “That is your social injustice that needs massive government intervention to solve”

    No, joshua, it’s an answer to your extremely easy question, “Name one.” You asked me to name one that people were living with in 1973 laregely isn’t available anymore, even for those who would prefer to purchase it instead of modern stuff.

    And I did, and you changed the subject.

    “How again are people less empowered now that doing anything political is cheaper then ever before?”

    1. It’s cheaper for the monied interests, as well. x>y. 5x>5y. And not only that, (5x-5y) > (x-y).

    2. “flying to DC…calling your representative…emailing your congressmen….printing full-colored flyers on political subjects…making a political blog or website” You have the most adorable ideas about how the government is influenced! Remember when Jack Abramoff told his clients to send emails to their Congressmen? Me neither.

  58. Psst…you should probably just pretend you understood the math.

  59. It is not just that the poor can buy cooler stuff now then they could in the 50’s it is that the stuff they can get now is the best at any price.

    True, and as the original post points out, it should be taken into account when making economic comparisons to the past. On the other hand, many things that are important to well-being can be compared: rents and real estate prices, energy costs. I guess nobody has denied this point, so I’m just stating the obvious.

  60. Third grade education is a relative term…I went to collage and i do not know how to frame a house or operate and fix the engine of a d-6 cat…

    Wow! Third Grade would have been so much more interesting if we had learned how to frame a house or rebuild an engine! I think all I learned was how to add fractions or something like that. I want that year back!

  61. MikeP,

    I said: “Given that in the 1960’s most homes had one income earner working around 40 hours per week and current household typically have 2 income earners working around 80 (combined), it seems the typical family unit has to (or chooses to) work harder in order to support its standard of living.”

    You reply: “You are missing two important points here:

    1. The spouse who stayed home in 1965 worked at least 20 hours on household duties. In reality, the pay for 40 hours’ labor of the spouse who earned a paycheck should probably be divided by 60 hours, since that’s how much work it was really buying.

    2. There are more single parent households today than in 1965. And the single parent can live better off the median income today than in 1965 because of mechanization of household chores and cheaper child care services.”

    I will take your word for it on point 2 and it is an important piece of the puzzle. How many of those single family households are below the median might be important, but maybe not. It probably isn’t as easy for a single earner to maintain the median now, but I could be wrong.

    On point 1, however, it seems to be irrelevant. The housework is pretty much constant across this time frame*, so you would add your 20 hours to both sides of the equation. Or am I missing your point.

    *although trends across the century show increasing housework with increasing material wealth -bigger house, more chores done more often as they become more automated, etc.

  62. Joe,

    “Can one income earner bring in enough money to support a household at the material level of a 1972 household?

    And let’s say they can: the cheaper-but-less-desireable stuff that people were living with in 1973 laregely isn’t available anymore, even for those who would prefer to purchase it instead of modern stuff.”

    I know a bloke that pretty much lives in a world of tech from 1973, it is quite available and affordable. He is a single income household working full-time and makes far below the median for 2007. How he would compare to the median in 1973 is tough for me to judge (I was only 8 and lived far above the median at the time), but I would bet he is below the 1973 median.

    This idea of comparing value across available technology seems problematic to me. My 1965 Volkswagon provided me with the same amount of transportation utility as my friends 1982 Honda did (in 1982), and now (and forever, likely) would be worth more money on the market. A 2007 Prius might provide enough fuel savings to make it more valuable in terms of transportation utility (but only by a smidge). So how much more material wealth does the Prius represent? Who gives a shit if there were no hybrids available in 1973… there were gas efficient cars. Does an ipod represent more material wealth than a portable cassette deck from the 80’s or 90’s? Not sure how? My listening utility has not really improved (poor sound quality on the ipod), and the difference in size is negligible. To claim the ipod is more valuable seems dubious (of course, they do beat cassette decks in the market, so there ya go).

    New classes of technology, unavailable previously, may be a different case, but I think there is a problem…

    Housing, food, easier to compare.

    I think the concept of material wealth is too ambiguously defined, perhaps, to allow for such comparisons.

    Just rambling at this point

  63. Which raises the question of how we should count the renumeration of someone whose employer pays 10% more for exactly the same health plan when the insurer raises premiums. Did my compensation just go up?

    Yes it did. Your comp (in this approach) consists of the employers cost for your comp and benefits package.

    Did my material well-being go up?

