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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
Great post.
Keep in mind that we are now not only a different country but a different world.
Overseas manufacturing centers and emerging markets are significantly more widespread compared to the 1980s. Competition lowers cost which lowers wages.
BTW… I’ll admit it… I owned George Michaels Faith.
In 1982 a big mac cost 1.30 and it now costs 3.99. This is a 307% increase
Your 1968 haircut price increase was probably due to a labor cost “push” rather than a money supply dilution, which didn’t get rolling until Nixon took us off the Gold Standard. Your barber saw the general wage increase due to productivity, and decided that he could safely raise his price without major consequences – a form of non-government “share the wealth.” In addition, other barbers could get more working in the auto industry, etc., reducing the supply.
I am not sure how meaningful that is. With relatively few exceptions (you were 20 and under in 1982, or have acquired massive wealth in the intervening years), I would make a bet you were more attractive to the hot girls of 1982 then than you are to the hot girls of 2015 today.
This is independent of whether you attracted them then. You were likely still relatively more attractive then.
Seawriter
It’s my understanding that the percentage of income spent on food has been in fairly steady decline over the last few decades. This post has some interesting data along those lines, but I’d be curious to see a time comparison for all income brackets.
My point was to provoke people into thinking how socialists/libertarians have an extraordinarily cramped and limited view of what it is that makes people well off when they think only in terms of material goods.
I agree with that point. I only wish I were more of a chick-magnet today than I was in 1982, that’s all. But you know what they say about wishes. A few of the sayings are even CoC compliant, but not the best ones.
Seawriter
The main thrust of this post is the same one I have tried to make over the last 10 years. My family is solidly middle class with a good income yet, we are clearly more pressed than we were 5 or 10 years ago. The economy is a lot more volatile. Inflation in food and (until recently) fuel has been stretching us thinner and thinner. It creates tensions throughout the family.
I am in a fairly comfortable position, but I am where I am because of my efforts and activities prior to a decade ago. For the last seven years things have gotten better, but it is like a spacecraft launch – I am still going up, but the power cut out seven years ago, and I am traveling on momentum.
Also, like a spacecraft launch, if I do not get a boost within the next half a revolution, I will end up returning to Earth and crashing into the ocean. Meanwhile the federal government is busy attaching a big drag chute to my spaceship of state, increasing the forces pulling me down and increasing the size of my circularization burn.
Remind me again what happened seven years ago – back in 2008.
Seawriter
That’s the thing about the corvette metric. Used to be that if a middle class guy could buy a corvette if he played his cards right. The 50% increase in price above median income indicates that middle class markers are increasingly out of reach. That’s a problem. No matter your opinion about hedonistic sophistry.
Proving that you’ve got to have Faith, apparently.
Anyway, this far in, and no one’s said “But remember, kids, there’s no inflation?”
Very well. “But remember, kids, there’s no inflation!”
I love the picture you paint. Not that it’s a happy picture, but it’s well done. And I agree, the economy does feel like it’s just dragging along.
I think almost everybody in the middle class is in your shoes but it seems to be something we discuss on the quiet like. The government does not mention it and seems to go to extraordinary lengths to prove it wrong. The fact that the government is ignoring this issue and not addressing it and the lack of GOOD PAYING jobs is one of the reasons that many have lost faith in the government.
You cherry pick four items and pick an arbitrary year (why 1982?) to prove that the “eggheads” are way off in their “hedonic adjustments.” Sorry , but I find the level of intellectual rigor and statistical integrity of the “eggheads” is just a smidge more credible than your silly and completely facile critique.*
Healthcare costs and College tuition have exploded. Just about everything else has dropped significantly, including food costs.
* [Editor’s Note: If you believe another member is incorrect and/or has been impolitic, respond constructively.]
Yea but we can marry anyone we want, we have more sexes now, we can slaughter our children with government subsides, there are cool looking wind turbines all over the place, we had Solyndra, we have bullet trains to Bakersfield, I can get you to help me buy my new heater while you get me to help buy yours, we can spend trillions creating a giant vacuum in the Middle East, we can take care of a bunch of illegal aliens in our prisons, we can pay welfare benefits to a bunch more illegal aliens, we can have other illegal aliens commit crimes against us, we can see our salaries undermined by illegal aliens, we can have libertarians tell us the the above are a lot more productive than we are, instead of reforming our various pyramid schemes we can add more, we can design a giant loan scheme that transfers wealth from taxpayers to universities and college professors, and probably countless other benefits that I just take for granted. Do you think all this stuff is free? You are eating too much bread anyway and a bicycle and shipping container is a better choice for transportation and housing. By the way there is some entrepreneur, some chamber of commerce type, ok crony capitalist that makes money off each one of these items. They are better off and who could argue that they don’t deserve it?
