You ignore the primary issue. The increase in family or household income are women entering the workforce. Median male hourly wages are flat since 1980. Families have more workers, not better wages.
What is missing from this is a discussion of risk transfer. The reliance on high deductibles and copays, the end of welfare, the transition from tax payer financed higher Ed to higher Ed financed with non dischargeable loans have made where a crisis that would have been manageable in the 1970s is far more likely to be ruinous. Risk has real monetary value and no attempt to measure it is made here.
It's really sad that as common-sense and agreeable as this take is, the rest of the punditocracy wouldn't be caught dead making it, because it doesn't catastrophize enough.
And yet, that same punditocracy loves to pretend that we're not in an ongoing crisis of our political system.
As gregory byshenk points out, "even a median may also hide rising inequality". But another factor that can conceal inequality is debt, and I think you have omitted that. Educational debt has grown enormously over the period you cover, and debt payments reduce the usable income greatly. Likewise, I think median savings have gone down enormously.
Perhaps your analysis would be more illustrative if you were working by population quintiles, rather than gross averages or medians.
It would be very interesting to compare your views with those of Matt Bruenig (https://www.peoplespolicyproject.org) to see what results. I find your big picture to be comparatively bloodless to his more dissected view of who is hurting and why. Perhaps he should be one of your next interviews: I bet there could be some really good synergy.
It’s entirely possible that the increased wealth amongst the wealthy is not transferable; that any attempt to tax it away would prevent it from being made in the first place. It’s not a static amount of grain or land to be seized, it’s ideas and business organization, all of which people can choose to do less of in response to higher tax rates.
I am very much not an economist, so this may be an uninformed comment, but do these sorts of questions about living standards ever factor in how the same amount of money can buy different qualities of life at different times? Just to pick a low-hanging example, in the 70’s there was no amount of money anyone could spend, no matter how rich they were, to purchase a computer that fits in your pocket and connects you to anyone in the world and gives you access to essentially the whole of human knowledge whenever you want it. Now, a device that can do that is actually fairly affordable and a lot of people even at very low income levels have one. Even if income had been stagnant since the 70’s (which you do an admirable job of showing is not the case, but just as a hypothetical), would it be fair to say that we can still consider most people’s quality of lives in the US to have gone up since then, simply because you can buy better quality of life with the same amount of money than you used to be able to? Or is that a naive way to look at it?
(I suppose it may be a matter of opinion whether smartphones have made people’s lives better or worse, but I tend to be on the “better” camp.)
It's important to note here that the charts above are adjusted using the CPI, which is known to be a) inappropriate for purposes like adjusting long-term wage data due to overstating increases in cost of living, and b) wildly inappropriate for comparisons with data adjusted using the GDP deflator, like real GDP in the last chart.
Furthermore, the share of GDP coming from consumption of fixed capital (depreciation) and imputed rent of owner-occupied have increased by about five percentage points since the early 70s: https://fred.stlouisfed.org/graph/?g=EmYF
That, combined with the increase in spending on non-cash compensation, translates to a fairly substantial increase in the share of income that doesn't translate to personal cash income for anyone. It would probably be better to look at median per-capita income as a percentage of per-capita personal income, or something like that. I'm not 100% sure what the right comparison would be.
So overall I think the picture is even better than as implied by this post.
Better off in absolute terms, yes, better off relative to other Americans, no. Relative affluence is a zero sum game and human racking and stacking may be more important than any absolute measure. (Would people rather earn $100K in a neighborhood where their peers make $60K or earn $150K where all their peers earn $250K?) The pie grows, but divvying up the pie is more important for the psyche—and where politics lies.
I don't like median family income because about 95% of my friends are not married. My personal bubble is certainly not typical, but it's also completely missing in the "median family income" metric.
I get the impression people and our nation are worse off because:
1) Pay and productivity have been decoupled, so working harder and smarter doesn't buy you anywhere near what it would if labor hadn't been deprived of its bargaining power by the government. This is a disincentive to hard work and innovation. It's what one finds in peasant societies, but now we have two generations of American peasants.
