Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
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
I deny none of this, nor that men have the self-control to refrain from acting on all their desires. But let’s also be honest: breasts and hips are material – and marketable – goods, even if they do come with a person attached.
Furthermore, the male ego is not immune to status-seeking,* and status-seeking is part of what people usually mean when they describe a materialist or consumerist mindset.
________________________________
* Nor is the female ego immune, but the physical appearance of the male’s mate plays a bigger role in male status-seeking than vice-versa.
My point is that 4 years ago, it was Republican voters (and their mouthpieces), not just the eggheads/Establishment, who were arguing that the middle class was not worse off today than in the 70s/80s. If middle-class Republican voters felt so badly about their economic position 4 years ago, why were they arguing otherwise?
My guess is because when it comes to political rhetoric, the priorities tend to be: 1) Argue against whatever the left is saying, 2) Then consider one’s own position. That brings us to this bizarre current moment in which the conservative base – nominally the most anti-left group in the country – is starting to make exactly the same arguments the left has been making for years.
The 300% increase of college tuition is a GREAT example because the resulting diploma is worth so much LESS now that it once was. :)
On a more serious note, I think that despite the very real and market-driven improvements in technology discussed in this thread such as better cars, computers and televisions, the real and perceived “cost” of a middle class existence is far higher now that it was in 1982 and that the main cause of said increase is government intervention in the marketplace.
Why did tuition go up so dramatically? Because more and more student-loans and financial aid schemes were inserted between the buyer and seller. Similarly skyrocketing costs in healthcare and medical insurance ($300 asprin) are also due to a disconnection of the buyer and the seller. Taken as a whole, these are further proof that that governmental disruption of the free market – whether via mandated insurance, regulatory capture, rent seeking, or monetary machinations – leads to price increases.
But why does the middle class bear the brunt of all of this and why do they feel the pain more acutely?
It is pretty simple.
Many of the aforementioned outlays are required spending for anyone in the middle class. The poor get the stuff for free and the wealthy don’t notice the pinch as much.
(1) You need a place to live and you are not going to get it subsidized by section 8 or live in the PJs.
(2) If you have a job you probably need a car and must buy auto insurance from a state mandated cartel and can’t shop for it over state lines.
(3) Unless you are on Medicaid you now have to carry health insurance. If your employer pays for part of it, they are taking it out of your paycheck.
(4) While higher education is not necessary for membership in the middle class, many employers require it.
These are all “required” spends for the wealthy too and they also pay more for these services, but increases in baseline or “required” costs are certainly felt less acutely by someone who makes the decision not to buy a vacation home than it is by someone who rents because she can’t afford a down payment on a first home.
Well, if you double the labor supply, salaries will obviously drop. Women, largely by choice, decided to enter the labor force en masse back in the seventies and eighties. Now it has become a necessity, but if women wanted to start going back to traditional roles and the labor supply started to shrink dramatically, I’m guessing salaries would adjust accordingly. I don’t think women in general are really wishing to go back to that, although many women probably would like to.
Indeed, obviously the left isn’t the only side which likes to play the victim card. This whole post is a whiny complaint about how much better things were in the good ‘ol days and how those evil string pulling bureaucrats and statisticians are trying to trick the world!
Well… to admit to yourself that your family is in a position to have all the wife’s income come from “wife bonuses” (transfers of cash from husband to wife, explicitly allotted according to the husband’s evaluation of the wife’s performance) is to admit to yourself that you are no longer middle-class. Instead, you’re now part of the “idle rich”, a princess… Which may be every little girl’s fantasy, but for a gal to not have that fantasy beaten out of her by the inculcation of the middle-class work ethic is considered a mark of childishness to many middle-class people.
The chart you are showing above is propaganda. Specifically, it’s generally propaganda associated with the left. Even more specifically, it’s propaganda created by eggheads on the left. In a post arguing for truth against manipulated statistics, it’s funny that your evidence is a chart derived from manipulated statistics.
The answer to it is not to buy into it, but to call it out as propaganda and present arguments refuting it.
Again, only the sticker price has increased 300% – but we are talking here about what middle class families actually pay for college, and that price has not gone up much at all. In fact, if you can wade through this report from the College Board, it turns out that what people actually pay for college sometimes decreases even when the sticker price goes up:
Thanks to financial aid, the rich now pay more for college but the middle class actually pays less. Meanwhile, the American taxpayer (i.e.: the rich) picks up a new huge tab to pay for women’s football and vegan steaks at the dining hall.
But the middle class is not, overall, paying more for college. The rich are.
I don’t think that’s a fair criticism.
I think what lies at the heart of the matter is that in a free market, life always feels difficult no matter what our relative affluence is compared with the past. The free market assures that as quality of life advances, new challenges get invented to ratchet up the difficulty.