    Hard to say. That 10% increase is partly inflationary, in which case the extra cash doesn’t translate into material well-being. On the other hand, you are still covered for medical services that advance incrementally in quality every year, so in that sense your well-being does go up, at least if you use those services.

  64. I will take your word for it on point 2

    Really? I wouldn’t. I’m just spouting common wisdom, which is very often wrong.

    The housework is pretty much constant across this time frame*, so you would add your 20 hours to both sides of the equation.

    My point about housework, however, I do believe. The same leverage the single parent has is also available to the dual-income household. What I’ve read says that hours spent doing housework consistently trends down, and hours of leisure consistently trends up.

  65. MikeP,

    Okay, I won’t take your word for it ;^)

    My information on housework is a bit old, but last time I saw anything empirical on it, the trend is for more hours over time, not less. Big increases in hours spent on housework accompanied the development of things like the washer/dryer, the electric vaacum, the dishwasher. It is related to the observation that more efficent machines result in more energy used in many instances.

    Since I have a machine that will wash my clothers efficiently, I get used to cleaner clothes, and end up washing more frequently, and therefore spend more hours washing clothes each week than I used to…etc.

    I am afraid I still miss your point about why a housewife staying at home doing housework is different than a husband and wife splitting the housework after they get home from work. The work still needs to get done, is still done by someone in the household, and is not contributing to income. What am I missing?

  66. MikeP,

    A recent look at leisure time…

    The new measures reveal a number of interesting 20th Century trends. First, a more comprehensive measure of “per capita” suggests a less dramatic decline in hours worked. Second, most of the decline in hours worked per capita has been offset by an increase in hours spent in school. Third, contrary to conventional wisdom, average hours spent in home production are actually higher now than they were in the early part of the 20th Century. Finally, leisure per capita is approximately the same now as it was in 1900.

    http://www.econ.ucsd.edu/~vramey/research/Historical_Hours.pdf

  67. The work still needs to get done, is still done by someone in the household, and is not contributing to income. What am I missing?

    Those hours of housework are now paid for by two people’s labor. Before the 40 hours the working spouse spent earning a paycheck paid for 60 hours of total work. Now the 80 hours two spouses spend earning paychecks pay for 100 hours of total work.

    So to determine the median per-hour-household-work, the nominal salary in a two-earner household should be divided by 50 hours today rather than 60 hours — a definite improvement in pay per hour.

    And, no, I’m not arguing the labor theory of value here. Multiply the housework hours by whatever constant you want to decrease or increase its relative value.

  68. An article on housework loads…

    “However, a $100 increase in weekly household income is associated with only a very modest (around 2 minutes per day) reduction in the time men or women devote to unpaid housework and childcare. The effects of high income reducing the time spent in separate components of housework, such as cooking, laundry or grounds care, are very small or insignificant.8 …In addition, exchange or bargaining theory suggests that the relative share of resources within households has an important influence on how time will be allocated among household members. These theories predict that the person contributing more financial resources will do less domestic labour…[results] relative income has a much more powerful effect on time spent in domestic labour than even large increases in total household income. Compared to women who are wholly financially dependent on men, women who earn an equal share of their household’s income reduce their time spent in housework by an hour a day. However, little of this overall reduction comes from reducing time spent in cooking, laundry or grounds care. Moreover the relationships between relative income and the above mentioned domestic activities are curvilinear, so that the greatest reductions in a woman’s domestic labour come from contributing smaller amounts of income and the effects weaken as a woman becomes the dominant earner in the household.”

    Impact of technology

    “Our overall conclusion is that owning domestic technology rarely reduces unpaid household work. Indeed, in some cases owning appliances marginally increases the time spent on the relevant task.”

    http://www.blackwell-synergy.com/links/doi/10.1111/j.1468-4446.2004.00026.x/full/

  69. MikeP,

    Okay I see your point now, but I am not sure it is any more relevant…

    “a definite improvement in pay per hour.”

    If X= median income and it has not changed in absolute value then when two workers get X for 60 hours work they make more than those that get X for 100 hours of work.

    Let’s pretend the median X is equivalent to 100,000 dollars. In 1970, one wage earner family got (the equivalent of) 100,000 working 60 hours per week (x 50 weeks, say). Now in 2007 two earner family gets 100,000 working 100 hours.

    1970
    100,000/3000 hours = 33.33 dollars an hour for the couple’s work.

    2007
    100,000/5000 = 20 dollars an hour for the couple’s work.

    Now, this assumes that the medians are equated for value somehow (100,000) and helps us not at all to determine if the median now is equal to the median in 1970.

