Are We Better off Today?

Steven Horwitz

An issue that I've raised here several times in the last couple of years, namely how much better off the average American is now than in years past, is now being ferociously debated in the blogosphere thanks to Tyler Cowen's new monograph, whose title is misleading as to its actual argument, The Great Stagnation.  Tyler is arguing that the rate of growth since the mid-70s has slowed.  I think that is a defensible position, at least by some conventional aggregates, but the use of "stagnation" suggests that it's not about the second derivative but the first.   I think Tyler is clear in his argument that it's the second, but, again, the title suggests otherwise.

In any case, the debate over whether or not and to what degree we are better off now than in the past rages on, with Bryan Caplan and David Henderson doing great work in demonstrating why things have never been better. 

I think that the case is even stronger than perhaps they are making it.  The discussion does seem to be heading in the right direction by making these comparisons in terms of the ultimate scarce resource:  our time.  Whatever one says about various aggregates, it seems to me that the key measure of how well off we are is how valuable our time is in terms of what it can purchase us.  In David's last post, the point of comparison is weeks of median income needed to buy a car.  This is not a bad way to go, but why not go to hours?

There's data on the average private sector wage that we can then use to determine the number of labor hours it would take to purchase various goods and services.  This is the real measure of how well off we are:  what can we buy with an hour of typical labor?  To take a table that I borrowed from Mark Perry, here's one way to look at it:

There are numerous other items we could add to this list to make the same point.  (See also this post from Don Boudreaux.)

The other way to make it is to take an item from years past and ask what we could afford to buy today with the same number of labor hours.  So take the $400 TV from 1973.  At the 2009 wage of $18.72, the 97.1 hours of labor it took to earn that $400 in 1973 would net you $1817.71.  So with the same work that would have purchased what, by our standards, was a pretty crappy color TV in 1973, we could today buy a darn-near top of the line very large flat-screen with 3D.  Or alternatively, we could go to Walmart and get a relatively cheap LCD TV that would still be a way better product than the 1973 TV and tack onto it a surround sound system, a blu-ray player, and then for giggles maybe a cheap laptop and a small iPod and maybe even a digital camera and still have change left for some DVDs and software.   And all of this ignores the increased variety and higher quality of the artistic creations one can enjoy on all of those toys.

Looked at this way, it's just a no-brainer.  When you tack on the fact that crime rates are down from the 1970s and the advances in medical care (even if their second derivative is negative, which is questionable) and the cleaner air and water, why exactly would anyone think it was better back then? 

And presented this way, one could make a reasonable case that the second derivative isn't negative either.  Despite what the aggregates show, it's possible that what our time can buy us is growing at a steady, if not increasing, rate.

Comments

[Aeon J. Skoble]

"why exactly would anyone think it was better back then? "
2 reasons (neither of which I agree with, I hasten to add!): 1, some prefer flatter inequality graphs _despite_ everyone being better off under sharper inequality. For some people, is preferable to . And 2, some people are primitivists and think the explosion of consumer goods is bad.
Go figure.

[Jeremy H.]

Steve, I think you know that I'm with you on this, but I can already see Tyler's potential response: you are using mean earnings, not median earnings. Part of his argument is about the divergence between the mean and median.

[Chris George]

Seems like food is more important than a machine to puree it with.

1) Who denies that technology heavy goods are cheaper now than in the past?
2) Who's to say that we aren't simply making these goods cheaper at expense to our future wellbeing (environment, debt, etc)?
3) What about the cost of basic subsistence over time?

I don't have the answer to these (actually, (1) is pretty obviously "no one"), but they seem important.

[Jim Rose]

should not the question have a gender dimension.

are men better off now than in 1973?

are women better off now than in 1973?

Would women be just as happy as men to return to the good old days of 1973?

we should not reflect on the topic of this and related threads only through the eyes of grumpy old men.

[Mario Rizzo]

Consider two titles: "The Great Stagnation" or "Life is Getting Better, But More Slowly than Than it Did Previously -- Excluding the Years in Human History Where it Did Not." Which sells? Of course, given MY tastes I'd buy the latter.

[Pablo Kuri]

Im glad I can now afford a flat screen with 3D, that really ímproves my well being.

