Were we better off 40 years ago? Not really 

Have men’s incomes fallen during the last 40 years? That’s a meme you hear often in political discourse and a conclusion that some economists have reached as well. I argued the contrary in my February 26 Examiner column. Excerpt:

 

“My own assumption is that economic statistics have been painting an unduly bleak picture of modest-income America. When we measure real incomes we use inflation indexes, which over time inevitably overstate inflation, because they're based on static market baskets of goods.

“The problem is if one item spikes in price, we quit buying it. In addition, inflation indexes cannot account for product innovation and quality increases.

“Liberal writers look back to 1973 as a year when real wages supposedly peaked -- just before a nasty bout of inflation. But back then a pocket calculator cost $110. The smartphone you can buy today for $200 has a calculator and hundreds of other devices.

“If you get out beyond the Beltway to middle America, you find supermarkets with wonderful produce and big box stores with amazing variety, all at prices that are astonishingly low. You can eat well and dress stylishly at prices far below what elites in places like Washington and New York are accustomed to pay. In many ways people with modest incomes have a significantly better standard of living than they did four decades ago.”

 

Now comes social policy Ph.D. Scott Winship to make a similar point, in a blogpost entitled “Men’s earnings have NOT declined by 28 percent since 1969.” He’s responding to a Hamilton Project study that proclaims this is the case, and points out that in determining median income that study assumed the income of any man without a job was zero. But Winship points out that men have been retiring earlier over the last 40 years and that during that time many have been able to rely on a wife’s earnings as women have entered the work force. Moreover, he points to the choice of inflation indexes (or deflators) as influencing the right result; if you pick the right one, he says, men’s incomes have actually risen 7% during this period—“not great shakes,” he says, but not chopped liver either.

 

I think the argument here points to another conclusion: when you’re comparing economic statistics over a long period of time like 40 years, you’re inevitably comparing apples and oranges. Not taking some account of inflation is misleading, but any inflation index has weaknesses. Over time people buy different market baskets of goods, and quality improvements and the introduction of new products cannot be reflected by inflation indexes. In 1969 or 1973 most Americans didn’t have air conditioning in their homes or their cars, they spent zero dollars on computers and videocameras (because they didn’t exist) and the cars they buy today have all kinds of features (including safety features) that didn’t exist then. We wouldn’t want to live without these things today. Yes, we spend much more on health care, but we also get much more for what we spend: lots of people who would have died or suffered serious impairment 40 years ago are cured and live on today. How do you monetize that?

 

Looking back on 1969 or 1973 as some golden age to which we should wish to return is foolish. You can’t recreate the past and, when you stop and think about it, you wouldn’t want to. It’s like those political observers who look back fondly to the days when Democrats and Republicans got on well together. If you look back in political history, it’s very hard to find such a time. It’s like chasing a mirage. It doesn’t get you anywhere useful.

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Michael Barone

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