  70. Please correct my math here if appropriate.

    I am basically saying that x/3000 is a better deal than x/5000.

    How is this thinking not correct?

  71. It was my understanding that this article is about the unchanging median for individual salaries, not for household income.

    So 2007 is $200,000/5000 = $40/hour > $33/hour.

  72. (5x-5y) > (x-y)

    X = rich people

    y = poor people

    Brilliant joe i am convinced…we should expand the size of government to stop rich people from having unjust power over government….one problem though…what if expanding government doesn’t work in curtailing rich peoples influence over it? …and all you end up with is a bigger government that rich people still have influence over.

    Oh wait…that might explain the last 100 years in America.

    Remember when Jack Abramoff told his clients to send emails to their Congressmen? Me neither.

    Jack Abramoff? who is he? I am sorry i live in joe’s alternate dimension where government graft and corruption is impossible to track due to rich people’s influences over government. If only it was 1973 again when no such corruption occurred and when it did we knew about it.

  73. MikeP,

    No, it has to be household income… and I was certainly talking about household income.

    The change from a one to two earner model did not result in a doubling of incomes for those houses that moved to that model.

    Now, sometimes it did (when my Mom went back to work she ended up making more than 4 times what my dad made, but that is not by any means the average result).

    The trouble is… if we are trying to say… being at the median is better now than it was in 1970, but it takes two earners to be at the median now, and two earners are making more income (your 200,000 figure), then you are just saying we work harder now. But that is not the form the article’s argument took.

  74. The first line of the article:

    The second highlight of the Pew report on economic mobility is the finding that, for men in their thirties, median income has fallen slightly between 1974 and 2004.

    That is individual income, not household.

  75. Look at the PEW report that they are responding to…

    At the end they discuss the fact that men’s salaries have fallen slightly, and that family incomes are higher only because women have entered the work force…so households are working harder to provide for themselves. That was my point, and what I thought you were responding to…

    Extra work has led to increased household income. The response by the authors is trying to say that income is not the proper measure of wealth.

    I just don’t see what they are using as their metric of material well-being. It just seems like a poorly constructed stance.

  76. I didn’t realise there was any difference of opinion on immigration supressing wages.
    Reading the Financial Times from the UK, it seems raising immigration quotas to fight inflation is preferred to raising central bank interest rates.

    I don’t understand why US policy is to allow/encourage/subsidise mass immigration of unskilled labor while severely restricting the influx of skilled, educated human capital.

  77. Mike P.

    “That is individual income, not household.”

    What is this “individual” crap anyways?

    We are a Nation of “working families” not individuals.

    “Individuals” is libertarian crazy-talk.

  78. Neu Mejican,

    “Just rambling at this point”

    Yeah, I’m just bouncing ideas around too. You brought up some interesting points that got me thinking.

    Still, I daresay the 82 Civic did provide more transportation value than the 63 Bug. For one thing, the Civic contained all sort of safety and environmental features. While those don’t get you to work any sooner, they do add value to the product overall.

    Music on an ipod is clearer and sounds better than a cassette.

  79. joshua corning,

    “Brilliant joe i am convinced…we should expand the size of government to stop rich people from having unjust power over government….one problem though…what if expanding government doesn’t work in curtailing rich peoples influence over it? …and all you end up with is a bigger government that rich people still have influence over.”

    You are making the common mistake of assuming that your opponent’s position is the mirror image of your own – like those people who support affirmative action on the basis of their opposition to racism, who assume that their opponents are motivated by a support for racism.

    I’m not proposing to enlarge the government. I’m not proposing to shrink it, either. The size of the government is not the relevant variable here. Some expansions would serve to increase the power of monied interests, and some would have the opposite effect. Ditto with reductions in the size of the government.

    Sometimes, you actually need to look at the building plans to figure out if it’s a good design. Just noting the square footage isn’t enough.

  80. Joe,

    “Still, I daresay the 82 Civic did provide more transportation value than the 63 Bug. For one thing, the Civic contained all sort of safety and environmental features. While those don’t get you to work any sooner, they do add value to the product overall.”

    My 65 Volkwagon Van had extremely low emissions (always got comments from the guys at the test center)and great gas milage, but you have a point about the safety… things were death traps… who puts the driver in front of the front wheel?

    “Music on an ipod is clearer and sounds better than a cassette.”

    Nah, just not true. The only real advantages are size and the fact that you don’t have to carry around the tapes. I have a very nice portable cassette deck.