[Jeremy H.]

Chris George,
On food costs, see Exhibit 3 from this 1997 Dallas Fed report:
http://www.dallasfed.org/fed/annual/1999p/ar97.pdf

Anyone have this data updated through the present? Or the pre- and post-1973 comparison?

In defense of Steve's post, though, the book he is responding too does focus on high technology. But Tyler does use the "low-hanging fruit" analogy, so perhaps a comparison of real fruit prices and quality is in order!

[Troy Camplin]

Adjusted for inflation, food and fuel have stayed mostly flat -- there is actually a range in which they fluctuate -- so with everything else getting cheaper, we actually have more money for food and fuel (and don't our waistlines show it!).

[Current]

To expand on Mario's point...

Tyler's a bit of a careerist and self-publicist, that's not a big problem, lots of economists are. But, it makes him tend to overstate his arguments. He edges them just far enough to be controversial and just leaves enough room to step back and say "I never said that". (Daniel Kuehn does that too.)

[Mario Rizzo]

There was an article recently in USA Today that made points similar to those in this post:

http://content.usatoday.com/news/americawants/story/2011/02/Living-standards-improve,-despite-tough-economy/43209546

[Aeon J. Skoble]

I see my comment got mangled. I was trying to use pointy brackets to describe ordered pairs, but your robot must have taken it to be (flawed) html, so it dropped it entirely. Anyway, just for the record, I'm not completely incoherent.

[Richard Ebeling]

The "hours time" of work to acquire or purchase various items is a useful measure of comparison, not only across time, but across countries.

Back in the 1980s Svetozar Pejovich did a short book comparing the U.S. and Soviet economies in terms of how many hours of work the average American and Soviet, respectively, had to perform to buy a wide selection of everyday consumer items (both durable and non-durable).

I would use the information from this book in my classes when there was still a Cold War going on, to get students to have a sense of one way of understanding a market-based vs. a centrally planned economy.

It was very effective.

Richard Ebeling

[John]

I wonder if there's another way to look at this. Tyler's argument is that the big changes in our quality of life occurred before the growth in median incomes flattened. You're comparison of hours needed to buy a good shows nice gains but might be masking something. I suspect the washing machine was probably fully adopted by the market in 1973. While we're paying less for the washing machine in labor hours in 2009, did we get any time back between the 1973 washer and the 2009 washer? (I do concede the 2009 washer will have certain improvements.) If so all we really see is a decrease in price for a similar service. As the washing machine was emerging in the market there was a huge time savings aspect for the change from hand washing to the 1973 washing machine. I suspect the washing machine was faster, better, certainly easier, and introduced the opportunity for multi-tasking.

I have to wonder if prior to 1973 if the bang for the buck for buying a washing machine wasn't larger, in an aggregate sense, than it is in 2009.

John

[curmudg]

No, no, and no. Most of the anti-Tyler arguments are about spreading the benefits of technology to all or about refining older innovations. But where are the dramatic innovations that the richest can acquire that we'll wait for technology to give to the masses in 20-30 years? I just don't see them. I don't care how nice a Camry or Buick is today. It's not that much better than a 70s Dodge relative to how much better a Dodge Dart was than an early Model T or Model A. Similarly, the fact that one can't fly halfway around the world in 5 hours at any price is a bad sign for the limits on improving transportation. The fact that -- for both technical and social reasons -- it's not dramatically easier to get from DC to Boston today than it was in the 1950s is also a bad sign. The question "Where are the flying cars?" is just one way of asking this.

Similarly, the lack of good robots, of good cheap prosthetics, lousy voice recognition/translation software, cheap seriously life extending medicines (relative to the gains from antibiotics), lack of VERY cheap alternatives to oil, (plus the fact that many schools in many big US cities are still awful and dangerous) mean that changes have clearly slowed and there is less of an innovative surplus for us to spread to the poor in the next quarter century.

YES, things are better. But NO, there are many reasons to believe the rate of change has slowed especially when considering those who are above the median.

[Richard Ebeling]

Hmmm.