OK, so it’s at least a little funny to this gal that who’s a chick magnet and who gets the hot babes is being used as a counterexample to materialism ;-)
“Socialists/Libertarians”? Really? How you manage to put two diametrically-opposed philosophies together so casually is difficult to understand.
In any event, what makes you think libertarians focus only on material goods? In my experience, libertarians are not the materialists. Socialists, yes. Their whole belief system is wrapped around distribution of material goods. Libertarians are focused on freedom. They aren’t utilitarians. They just happen to believe that free people make better decisions than central planners, and that therefore free people will achieve their own goals better than if they allow government to define and achieve those goals for them.
Comparison charts like the one above are meaningless exercises in cherry picking. Are home prices on average higher? Sure. But on the other hand, home sizes have increased. Also, in 1982 a mortgage here was 13% for a five year closed. Today it’s about 3%. Do the amortization for both:
Your $69,700 house is equivalent to a $171,862.87 house in 2015 dollars.
A 2015 house worth $299,400, mortgaged for 30 years at 3% interest equals a monthly payment of $1262.
$171,862 amortized over 30 years at 13% gives you a monthly payment of $1901.
Looks like houses are actually more affordable now, because of lower rates. That will remain true for any interest rate below 7%.
Now let’s look at the Accord.
First, correcting the price for inflation, $7399 becomes $18244. You can buy a Honda Civic sedan for almost exactly that amount of money. And again, your financing costs will be substantially lower. Cars have never been cheaper than they are right now, when you compare models of equivalent features.
But the new car is better. And not by just a little. For example, the 1982 accord had a 75 HP 4-cylinder engine. The civic has 143 horsepower. The Accord’s safety system was four seatbelts. The new Civic has six airbags, a rear view camera, lane avoidance, ABS brakes, stability control, automatic seat belt tensioners, and the list goes on and on.
Basically, if you wanted to buy a car in 1982 that had the kind of features available in a modern Civic, you would be looking at a Mercedes Benz.
The new Civic also has a much lower total cost of ownership. It gets better gas mileage, it won’t rust out, it will hold its resale value better, etc. Economy cars in 1982 were generally scrap after 5-7 years. Today, a reasonably cared for 10 year old car can look and drive like new.
How about comparing long-distance telephone costs? Or the cost to ship parcels in a reasonable amount of time? The cost of airline travel and vacations in general?
Healthcare and college tuition are also some of the most worrisome costs a family has to deal with. You have a point, but so, I think, does PP: it isn’t wrong for someone to write about an apparent mismatch between the hedonic adjustments used in statistical calculations and his own lived experience.
Supposing official hedonic adjustments are right on target, well, isn’t it at least a little interesting that regular people tend not to feel like they are?
I’m still waiting for someone to touch the fact that my teacher-mom didn’t have to work when my sister and I were in school, and we lived on my teacher/principal-dad’s salary—with summer off. Anyone living on one elementary school principal’s salary for 9 years these days?
Didn’t think so.
Then there’s computing. Do you have any idea how much the computing power in your smartphone would have cost in 1982? Millions of dollars.
Oh yeah. We have smartphones. And GPS. And the Internet. Anyone remember having to stop at a payphone to tell your spouse that you’re going to be late? Remember payphones?
Do you remember when middle class families used to buy encyclopedias to give their kids an edge in school? Those sets cost thousands of dollars. Now, we have all the information in the world at our fingertips for virtually nothing, and even poor kids can have access to it.
Entertainment – A good TV in 1982 was something like a Sony 19″ color tube TV. That was $500, or $1232 in 2015 dollars. Now you can buy a huge flat-panel display for much less and mount it on your wall – a boon for people living in small apartments.
The first Apple Macintosh was $2495 when it came out, or $5600 in 2015 dollars. For that, you got a computer with 128K of RAM (enough for about 1 second of MP3 music), a floppy disk drive, and a 9″ monochrome screen. It was orders of magnitude slower than an iPad today. Your smartphone has far more capability.
And so it goes. The world is different today – some things are more expensive, some things are cheaper. But on average, humans today live better lives, have more toys and comfort than at any time in history. The middle class in America today has better health care, better housing and more recreational opportunities than any other time in history.
The internet has also broken down class divisions. In 1982, a poor kid like me was stuck interacting with people from his social class, and not much more. Today, I can chat with billionaires and presidential speechwriters. Social mobility for the middle class is much better than it used to be.
Also, any comparison of incomes has to include the changing nature of benefits from work, the change in government taxes, benefits, subsidies, and services, etc. Wages haven’t gone up much in the past few years because health care benefits have. Low income people pay fewer taxes and get EITC credits. Deregulating airlines, trucking, and rail has removed the hidden deadweight costs from those industries and made their use much cheaper for everyone.