So while it’s easy to say “throw away your smartphone”, the truth is many people now need smartphones – and high-speed internet access, and sometimes even an expensive new car – to stay competitive in their jobs.
I agree that blaming everything on statisticians’ voodoo is something of a red herring, but I don’t think that people are irrational when they feel their lives are more difficult than they should be.
This is exactly right. All the areas where costs are actually going up are areas where the government has a heavy hand.
In the SCUBA article I posted, I pointed out the difference in prices between SCUBA gear in an unregulated market and airplanes in a heavily regulated market. While the cost of SCUBA gear has plummeted over 50 years, the cost of personal aircraft has gone through the roof. A Cessna that in 1963 cost $72,000 in 2015 dollars costs $400,000 today, whereas a dive regulator that cost $900 in 1963 (in 2015 dollars) costs about $200 today.
The answer to the problems of education and housing can be solved by getting government out of it. Get rid of the subsidies and the loans, kill the mandates and micromanagement, and allow those industries to innovate. That’s the solution.
Different kind of good. The Carters stuff is in a fully price competitive market, where value is determined purely by what you’re getting in terms of the physical good. For the Dunhill tie, the price is itself a part of the product value proposition.
Nonetheless, the pertinent question to this thread is: is the middle class really stretched more financially, or are they actually staying roughly the same, with increased costs being offset by increased subsidies from the rich?
Last time we had this debate, many on the right touted an academic study which claimed that while nominal middle-class incomes may have stagnated or declined, the middle class was actually doing better than in the 70s when their lower tax rates plus higher degrees of “in-kind benefits” were factored in.
In other words, the middle class may not be earning as much, but they are still holding steady overall thanks to subsidies from the rich. Of course, even if this is true, it’s a horrible acknowledgement. But it nonetheless complicates the argument that the middle class is obviously worse off today than 40 years ago.
I don’t know how that assessment could be anything but irrational. What is the rational way to measure how “difficult” someone’s life “should” be. No one can say objectively or rationally what they deserve in life or what worldly circumstances they are entitled to.
We live longer, more healthy, more comfortable lives than any group of people in history, including people from the eighties. Saying that you think life is more difficult than it should be is no new or insightful complaint, nor is it meaningful in any broad sense.
There was a shining brief period in the aftermath of WWII in the fifties and sixties when most people in this country had really sky-high optimism. That was largely the result of surviving over fifteen truly awful years, way worse than anything this generation has seen, and from the subsequent advantage our country enjoyed from being the main industrialized power that wasn’t devastated by the war. But that blue sky outlook was always ephemeral because Europe and Asia were going to rise from the ashes eventually, and our exporting and industrial might was never going go on unchallenged. What’s more, that rose colored era bred the narcissistic tradition hating generation that brought us the sexual revolution, the feminist movement, and the welfare state which promptly gave us the nineteen seventies.
1/2
2/2
We got a revival of some of the mid-century good feeling under Reagan and because of the end of the cold war and the productivity revolution ushered in by computing technology it extended into the nineties. But like the 50s and 60s, the 80s and 90s sowed the seeds for spoiled and unrealistic notions about how “difficult life should be.” So we are living through the seventies 2.0.
But that just means that things are primed for improvement and better times ahead. This generation has nothing to complain about when it comes to prosperity compared to past generations. If they think they do, they need a reminder about the truth of the human condition and a lesson in history.
Pfft. No wonder republicans lose. They are completely divorced from anything that could remotely be called a coherent reality.
I agree – and wrote a long comment with the same conclusion.
That said, I do think that middle class folks who actually pay full freight for a place to live, insurance and college educations are getting squeezed in a more pronounced way in 2015 than in 1982.
I should have said, “middle class people who actually pay”
If something can be made in a factory, then its price in real terms has probably decreased over the last 30 years. Extra points if it can be transported conveniently in a shipping container.
For things that do not fit in the above categories, the situation is mostly very different. Getting a good education for your kids (“good” not only in terms of educational content but also of reasonable insulation from dangerous violence) will now in many cases require moving to a more expensive neighborhood, or paying for private school.
Healthcare is more expensive, and it’s not at all obvious that all or even most of this is a reflection of higher quality. Much of the increase is surely due to administrative inefficiency and cost-push resulting from heavy government involvement.
Saving for retirement, at least for people who follow a conservative strategy, is more expensive as a result of low interest rates.
The cynic in me says it has to do with who is in the White House. If a Republican is in the White House, attacks on the status quo will be defended by Republicans. But with Obama in the White House, the ‘decline of the middle class’ becomes a useful tool to hammer the incumbent with – or at least to express dissatisfaction with the way things are going.