We are going to make the types of comparisons that "curmdg" makes between the 1950s, say, and now, then maybe the most dramatic change in the human conditions due to innovation, technological change, radical transformation of travel, medicine, conveniences of life, was between from the "beginning of human time on earth" and the 19th century.

Steam, rail, "hot air balloons," manufacturing equipment and mass production, the beginnigs of many aspects of "modern medicine" (including dramatic gains in hygeine), the start of home applicances, the picture camara, the phonograph, the telegraph and the telephone, great engineering feats (the Suez Canal, tunnels through mountains for railways), the "match" and other new forms of illumination. And I am only naming the ones that immediately come to mind. There are many others.

The world had virtually none of these things (or only the most crude and rudimentary beginnings of some) before the 19th century.

One could say that everything like television, radio, indoor lighting, many aspects of manufacturing, the internet are "mere" outgrowths and extensions of the harnessing of electricity that began at the end of the 19th century.

So the "great leap" pretty much occurred during the hayday of 19th century classical liberalism and free markets, and everything else (jet planes, rockets to the moon and probes to other stars) have just been the applications of these earlier real transforming innovations, during the 20th and, now, 21st centuries.

So we have really been slowing down since the days of Richard Cobden and William Gladstone.

Richard Ebeling

[Andrew Larson]

I am wondering how these technological advances (cost of things in terms of labor hours) relates to the supply of labor hours. If things cost less now, why do we see more two-income families where both spouses work? Maybe labor markets are not integrated internationally, or maybe preferences have changed such that the second spouse prefers more work to leisure? Where is all that labor income going? We know things like medical care and education are more expensive. But in the case of medical care, technology has advanced too. It seems like other factors are at work to increase hours works, even though the cost of many things has fallen.

[Garrett Watson]

One of the biggest difficulties when comparing standards of living is the quality gap...how does one compare contemporary society with that of 100 years ago when much of the technology was much different or didn't even exist back then?

So, the question is, does Dr. Perry's statistics account for increases in quality of said goods, such as dishwashers and refrigerators? If not, that would naturally mean that real wages have increased more than the graph itself has shown.

[Truthteller]

The thing that middle-class people most wish were cheaper is leisure time (leisure time has gotten much more costly (relative to wages) since 1973; that's why virtually all middle-class women have gotten day jobs). Nothing on that list of home appliances helps with leisure time (clothes dryers, coffee pots, and vacuum cleaners, for example, don't work any faster now than 40 years ago).

The second thing middle-class people wish were cheaper is education for their children...

Price (fees & tuition; not housing, books, etc.) of one academic quarter full-time (16 credit hours) at the University of California, San Diego:

In 1980: $198 (I was there, and still have a receipt).

In 2010: $3,133 (per http://www.ucsd.edu/current-students/finances/financial-aid/budgeting/undergraduates-20092010.html)

Adjusted for wage level (higher in 1980 than 1973), the 2010 UCSD quarter's fees are perhaps $1000 in 1980 dollars.

Who cares if a washing machine is 69% cheaper now (thanks to the Chinese "export-oriented" command economy)? College fees are 400% higher. How the hell am I supposed to send my kids to college?

Today's washing machine does about the same job as 1973's washing machine (though it takes MORE TIME to do it (65 minutes vs. 45, thanks to counter-productive "green" government mandates), so (valuing my time at nil) I gain the equivalent of $200 (1973 $) every ten years (usual washing machine replacement interval) or maybe $1000 over the rest of my natural lifespan.

Today's college does less of a job than 1980's model (thanks to political correctness), but it will cost me (3 kids, 12 college quarters each) an extra $28,800 (in 1980 dollars(!) and much more in contemporary $$).

I would MUCH rather have affordable college fees than cheaper washing machines!

It's sad that today's Panglossian economists dismiss the real costs of middle-class life, such as leisure time and education for children.

Washing machines and DVD players are mostly irrelevant. Most people don't spend more hours (or report any more satisfaction from) watching big-screen TV's than the small-screen models of yesteryear.

Every time a supercilious economist claims we're better off because our TV's have gotten bigger, his rational readers shake their heads, because they have no more time to watch TV, don't experience any greater (relative) enjoyment-per-hour from watching TV, and can't expect bigger TV's to educate their children any better than small TV's did.

