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If Only a 1980s Movie Montage Could Bring Back the Prosperity
In the movie Napoleon Dynamite, Uncle Rico dreams of returning to 1982, leading his high school football team to state, and getting drafted by the NFL so that he does not have to live in a van. I have a more modest dream of simply returning to the higher standard of living many Americans enjoyed at that time. This may sound like crazy talk as the crass rock of Twisted Sister that we were subjected to in the 80s seems unrefined compared to the elegant Kardashians we watch today but — in many ways — it is true. Few may agree with me on this point. Our very own beloved Ricochet economics contributor, James Pethokoukis, recently put out a post taking issue with the other side’s claims of a shrinking middle class over the last few decades, using inflation adjusted data to prove his case. My issue with these numbers is they are based on arbitrary hedonic quality adjustments to the CPI which – translated to English from Ivy League Econo-speak — is “Don’t believe your lying eyes, this is how good you have it!” So, here is a quick analysis based on good old fashion simple non-adjusted dollars. No magic here.
Median unadjusted household income increased 130 percent from 1982 to 2014. Not bad, you might think. Who wouldn’t want a 130 percent raise? Here’s the problem. Unless you’re into coin collecting, swimming in your money, or lighting cigars with dollar bills, the amount of money one makes is far less important than what it gets you. So, while median incomes rose 130 percent, the price of an average car (Honda Accord) went up 197 percent, the price of an average house went up 330 percent, price of a (supposedly) top-notch Harvard education went up 317 percent, and price of food staples like bread went up 172 percent.
Let’s now look at how much stuff the median American household could buy. In 1982, that household income could get you 2.22 years at Harvard; in 2014, it only got you 1.23 years (a 45 percent decline in purchasing power). In 1982, you could buy over 43 thousand loaves of bread, assuming you were not on Atkins; in 2014, you could only get about 37 thousand in 2014 (a 16% decline).
Now, any properly trained, sober-ish economist would quickly say, “Whoa there, buddy, that 2014 Honda is pretty sweet and what about prices that came down like computers?” Sure, granted the 2014 Honda can blast Taylor Swift from an MP3 while you’d have to fumble through your Wham! cassettes to get a tune going in the old model, but isn’t the primary purpose of a car to get you from here to there? Both the ’82 and ’14 model can do that just fine, but it was a lot easier for the family in 1982 to have two of those in the driveway than it is now. Regarding the second point, sure, as technology advances, computer prices are lower and my DVD player is better and cheaper than the old Betamax. However, what consumes a higher percentage of middle class income: 1) House, car, education, and food expenses; or 2) Electronic gizmos?
The point of this is not to whine about the good old days, but to make the case that there are real reasons why middle class families feel a pinch as they find it harder to provide essentials like shelter, transportation, education, and food. If our side can’t figure out how to address this angst, we’ve already lost.
Pethokoukis writes that, “[W]hat Sanders and many other progressives are doing is painting a distorted economic picture that smears American-style capitalism and the pro-market turn that began in the late 1970s.” Sure, but my issue is that the Democrats are offering phony solutions to fact-based, middle-class angst while our side on the defensive and claiming that things are really swell. We are not going to win elections by telling the middle class they have it great when it is obvious they are getting stretched thinner.
This is not an indictment of capitalism. Does anyone honestly think that what we have been practicing in America over the last couple decades is growing free market capitalism? If we want to win, we need to turn this discussion around, acknowledge that there are legitimate reasons middle-class – and, particularly, lower-skilled – workers feel left behind. Then, we need to explain that government involvement is causing this, and that the solution is less government.
References:
Median Household Income
http://www2.census.gov/prod2/popscan/p60-142.pdf
http://money.cnn.com/2014/08/20/news/economy/median-income
Honda Accord
http://www.edmunds.com/honda/accord/history/
http://www.cars.com/honda/accord/2014/snapshot
Home Price
https://www.census.gov/construction/nrs/pdf/uspricemon.pdf
Harvard
https://college.harvard.edu/financial-aid/how-aid-works/cost-attendance
http://www.nytimes.com/1982/02/21/us/harvard-to-increase-charges-for-tuition-and-board-in-83.html
Bread
http://data.bls.gov/cgi-bin/surveymost?ap
Published in Domestic Policy, Economics
As I recall, in 1982 when I was married to my first husband, in order to pay enough income taxes, we had to have withholding at the higher single rate, AND have an extra amount withheld from each paycheck. I was a hospital pharmacy assistant, making about $15,000 per year, and he was a transformer winder making slightly more than that. Marriage penalty, anyone?