    But either way, it seems that “best available” car/music player in 1970 = “best available” car/music player in 2007 when you are formulating a metric of material well being.

    SIV

    “What is this “individual” crap anyways?

    We are a Nation of “working families” not individuals.

    “Individuals” is libertarian crazy-talk.”

    It is only relevant if, as I suspect and the PEW report suggests, individuals (single earners) aren’t as likely to be at the median as they were back in the day. If it takes two earners, on average, to maintain the median, then material wealth is higher more as a result of more hours worked than anything else.

    My main objection is still that the concept of material wealth needs to be quantified somehow and the authors do provide a better solution than the “real income” metric that they criticize.

  81. Make that

    “do NOT provide”

  82. You’ve never noticed a difference in sound qualty between a cassette tape and a digital music file?

    Really?

  83. My 65 Volkwagon Van had extremely low emissions

    Compared to what? Other 1965 vehicles or a 2007 vehicle?

    “Music on an ipod is clearer and sounds better than a cassette.”

    Nah, just not true. The only real advantages are size and the fact that you don’t have to carry around the tapes. I have a very nice portable cassette deck.

    There is none of that nasty hiss on an iPod. Plus tapes stretch and wear out. And even the longest only hold 90 to 120 minutes of music vs. hundreds of hours on an iPod. So obviously there are no advantages to iPods. That’s why everyone still uses tape.

  84. As Matt L wrote, an i-pod can carry over 100x the music of a cassette. Moreover, the i-pod makes it vastly easier to rearrange music, purchase music, and create individualized albums. There really is no comparison between cassette players and the i-pod for these features (recording mix tapes on a cassette is a huge pain in the ass).

    As for cars, I wouldn’t say that cars represent the best example of technological leaps. Try computers instead. Even a low-grade modern calculator is better than an early computer. My current computer probably gives me more utility than all of your pre-90s computers, your ’65 VW, and your 82′ Civic combined (you could also throw in your 70s dictionaries, typewriters, maps and ecyclopedias — my computer still wins).

  85. The problem with your argument that there has been a steady stream of new products since the 1970s that is underrepresented in the various measures — I say underrepresented for some very good technical economic reasons that I will not bore you with now — is that there was not a big break in the supply of new products sometime in the 1970s. Yes, there has been a steady stream of new products for the last quarter of a century, but there was also a massive stream of new products in the previous 25 years from 1950 to 1975. My parents first got a phone about 1950–when I was in the third grade. How did that impact their living standards compared to the introduction of cell phones in the 1990s? I suspect the party-line phone in 1950 had a bigger impact on living standards.

    You talk about having to spend less time on household chores, but that has been a continuous trend for 150 years. Do you really want to argue that the microwave oven created a bigger improvement in consumer well being then the switch from wood or coal kitchen stoves to electric or gas kitchen stoves that
    occurred in an earlier era. Which was a bigger improvement, getting your first TV in the 1950s or getting 200 channel cable TV in the 1980s?
    Again, I suspect the first TV was a bigger improvement.

    The data understated the improvements from new products from 1970 to 1975 just as it understated it from 1975 to 2000. But the data shows a clear break in trend in the late 1970s.

    Now, for your argument to be valid you would have to show that there was an acceleration in the introduction of new products sometime after 1975. But you have not even attempted to make that argument.

    So your thesis that there has been a steady stream of new products since 1975 does does little or nothing to explain why there was a significant break in the trend growth rate of numerous measures of the economic well being of the population around 25 years ago.

  86. Now, for your argument to be valid you would have to show that there was an acceleration in the introduction of new products sometime after 1975. But you have not even attempted to make that argument.

    So your thesis that there has been a steady stream of new products since 1975 does does little or nothing to explain why there was a significant break in the trend growth rate of numerous measures of the economic well being of the population around 25 years ago.

    How about a comparison of similar products that were available in 1975 and 2007 with their prices in each era divided by the average hourly nominal earning of production workers. Such as that in the second link I provided in my 1:29pm comment yesterday. That shows that the hours worked to purchase similar goods today is less than in 1975, in some cases considerably less. Surely an indicator of an increase in economic well being.

  87. MattL,

    Thanks for repeating the advantage I listed for the ipod. Tape hiss..we can compare my mini-disc player to your ipod if you want, or I could list the disadvantages of the ipod. The point being that the argument presented in the post provides no real way to make a meaningful direct comparison between the two. You can’t base a comparison of material well-being across decades based on your subjective impression of the advantages of the new technology compared to the old.