(Just a minor side note: vacuum cleaners are NOT actually cheaper today when adjusted for quality. Today's Chinese vacuum cleaners are much less robust and effective than the Hoovers and Kenmores of 30 years ago. Really-- check out Consumer Reports vacuum-cleaner tests going back a few decades. The middle-class is bedeviled by similar diminution in the quality of many household products. The BLS applies "hedonic" adjustments for many home appliances with the wrong sign!)

[Current]

I'm interested in this question from the economics side and because I'm an engineer by profession, and developing new technology is my job.

It's important to differentiate between invention, innovation and growth. There can be periods where a lot is invented, but little of it becomes applied immediately so living standards don't improve much. There can be periods where little is invented, but living standards improve a great deal because of the appliance of previous knowledge.

Then there's the issue of population. Did living standards drop (or grow more slowly) because of a population rise?

It's difficult to say anything very certain about invention though, because the usefulness only becomes clear after the fact. Even then history doesn't always make it clear what contributions were most important.

On the standard-of-living side of things things are a bit better. Productivity and GDP are a bit clearer, but it still has it's problems. Are the figures from the 19th century or before really accurate? I've read that growth rates in the 19th century in Britain were just above stagnation at ~1% per year, though I don't know if that's true and I doubt if anyone else really does either.

Some people try to argue that growth in GDP (or some kind of Gini weighted GDP) is the ultimate arbiter of better or worse economic systems. Over on the Cobden Centre site someone claimed that Keynesian policies were clearly better because UK GDP grew more quickly from 1945-1978 than it has done since. The problem with that is that it leaves the possibility of declining opportunity for productivity improvements. After 1980 comparatively countries that followed more Thatcherite policies did better than those who didn't.

The problem here though is what result are particular economic systems supposed to produce to be considered superior? More invention, better a better standard of living, or both?

[Troy Camplin]

Here's the way I look at it:

We have done absolute wonders with physics. That's almost all the radical innovations Ebling mentioned. All since then has been fine-tuning.

We have done some pretty impressive stuff with chemistry, but there is still room for innovation.

We have done next to nothing with biology.

Those are the areas in which technology can develop.

We have done almost everything one can do with simple systems. The future belongs to complexity. That will be much, much, much harder.

[Steve Miller]

I'm trying to figure out exactly how people have less leisure when we've established that what they buy costs less in worker-hours.

I'm also wondering how anyone with time to comment on a blog post can think that people have less leisure time than they 30 or 40 years ago.

[Steve Miller]

*did

[Roger Koppl]

I think truthteller's comments on leisure may be mistaken. Presumably, he refers to opportunity cost of leisure. The money cost of leisure as such is zero by definition. If we are more richer and, therefore, more productive, then the opportunity cost of leisure will go up. The high cost of leisure supports Steve's case that we are better off today.

[The Cuttlefish of Cthulu]

"Tyler's a bit of a careerist and self-publicist"

A "bit"?

[Rafe Champion]

Looking at the last 200 years, a stunning visual display of the relationship between lifespan and income in all nations.

http://www.youtube.com/watch?v=jbkSRLYSojo&feature=player_embedded

[twitter.com/LissIsMore]

I echo Andrew Larson's comment: If everything costs less why are we working so much more? It seems that, for most people I know, it takes 2 wages earners in the family to stay afloat, whereas a generation or two ago most families got by with a single wage earner. It seems that we are working harder and longer and only getting more deeply in debt.

This paradox - cheaper products, requiring less work hours to obtain, and yet the mass of people falling deeper into debt - needs to be explained.

[Rafe Champion]

Two contributions, (1) more stuff that we are not prepared to live without, international travel, regular dining out and whole rooms full of children's toys, and (2) the ever-expanding State.

[Roger Koppl]

It is paradoxical that we are more productive, yet work more. The paradox is resolved by considering the opportunity cost of leisure. The opportunity cost of leisure is higher now, therefore we take less leisure. The paradox and its resolution is a standard classroom exercise in microeconomics.

[Current]

> regular dining out

That's something about the US I've never understood. Until I talked to a few of them I didn't know that young Americans don't cook very much. After I learned that I was much more skeptical about all this pleading poverty that's been going on recently.