2) According to the BLS, half of all American households spend more than they earn in the labor marketplace. A lot of this is thanks to things like food stamps and other government subsidies. American employers are no longer paying enough for workers to afford housing, food and other basics, so they are now reliant on government subsidies. We're supposed to be a capitalist society. We aren't.
3) Risks have been transferred to those least able to handle them. Most Americans are in the precariat, just one illness, car breakdown or mistimed bill payment from destitution. The rewards go to the well off who are protected from risk by a variety of government programs. It's like the third world where the only source of wealth is sponging off the government.
4) This completely ignores the rising cost of housing which has taken an increasing share of income. In the 1970s, it took 600 hours of median labor to buy a median house. Since the 1980s, it took 800 or more hours of median labor. The old 1/4 rule became the 1/3 rule and now 1/2 of one's income spent on rent is the norm.
5) During the wide spread prosperity of the 1950s and 1960s, business magazines routinely published regional income statistics. They were largely rising. That stopped in the 1980s when the only rising income was that of those already making the most money. Prosperity has increasingly become something only for those already prosperous.
I could go on, but the simple fact is that most Americans are less well off than they were before the 1970s. More seriously, their prospects are much worse, and we've seen this in the collapse of the birth rate. Noah has been trying to sell an optimistic story lately, and I respect him for it. A lot of things have gotten better, but I'm relatively well off and I recognize that a lot of things have gotten a lot worse. The future isn't about flying cars. It's about people being able to earn enough to have a place to live, put food on the table and feel that any children they have will lead even better lives than their own.
Declining household size is completely ignored in this piece, which explains the apparent stagnation in real household income in the last graph. Economists such as Russ Roberts have frankly dispelled this stagnation myth.
You left out key considerations of what households are spending on -- or rather being FORCED to spend on. More and more income is channeled into necessities that contribute little to standard of living. Medical care is the prime example of costs soaring well beyond the inflation rate, yet longevity has been declining for a number of years. Education is another necessity where costs have ballooned but the benefits have been minimal. Add in housing, with the average price skyrocketing although the median house is only slightly bigger than it was in the 1960s.
You might also have looked at consumer debt. I wouldn't be surprised if it's way up from what it was 50 years ago, and much of it is probably unpayable. Separately, worker hours may be down, but at least a somewhat larger fraction of households now require two income earners, sometimes holding more than two jobs, all of which adds to costs including transportation and childcare -- another unpleasant, life-degrading necessity that's more common today than in the past.
Oh, the dismal science! I think a strong - a very strong - case can be made that on a macro level, Americans are better off today than 50 or 60 years ago. On a micro level, given the fact that wealth inequality has been growing faster than aggregate wealth, one must say SOME Americans are better off.
Thinking qualitatively, where economists often display breathtaking myopia, I would argue that in the aggregate Americans are worse off than they were when JFK was inaugurated.
"given how much the country has grown economically."
That's quite a big-ass "given" right there, bud. Whether you believe it or not (I suspect you do not), it's been right-wing dogma since 1980 that rising income inequality has still benefitted everyone and that had policymakers tried to maintain the same level of income equality that existed in 1969 we as a country would be substantially poorer.
I'm not totally convinced that this story is false. If you think that
- rising income inequality is a function of increased return to capital
- Redistributionary taxes are implicitly taxes on capital
- Taxes on capital are highly inefficient and are passed on to workers in the form of lower wages
Then you would have to agree with the right-wing narrative that rising inequality is ultimately a good thing. This story holds in a textbook closed-economy neoclassical growth model, and introduction of various complications like openness to trade or monopolistic competition can easily strengthen this argument.
Are these charts adjusted to compensate for inflation? I could not find a note to that effect, and if the figures are not adjusted for inflation they are misleading.