Motivated reasoning is a very powerful force.
That’s easy for you to say – you’re just a network newsMonster who talks about himself in the third person a lot.
Well, how about this?:
The sensation that your life is more difficult than it should be is often what prompts you to change your life for the better. So, for example, if you hate your job, or hate being single, the feeling that “life is too difficult this way” is what prompts you to get a better job, or to brave the terrifying world of the mating market so as to eventually find a mate to ease your loneliness.
On an individual level, there is nothing irrational about being wired like this. Indeed, responding to dissatisfaction by taking steps to ameliorate it is rational, economically speaking. The seeming paradox comes about because even when a population’s circumstances improve, individuals within that population still have personal dissatisfactions to address – indeed, may even rely on these personal dissatisfactions to keep on improving their lives.
This is often asserted, but doesn’t really seem all that obvious to me. If you double the labor supply and *output remains the same*, then salaries will clearly drop. But if the new workers generate increased output, it’s not at all necessary that salaries will drop.
Imagine that only men worked outside the home, that there was a 50% unemployment rate because only men taller than X inches were allowed to work, and that the unfortunate shortys were being supported by their family members. Now the policy changes, and the other 50% can also go get jobs. Does the salary level necessarily drop? Does the average standard of living fall?
How is a poll asking people how they feel they are doing propaganda?
In what way did the polling company manipulate the statistics?
Look I think we probably roughly agree on what policies should be supported. My issue is that I do not think you get to those policies by telling people who do not feel they are doing good that they are wrong and should not complain, every thing is good, now lets make conservative changes.
If you are more interested in being right than getting conservative reforms then go ahead and fight people about their own personal feelings on their income.
This needs to be said over and over again.
This is totally off the mark.
First off, nobody in this conversation is either affiliated with or feels any kinship to the Republican party.
Second, if you look at the rhetoric being touted by the actual Republican candidates in this election (or any current Republican officeholder), it’s all about how the middle class is getting squeezed. Nearly all of the tax plans proposed by the candidates involve lowering the burden on the middle class.
This is all perfectly true, and is in fact kind of the point I’m making. That people feel that there is something wrong in their lives or in the world isn’t really saying anything meaningful. It is the default setting of the human condition.
Right, but that number is so low as to be statistically nearly irrelevant (meaning middle-class families paying full freight at private 4-year colleges).
Of course, this also depends on who we define as middle class. There are quite a few families in America earning well into six figures who describe themselves as middle class.
And even people earning around the median income will feel squeezed by college tuition despite generous financial aid if they need to take a second mortgage to afford it – and having exorbitant sticker prices only exacerbates that feeling.
Bottom line: it still makes perfect sense that people can be as well-off (or better-off) than 40 years ago based on the numbers, but still subjectively feel worse off.
Thanks, all, even those petitioning to have my membership dues refunded. Kidding, of course that did not happen (I think), but I would not have guessed that a pretty silly post I threw together while drinking on the train trying to tie hedonic adjustments, Twisted Sister, and Napoleon Dynamite together would near 100 comments. Sorry I have not replied more today, it’s been a busy day as I try to hedonically adust my Q4 targets at work :) but seriously, if anyone knows how to do that, please let me know. . . .rough quarter
True, and I probably shouldn’t have distilled it down to salaries. But women entering the workforce is undoubtedly a primary factor behind the fact that people can’t raise families from the same single earner jobs they used to.
Higher productivity and higher household incomes have the effect of producing inflation as well as resetting the baseline for the standard of living that people will see as “necessary.” Fifty years ago in the single earner days the house size, number of cars, education level etc. for a family were all much more modest. People didn’t necessarily expect that the average kid would be going to college the way they do now or plan trips to Hawaii.
So, while women entering the workforce did produce higher GDP and salaries did rise over where they were when women weren’t in the workforce. The lifestyle of families, including making college education for the kids a requirement and taking expensive vacations, went up due to the higher household incomes generated by the second salary. So what became “necessary” in terms of household income has risen even faster than salaries.
This is a misdirection.
The original post was based on a great deal of statistics, so some of us took on those statistics. To then argue “well that’s not how people feel” is to open up a completely new conversation – the original topic wasn’t based on sentiment, it was based on numbers.
There is a false dichotomy here between statistics and subjective perception, and the notion that one trumps the other. As gets pointed out in every single thread about science here, consensus does not make something true. But it is also obvious that facts do not win elections, voters’ perceptions do.
So these two topics are really completely different realms, and the answer to one has little bearing on the other. It is perfectly possible and natural that people, on the aggregate, are better off in material terms but feel worse off in material terms. Neither fact trumps the other.