I think this change isn't just about opportunity cost of leisure, but also about changing culture and preferences.

[curmudg]

agnostic has a great blog post lending support to the Cowen view of technological slowdown. All economic liberals should study it carefully and think about its implications rather than trying to argue it away.

http://akinokure.blogspot.com/2011/02/great-stagnation-of-inventions-in-two.html

[Current]

Roger,

Reading through your comment again, I'm not sure that you're right.

Consumption being the ultimate aim of all economic activity we work in order to enjoy our free time and consume goods and services in it. Let's make the simplifying assumption that nobody likes their job. As overall productivity rises the opportunity cost of an hour of work rises, but ultimately the purpose of that work is to buy consumption goods and free time. So, if those things become more attractive in combination, which they should do through productivity rises, then the subjective opportunity cost of working rather than enjoying them rises too. I don't think economics gives us a clear indication in what direction things move. Hours worked may well go down even as wages per hour increase.

[Current]

Agnostic makes a number of good points, especially about the importance of simple inventions like matches. There are lots of examples like that, think about mass produced soap.

But, he misses that invention isn't the be-all and end-all. Take the soap example I just gave, soap is ancient, but mass producing it was a 19th century invention. I don't expect it makes it into the 1001 list. That's one reason why measuring "significant inventions" is dubious.

Another important one is the the most significant inventions that have occurred recently are unlikely to be known *now*. They will only be recognised as significant in the fullness of time. If the potential of all inventions were realised straight away then being an inventor would be a much easier ask. Agnostic tries to head off this criticism, but I don't think it's very convincing. He says that recent inventions are over-represented because geeks focus on them. Maybe, but if so what use is the 1001 list? He's right that there have been declines in the past, but that doesn't show that there really has been a recent decline.

(Also, don't all of us who read his blog know about how Agnostic loves to reminisce about the recent past. I can't believe he's accusing others of doing it.)

[Current]

> "Tyler's a bit of a careerist and self-publicist"
> A "bit"?

I was hoping for ironic understatement.

[Roger Koppl]

Current,

Sure. There's in income and a substitution effect; it is ambiguous. Right. But we should not be surprised if the substitution effect dominates. Once you consider the opportunity cost of leisure, the paradox doesn't seem so paradoxical.

As a wrinkle, we could consider that some leisure activities take more time and others less. As the opportunity cost of leisure rises, we expect to see people switching from more time-consuming forms of leisure to less time-consuming forms of leisure. I go into work on Saturdays. But I buy a fancier car to take me there. I eat out at a nice restaurant on Thursday evening instead of taking a weekend camping trip.

[Current]

In that case I agree with you Roger. I'm not arguing for a paradox, I was just pointing out that there isn't only the substitution effect.

[Tom]

A very narrow minded approach. How much of your income went to pay taxes and health care benefits in 73 as compared to 09? You need to weight the actual cost of living in 73 relative to 09.

[air jordans]

After this happens a few times, a person may develop a strategy for dealing with such moments of high emotion in order to try to stay calm.

[Georgioz]

I carefully read all post by Brian, Henderson and others. And I must say that you folks seem to be deliberately dense. Really.

First, as Tyler himself explained several times, he thinks that the pace of growth sloved post '73, not that it stopped. The term "Great Stagnation" is a widely used name for the phenomenon and should not be overtly analysed. Or would you start to argue if somene used a term of "Japanese lost decade" that a decade, being a unit of time, could not be lost?

Second, he explained several times that the difference between 1973 and 2010 is not that great as between 1937 and 1973. Actually it was not until 1936 and New Deal's Rural Electrification Act that electricity (and phone lines) were build so that the new technological wonders such as Refrigeration could be brought to millions of people living in the countryside. And in this regard the difference between 1900 and 1937 is that much more profound.

I'm also wondering - what happened to the technological advances? Aren't we supposed to live in an era of "rapidly accelerating" scientific advances? Where is limitless (and supercheap) nuclear fusion electricity? Where are those space stations, space elevators, semi-inteligent household robots and other marvels which were supposed to be available in next decade for like 30 years?