You ignore the primary issue. The increase in family or household income are women entering the workforce. Median male hourly wages are flat since 1980. Families have more workers, not better wages.
What is missing from this is a discussion of risk transfer. The reliance on high deductibles and copays, the end of welfare, the transition from tax payer financed higher Ed to higher Ed financed with non dischargeable loans have made where a crisis that would have been manageable in the 1970s is far more likely to be ruinous. Risk has real monetary value and no attempt to measure it is made here.
It's really sad that as common-sense and agreeable as this take is, the rest of the punditocracy wouldn't be caught dead making it, because it doesn't catastrophize enough.
And yet, that same punditocracy loves to pretend that we're not in an ongoing crisis of our political system.
As gregory byshenk points out, "even a median may also hide rising inequality". But another factor that can conceal inequality is debt, and I think you have omitted that. Educational debt has grown enormously over the period you cover, and debt payments reduce the usable income greatly. Likewise, I think median savings have gone down enormously.
Perhaps your analysis would be more illustrative if you were working by population quintiles, rather than gross averages or medians.
It would be very interesting to compare your views with those of Matt Bruenig (https://www.peoplespolicyproject.org) to see what results. I find your big picture to be comparatively bloodless to his more dissected view of who is hurting and why. Perhaps he should be one of your next interviews: I bet there could be some really good synergy.
It’s entirely possible that the increased wealth amongst the wealthy is not transferable; that any attempt to tax it away would prevent it from being made in the first place. It’s not a static amount of grain or land to be seized, it’s ideas and business organization, all of which people can choose to do less of in response to higher tax rates.
I am very much not an economist, so this may be an uninformed comment, but do these sorts of questions about living standards ever factor in how the same amount of money can buy different qualities of life at different times? Just to pick a low-hanging example, in the 70’s there was no amount of money anyone could spend, no matter how rich they were, to purchase a computer that fits in your pocket and connects you to anyone in the world and gives you access to essentially the whole of human knowledge whenever you want it. Now, a device that can do that is actually fairly affordable and a lot of people even at very low income levels have one. Even if income had been stagnant since the 70’s (which you do an admirable job of showing is not the case, but just as a hypothetical), would it be fair to say that we can still consider most people’s quality of lives in the US to have gone up since then, simply because you can buy better quality of life with the same amount of money than you used to be able to? Or is that a naive way to look at it?
(I suppose it may be a matter of opinion whether smartphones have made people’s lives better or worse, but I tend to be on the “better” camp.)
It's important to note here that the charts above are adjusted using the CPI, which is known to be a) inappropriate for purposes like adjusting long-term wage data due to overstating increases in cost of living, and b) wildly inappropriate for comparisons with data adjusted using the GDP deflator, like real GDP in the last chart.
Furthermore, the share of GDP coming from consumption of fixed capital (depreciation) and imputed rent of owner-occupied have increased by about five percentage points since the early 70s: https://fred.stlouisfed.org/graph/?g=EmYF
That, combined with the increase in spending on non-cash compensation, translates to a fairly substantial increase in the share of income that doesn't translate to personal cash income for anyone. It would probably be better to look at median per-capita income as a percentage of per-capita personal income, or something like that. I'm not 100% sure what the right comparison would be.
So overall I think the picture is even better than as implied by this post.
Better off in absolute terms, yes, better off relative to other Americans, no. Relative affluence is a zero sum game and human racking and stacking may be more important than any absolute measure. (Would people rather earn $100K in a neighborhood where their peers make $60K or earn $150K where all their peers earn $250K?) The pie grows, but divvying up the pie is more important for the psyche—and where politics lies.
I don't like median family income because about 95% of my friends are not married. My personal bubble is certainly not typical, but it's also completely missing in the "median family income" metric.
I get the impression people and our nation are worse off because:
1) Pay and productivity have been decoupled, so working harder and smarter doesn't buy you anywhere near what it would if labor hadn't been deprived of its bargaining power by the government. This is a disincentive to hard work and innovation. It's what one finds in peasant societies, but now we have two generations of American peasants.