I have long suspected this.
Main Feed. This is exactly right.
The one are where I suspect that there has been a real improvement in our purchasing power is clothing. That seems like a great example of the benefit of free trade to the middle class. Do you have any data on that?
< devil’s advocate mode = on >
Isn’t it a bit like comparing apples to oranges to compare a 1982 Honda Accord to a 2015 Honda Accord?
In 1982 the Honda Accord was considered a “budget” car, was it not?
In 1976 the Accord was a “compact hatchback”. Today, it’s just shy of being classified as a “full-sized sedan”.
Therefore, would it perhaps be better to compare a 1982 Honda Accord to a 2015 Kia?
What was the cheapest car available to the US market in 1982, and how does it compare to the cheapest car available in 2015, both in terms of price and in terms of quality?
< devil’s advocate mode = off >
If you are going to do a comparison, you should compare a corvette over time.
Its market position hasn’t changed in all 62 years.
How much of median household income has been changed by the dissolution of the two parent household? Comparing apples to apples would change the figures somewhat, but then the argument would change to how to get women to settle down with one husband.
I don’t think the class is all that indicative. My first car was a 1970 Pontiac LeMans 4-door. Bigger than anything Detroit makes now. Back then that was mid-sized. Both of those are smallish 4-door sedans.
This is a great post. Thanks for the time putting this together.
Did you consider taxes in your comparison?
I can neither confirm or deny that I may have had a Wham cassette.
Ok, ok, you beat it out of me. Yes, I had Wham. Wake me up before you go go.
With this, I can sympathize. If one is confronted on the campaign trail by a voter whose farm is failing, it doesn’t do him any good to tell him that farmers overall are doing better under our party’s policies.
On the other hand, in the current Canadian election the Liberals keep talking about how the middle class is “struggling”, when most of the statistics show that Canada has the richest middle class on Earth.
Can middle class people in other countries afford a 2015 Honda Accord while American middle class people cannot?
(Aside: Progressive politicians keep telling us that we need to “rethink everything” and do away with “old ideas”, but then they turn around and use outdated statistical comparisons like these to scare us into thinking there’s way more “poverty” than actually exists. Irony?)
As a Double Income No Kids (DINK) at that time, we also had to withhold at the single rate and pay extra. But that was before the Reagan tax cuts went into effect in 1983. At least the marginal rate went from 70% to 28% by 1986.
Thanks! It’s funny, I’m kind of talking out of both sides of my mouth now – but this is Ricochet so I’m OK with it – but my wife and I were just talking about how kids clothes at Carters are cheap (seem cheaper) but the quality is getting terrible. Anyway, I’m sure you are right with, overall, clothing generally getting relatively cheaper as production has been offshored. On the high end, I think the opposite might be true….here is a NYT article from 1982 putting the cost of a Dunhill tie at $25-$30 and here is that $175 tie now.
Devils Advocate was a great movie! I think the Civic was the low end and the Accord was remodeled in 1982 and made bigger. Anyway, this was kind of part of my fun. Meaning, a bunch of eggheads due their hedonic adjustments to account for improvements, but we have no idea what they did. The simple example of me choosing a Honda Accord over time shows how complicated it is to account for these changes, so how easy would it be to “fudge” the numbers?
Thanks, B. No, that is just total median income without any taxes considered. I’d need a few beers to go down that rabbit hole :)
Here you go…1982 base was $18,290 and 2014 was $51,995, that’s +184%. Not too different than the Accord
In 1982 my household income (in constant dollars unadjusted for inflation) was one quarter of what it was last year and promises to be this year. (I got laid off in May and have been doing contract work off and on since then – well-paid contract work, but still. my income is not as predictable as last year.)
Even adjusting for inflation I am making considerably more now than then. Plus the percentage of my gross income I was paying in taxes was higher then than it is now.