Globalization of manufacturing and automation is providing the middle class with goods cheaper than they’ve ever been. In the SCUBA article I recently posted, I pointed out that a $900 regulator in 1963 costs $200 today.
Your house comparison looks even worse if you correct for housing size, and worse yet if you correct for family size. The average home in America has grown in size by about 1/3 in the past 30 years, while the average family size has decreased by a similar amount. The cost per square foot of living space per individual has dropped dramatically.
Interesting. Thanks, Dan.
You certainly could if you wanted to have the same living standards you did then. Give up your internet, drive the cheapest car you can buy (which will be better than the best car you could buy then), move into an equivalently-sized house, do without the second car and the garage, dump your smartphone and its monthly cost, get rid of your expensive cable TV package and go back to having half a dozen channels. Cook meals at home more, don’t buy Starbucks, yada yada.
Oh, and where I live, a school principal makes over $100K, which is almost double the average family income. A two-teacher family is now upper middle class. My best friend in 1980 lived in a family with a principal and a teacher for parents. They were decidedly middle class, and not upper middle class. They had an average bungalow on an average street, and drove a middle class car.
Their big luxuries were that his Dad could afford a golf club membership at a public course, and they would fly somewhere on a vacation once every couple of years. Anyone remember how expensive airline travel was back then? The lower middle class simply couldn’t afford to do it. I never flew on a commercial jet until around 1990, after deregulation and competition opened up airline travel to the masses.
If the middle class is struggling today, one answer might be that the middle class will always struggle, because it’s in our nature for our demands to expand when our incomes increase, to the point where we begin to ‘struggle’. The average middle class person today would be miserable if forced to live the way the middle class lived 30 years ago.
Really? Several years ago we had an interminable “national adult discussion” on this exact issue.
Except back then it was the Democrats who were making precisely the arguments in the OP, just under the banner of income inequality. And at that time, the unanimous argument from the right – from both the eggheads and the grassroots – was “hogwash”.
Now, suddenly, conservatives everywhere are making the exact same arguments they disagreed with 4 years ago, just without the “tax the rich” addendum. The rhetorical and ideological whiplash is hurting my head.
The problem with these types of comparisons is that the devil is truly in the details, and there are way too many details to list.
Just to add one more example to those offered by Dan and others, take college tuition. While it’s true the sticker price has gone up, financial aid has gone up even more, so much that what people actually pay for college has barely increased, and indeed college has become more affordable for those with lower incomes.
Of course, that’s not a conservative victory. But it again shows that sticker prices are nearly meaningless when trying to compare the actual costs of family life.
Fantastic post!
Yippee for the eggheads. If only most of the voters were eggheads Republicans would be doing great. Unfortunately most people are not eggheads. They see things as presented in the OP.
So if the eggheads and the Republicans say things are good and prices are falling, but the voters don’t think so, then who wins the election?
I was a chick magnet exactly once in my life (and for a short time at that – the last semester of my senior year in high school). I can assure you the desire to be a chick magnet has less to do with materialism than with ego. Besides, it is hardwired into every male by genetics. It is built into the hindbrain.
That said, being a chick magnet is considerably different than acting on all the opportunities being one offers. The signal you are desired is the biggest attraction of it, although the virtuous feeling you get gently turning down offers so you can remain true to the one you really love comes pretty close.
Seawriter
I’ll add to this that it’s not just material demands that adjust to meet available opportunity: it’s also what we demand of ourselves as moral beings.
In my mom’s generation, it was still considered acceptable for an intelligent, driven woman to demonstrate her success and intelligence by acquiring whatever education and work skills were necessary to get her to meet the most eligible men, then marry well and become a housewife and mother. My mom, who wanted to be a career woman, was still considered one of the “freaks” – i.e, pioneers.
These days, for a wife to not be employed in at least some capacity outside the home is a mark of failure. I’m not saying there’s no reason for this – there are reasons, even good ones (one being labor-saving devices in the home). But even when family finances do allow the wife to stay home – heck, even sometimes when family finances would be better off (because of day care, transportation, and other expenses) for the wife to have no gainful employment outside the house carries more of a stigma of sloth, selfishness princesness, and unwillingness to pull her own weight.
Perhaps it is more just meeting the voters where they are at. If people really feel that they are worse off, then telling them ” your wrong” may not be helpful.
Maybe it would be better to acknowledge their feelings and tell voters why your (Republican) policies will help them. In the end it is the policy results that matter, not whether Republicans are smart enough to prove that the voters feelings are wrong
What about wife bonuses?