    Many people still claim vinyl has superior quality to CD’s, for instance.

    Either way, some amount of income allowed me to buy the music listening utility I desired in 1970. A different income allows me to buy the listening utility now. When you claim I am getting more for my money now, you have to demonstrate some sort of metric that allows for the comparison that is more rigorous than “It is obvious that stuff available now is more valuable.”

    Chris S.
    You’ve obviously been missing out on the subjective pleasure involved in making a really good mix tape.

    And comparing the utility of your computer to my 65 van… how good is your computer gonna be at getting 12 musicians and all their equipment across town?

    You are falling into the same trap. If you want to claim that a comparison of “real income” is flawed because you think the measure being used is inaccurate, you need to provide a better metric, not your subjective impression that the “real income” doesn’t include some cool features in your new car, on you new music device, from your new computer.

  88. MattL,

    I missed this…

    “That shows that the hours worked to purchase similar goods today is less than in 1975, in some cases considerably less. Surely an indicator of an increase in economic well being.”

    That sounds analogous to how they came up with “real income” in the first place. Once you do all the math, they come up with an overall stagnation, or even decline for the average 30 year old. Would your method come up with different results when applied across the board?

  89. Either way, some amount of income allowed me to buy the music listening utility I desired in 1970. A different income allows me to buy the listening utility now. When you claim I am getting more for my money now, you have to demonstrate some sort of metric that allows for the comparison that is more rigorous than “It is obvious that stuff available now is more valuable.”

    Which metric would you like? Signal to noise ratio? Storage capacity? Battery life?

  90. MattL,

    “Which metric would you like? Signal to noise ratio? Storage capacity? Battery life?”

    None of those are monotonically related to listening utility…

    So how are you going to apply this technique to a person’s total material well-being?

    What rates higher in your system – the greater ease with which I load songs into my cassette player, or the list making ability of the ipod?

    Why does my 65 VW van have a higher resale value than the 82 Honda discussed above? Isn’t that a better metric to utility/value? If so, did someone who owned an early 70’s Chevelle, that now sells for 500,000 dollars have more material wealth than the owner of a 2007 Prius?

    Just believing that material well-being has improved is far easier than finding a measure for it. Real income, which is being criticized, is a method for doing that. What’s the better method?

  91. And since you seem to be stuck trying to sell me an ipod, let me tell you why I don’t own one.

    ipods are great in concept. Take your whole record collection with you wherever you go. Nice idea. Only works, with the current technology, if you have a pretty small record collection. With current tech, I can get around 50% of my record collection onto a 40g ipod with anything approaching good sound quality.

    ipods are popular because most people don’t have such large record collections, so the concept/utility they sell works for a lot of people. Not so much for me.

    Now, I will admit that I subjectively prefer the minidisc to the cassette or the ipod, but I won’t go so far as to say that makes a strong case to claim that owning it provides anymore material well-being for me than an analogous device did for someone in 1975. There’s to much apples to oranges involved.

    Your idea of using hours worked to get product type X, is a reasonable approach, maybe, but I don’t see how it is better (or different) than the real income measure being criticized.

  92. Now, I will admit that I subjectively prefer the minidisc to the cassette or the ipod, but I won’t go so far as to say that makes a strong case to claim that owning it provides anymore material well-being for me than an analogous device did for someone in 1975. There’s to much apples to oranges involved.

    I used to be a fan of MiniDisc but they still hold less than an mp3 player and are bulkier than a flash based mp3 player so I stopped using them.

    Actually having owned a cassette player, a MiniDisc player, and a flash and hard drive based player I will go so far as to say the latter two provide greater material well being to me. And since all three are still available the relative rarity of the first two tells me that I am not the only one who thinks that.

    I agree there are too many apples and oranges. But I don’t buy the argument that material well being has declined since the 1970’s. I just don’t think there is one good way to measure it. If you look at an aggregate of measures it’s clear things have improved. From the increase in home ownership to real declines in the cost of certain goods to new products.

    Only works, with the current technology, if you have a pretty small record collection. With current tech, I can get around 50% of my record collection onto a 40g ipod with anything approaching good sound quality.

    Considering the rate of increase in hard drive storage capacities this may not be an issue for long.

  93. “Considering the rate of increase in hard drive storage capacities this may not be an issue for long.”

    True, so true…

    But the time to convert it to mp3…?
    Tha’ a lot o’ hours.

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