Getting Better All the Time (Generally)

A few weeks ago, Don Boudreaux (on Cafe Hayek) and Will (here at Cato@Liberty) offered a thought experiment challenging the claim that American middle class living standards have been stagnant since the 1970s.

The stagnancy claim is rooted in federal statistics indicating that middle class wages have barely kept pace with inflation. Since childhood, I’ve heard many sober-faced adults (including some of my political science and econ professors in undergrad) voice this claim by saying that my generations would “be the first to have lower living standards than its parents.”

Don and Will respond to this claim by pointing out that the quality of “stuff” that a person can purchase with those wages has increased dramatically over that time. Federal statistics may see no difference between X real dollars spent on an 8-track player in 1970 and the same X real dollars spent on an iPod today, but consumers certainly do (especially joggers who don’t have to lug 8-track players and extension cords on their evening runs).

This response is the thesis of today’s New York Times “Economix” column by David Leonhardt. Leonhardt opens the article describing Chicagoan (and Northwestern economist) Robert J. Gordon and his snowblower:

“People can die from shoveling snow,” Mr. Gordon said. “I bet a lot of lives have been saved by snow blowers.”

Yet the benefits of the snow blower, namely more free time and less health risk, are largely missing from the government’s attempts to determine Americans’ economic well-being. The same goes for dozens of other inventions, be they air-conditioners, cellphones or medical devices. The reasons are a little technical — they involve the measurement of inflation — but they’re important to understand, because the implications are so large.

Gordon has worked on quantifying those benefits. The Times nicely captures the contrast between his research and the “stagnancy” federal data in this graphic on the median earnings for men, and notes that women do even better:

Two Views of Pay

This leads to two important conclusions:

  1. Living standards have improved markedly since the early 1980s.
  2. There has been a decline since about 2002.

Cato@Liberty readers may grumble about Leonhardt’s final graf, but the article is a great read.

As for my former profs, instead of their sobering worries, perhaps they should drop some Jiffy-pop in the microwave, turn on their plasma-screen TV, plop a Netflix in the DVD player or flip on the TiVo, and relax.