I am not saying life is swell, but it is better than it was in 1982, and the unswell parts are basically due to the government trying to “help me.” Without Obamacare, I could manage quite well as a contractor. With Obamacare I am on my way to serfdom.
Seawriter
Emphasis added by me.
Yes, but your skills/experience have increased. I think looking at the median U.S. income is a more consistent comparison. The tax question people are bringing up is interesting and I am far too sober to start looking into that. Federal taxes are down but it would be interesting to see how much of that is countered by state and local (income/property/sales/city amusement tax – that is a real thing in Chicago). Conducting that analysis would be a thesis paper
When you compare the cost of Hondas then and now, don’t forget to include the sales tax.
Jamal, you never met my first husband (Ray is #2). Shortly thereafter (1983), he returned to college, got his degree in Mechanical Engineering, and went to work for Kenworth Truck Company. Spent many years running the engineering lab there, and is probably a multi-millionaire now.
Are you saying other people’s skills/experience have not increased?
In 1983 I was an engineer with four years experience. Today I am a technical writer.
My middle son, today, is an engineer with four years experience. His income is about 80% of what my salary was for the day job I lost. After inflation he makes more than I did at his age for a roughly skill set.
Not all of my income today comes from the day job . 25-30% comes from other income streams. Some comes from freelance writing. Some from an early retirement pension. Another chunk comes from skipping expensive vacations and not buying expensive toys and sticking that money where it generated investment income. Some comes from dividends paid by stock a former employer gave all employees from a profit sharing plan. (Most of my co-workers sold theirs as soon as they got it.) Everyone else could have done that, over the last 30 years.
State taxes in Texas are no higher than they were in 1982. Instead federal tax and regulatory policy is killing me.
My angst comes from a federal government seemingly intent on punishing prudence through policies rewarding those who partied while taking from those who saved. (My father-in-law is getting killed by ZIRP.) My anger is aimed at Republicans who will not clearly articulate why the makers and savers should be rewarded instead of punished.
Seawriter
Good point, if I remember, Chicago sales tax has gone from 7% to 10% since I was a kid
Great minds, or your great mind and my mind think alike
Unless you talk used Corvettes. Not that I would know anything about that…
Indeed it was. Now the Accord is a mid-range model. What’s the budget Honda today? Civic, or a Fit.
Skip – good to see you! I’d been awhile
Thanks. Been hyper busy and had something critical to attend to in my business.
I’m very disappointed in this chart. There’s no comparison of the price change in pleated pants.
To get serious, though, some of these items are hard to compare because of the differences that have taken place in time. How many square feet were in the average house in 1982 vs 2014? A lot of families with the means to build a new house these days will get a 4 bedroom house when they only have one kid, with no plans to have any more. And they may refer to that as their “starter house.”
Another example is cars. If you took the Honda badges off a 2014 Accord and took it through a time machine back to 1982, people would think it must be a luxury car. A 2014 Corvette Stingray would beat the pants off the fastest Lamborghini’s and Ferrari’s of 1982. Plus the cars of the 21st century look like they’re going to last a lot longer than the cars of 1982.
I’m not saying this invalidates the premise, just that it makes comparisons tricky. The loaf of bread is a good one, though, because a new loaf of bread isn’t larger, more high-tech, or more luxurious than one baked in 1982.
The only meaningful comparison is this: Who gets the hot girls then and now.
The median household size is also much smaller today than in 1982.
My dad used to say the best way to campare prices is to campare stamps and hair cuts. He claimed the government would not cheat itself on the price of a stamp and millions of Italian men on their feet all day cutting hair could not be fooled. In 1968 my barber raised his price from $.75 to $1.00. I just paid $ 15 plus tip. I don’t use stamps any more.
Randy – points well taken. Though, as you say, bread (and I would argue BA/BS degrees) are a bit more consistent. Part of my prodding here is to spark the thought of how are these qualitative adjustments made? How does one objectively measure the improvements of a 2014 Corvette? No perfect answer, of course
Or an Accord? Part of the reason the Accord has gone up in price is market driven (the car is marketed differently today), but other factors are the hidden costs of pollution regulations, safety regulations, insurance regulations, etc. You could not legally build a 1980 Accord today, but if you could I imagine that the sale price would actually be a smaller proportion of income than it was in 1980.