2) According to the BLS, half of all American households spend more than they earn in the labor marketplace. A lot of this is thanks to things like food stamps and other government subsidies. American employers are no longer paying enough for workers to afford housing, food and other basics, so they are now reliant on government subsidies. We're supposed to be a capitalist society. We aren't.
3) Risks have been transferred to those least able to handle them. Most Americans are in the precariat, just one illness, car breakdown or mistimed bill payment from destitution. The rewards go to the well off who are protected from risk by a variety of government programs. It's like the third world where the only source of wealth is sponging off the government.
4) This completely ignores the rising cost of housing which has taken an increasing share of income. In the 1970s, it took 600 hours of median labor to buy a median house. Since the 1980s, it took 800 or more hours of median labor. The old 1/4 rule became the 1/3 rule and now 1/2 of one's income spent on rent is the norm.
5) During the wide spread prosperity of the 1950s and 1960s, business magazines routinely published regional income statistics. They were largely rising. That stopped in the 1980s when the only rising income was that of those already making the most money. Prosperity has increasingly become something only for those already prosperous.
I could go on, but the simple fact is that most Americans are less well off than they were before the 1970s. More seriously, their prospects are much worse, and we've seen this in the collapse of the birth rate. Noah has been trying to sell an optimistic story lately, and I respect him for it. A lot of things have gotten better, but I'm relatively well off and I recognize that a lot of things have gotten a lot worse. The future isn't about flying cars. It's about people being able to earn enough to have a place to live, put food on the table and feel that any children they have will lead even better lives than their own.
Declining household size is completely ignored in this piece, which explains the apparent stagnation in real household income in the last graph. Economists such as Russ Roberts have frankly dispelled this stagnation myth.
You left out key considerations of what households are spending on -- or rather being FORCED to spend on. More and more income is channeled into necessities that contribute little to standard of living. Medical care is the prime example of costs soaring well beyond the inflation rate, yet longevity has been declining for a number of years. Education is another necessity where costs have ballooned but the benefits have been minimal. Add in housing, with the average price skyrocketing although the median house is only slightly bigger than it was in the 1960s.
You might also have looked at consumer debt. I wouldn't be surprised if it's way up from what it was 50 years ago, and much of it is probably unpayable. Separately, worker hours may be down, but at least a somewhat larger fraction of households now require two income earners, sometimes holding more than two jobs, all of which adds to costs including transportation and childcare -- another unpleasant, life-degrading necessity that's more common today than in the past.
Oh, the dismal science! I think a strong - a very strong - case can be made that on a macro level, Americans are better off today than 50 or 60 years ago. On a micro level, given the fact that wealth inequality has been growing faster than aggregate wealth, one must say SOME Americans are better off.
Thinking qualitatively, where economists often display breathtaking myopia, I would argue that in the aggregate Americans are worse off than they were when JFK was inaugurated.
"given how much the country has grown economically."
That's quite a big-ass "given" right there, bud. Whether you believe it or not (I suspect you do not), it's been right-wing dogma since 1980 that rising income inequality has still benefitted everyone and that had policymakers tried to maintain the same level of income equality that existed in 1969 we as a country would be substantially poorer.
I'm not totally convinced that this story is false. If you think that
- rising income inequality is a function of increased return to capital
- Redistributionary taxes are implicitly taxes on capital
- Taxes on capital are highly inefficient and are passed on to workers in the form of lower wages
Then you would have to agree with the right-wing narrative that rising inequality is ultimately a good thing. This story holds in a textbook closed-economy neoclassical growth model, and introduction of various complications like openness to trade or monopolistic competition can easily strengthen this argument.
Maybe the income trends of the 1950s and 60s were dependent is some measure to the social inequalities of the period? Just a thought..
Are these charts adjusted to compensate for inflation? I could not find a note to that effect, and if the figures are not adjusted for inflation they are misleading.