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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
Indeed. People have learned to expect more, and as far as mobile computing, whether in phones or cars, they get more. But that also means that more is expected from them: higher productivity at work, for one. Longer work hours, for those fortunate enough to work full time, for another. The average work week in 1970 was 35 hrs. For the last few years IIUC it’s been well over 40.
Sure, some of the 90 million or so unemployed Americans are both willing and qualified to take up some of those “excess” hours, except that between inflation and the high cost of every new hire, businesses can’t really afford that either.
More hours for less buying power. In terms of housing, probably the biggest single expense for most of us, 46% less buying power. How is that apples to oranges?
One of the main drivers of high house prices is the demand for a house in a safe neighborhood (with a good school). Unfortunately, the way neighborhoods are made safe is by making the cost of houses so high that the riffraff cannot afford to live there. The supply of houses in safe neighborhoods is further restricted by regulations such as zoning laws and transportation policies that limit the available space near cities but separate from the riffraff.
There used to be cheaper ways to exclude riffraff from neighborhoods, but they were made illegal.
High housing prices thus being a feature, the price of houses won’t drop any time soon. Since the main feature of a house is its location, any broad increase in family income will only spur increases in house prices, negating the supposed increase in prosperity. And I agree that this is entirely the government’s fault.
See Dan’s post re interest rates and the average mortgage people are paying now under 3% borrowing vs. 13% borrowing.
I wonder how much of that drop is attributable to SNAP (if any).
In 1960 no one was on food stamps, by 1975 almost 7% of the population was, and by the mid nineties it was north of 10%.
It seems plausible to me that if a large segment of the people with the least disposable income started getting a significant amount of their food from a transfer program, it might skew the figures down more than a bit.
I was hoping somebody would notice. Thanks!
On a bike ride near Vincennes IN I got a bit lost and stopped at a house where an old guy, a WWII vet judging by his cap and jacket, was out in the yard. He agreed that the roads were confusing, and then I commented, “At least they keep the riffraff out.”
“I’ve got a gun for that,” he replied.
We need to blame the left for making the rich richer and the poor poorer. I do it myself every chance I get.
Where does one get a loaf of bread for $1.47?
I have not seen a loaf of bread under $4.00 for quite a while.
I suppose such bread exists somewhere, but it must be awful.
The $1.47 is for a loaf of standard white bread – remember Wonder Bread? That stuff. The $0.54 stuff was the same thing. The stuff you are paying $4.00 today for is what would have been high-end bakery bread back in 1982, and would have run about $1.50.
Seawriter
Props for taking the challenge, but a lot of it doesn’t wash: we had two cars, a garage, of course couldn’t have a cel phone at any price, and no internet yet (although I did have a modem and BBSes while still living with Mom and Dad). We did take two week vacations every year—driving—and visited the entire contiguous United States.
I don’t think anyone’s arguing we aren’t better off in all the hard-to-measure ways you describe. What I think people are arguing—I certainly am—is that any given dollar does not go nearly as far as it used to. It’s about this:
and this:
That there are some categories, like electronics, that have dramatically outpaced inflation in their development is wonderful, for sure, and software’s marginal reproduction and distribution costs asymptotically approaching $0 was going to change my industry sooner or later. But no “hedonic adjustment” on earth is going to make anyone feel more secure about being able to keep a roof over their head or put food on the table.
I disagree.
You might take issue with the statistics in the OP, and you may be right, but voters do the same type of comparisons as the OP.
While the original post was a great deal of statistics, it also touched on voter angst about their money being stretched thinner and the GOP needing an answer. So I do not think it is a misdirection to discuss that no matter whose math or methodology is best, the GOP still needs an answer to the voters subjective perceptions.
I do think that there has been some erosion in (mostly lower) middle class financial position- call it stagnation if you wish- and much is due to government meddling (health care, energy, auto mandates).
But there has been less than most commentators allege. The hedonic adjustment is an oppportunity for mischief, and the numbers can be cooked (as the global temperature readings always seem to be adjusted up now and down for the past). But you simply cannot compare an average middle-income house today with an average middle-income house in 1976 when we bought our first place. http://articles.chicagotribune.com/2000-06-18/business/0006180063_1_single-family-homes-two-or-three-bedrooms-new-housing-units
And for a vehicle, you need to factor in cost of driving, that is, 12 MPG vs. 30 MPG, which, given energy costs, tells a different story that surely also offers opportunity to illustrate government mischief.
The fact of a hedonic adjustment is not a problem- the key is to get the numbers right. And here the issue is less the increased costs than it is what/how/why the household income numbers are as they are.
Huh. My local Harris Teeter doesn’t carry Wonder Bread, but the closest equivalent, Sunbeam, is $2.69 a loaf.
I just checked at the grocery. Wonder bread is 1.79 a loaf. The bargain Kroger brand is $1.50.
Maybe you need to move to Texas.
Seawriter
Well, I live in a reddish purple state (North Carolina). I wonder if Wonder bread isn’t $4.00 in the northeast.
In answer to my own question about clothing, I just googled around and discovered that the Lands’ End cotton drifter sweater was introduced in 1982, and sold for $24. It’s $39 when full price, today, but on sale right now for $29.97, supporting my intuition that clothing is an area where we have a net gain in purchasing power.
By choosing what to ask, or which answer to highlight. In this case it’s not the polling company – they ask a whole lot of questions. It’s the people who choose to only report on the answers that work best for their political benefit who are distorting the statistics.
As a conservative/libertarian, I think it’s a bad mistake to tell people that government is there to fix everything wrong in their lives. Saying that we have to acknowledge their pain and have a policy plan to do something about it is buying into the notion that government is not just responsible for maintaining a civil society and protecting individuals from coercion, but that its mandate is to heal what ails people. That’s not conservatism – it’s populism.
If you buy into the arguments of Democrats and then propose an alternative that is Democrat-lite, people will choose the real thing every time. It’s a losing strategy. That’s what Republicans have been doing for two decades now. How’s that working out?
I don’t think there are any ‘reforms’ that are going to make everyone happy with their lot in life. What I would tell people is not that government is going to help them and ease their pain, but that the problem is that government is now acting as a barrier preventing people from helping themselves. Focus on income mobility, opportunity, and get back to the message that we used to tell people – that government works best when it does least, and that the best way to ensure your future happiness and your children’s happiness is to allow them to grow up in a country where they are free to rise to the level of their own ability and work ethic.
It’s not the government’s job to make them happy or keep them from ‘falling behind’ – it’s the government’s job to make sure that people have the right to find their own path free from interference, to make sure that cronies are not distorting the markets, that freedom to choose is maximized within the framework of a civil society, and to provide a minimum safety net to prevent people from starving or dying from lack of medical care. Once that is established, your fate is in your own hands.
So you are saying that you guys weren’t exactly rich, but you got along just fine on a single income from your Dad’s job as a Principal.
I think that’s still true. At least, it certainly is where I live. The median salary for a teacher with 10 years’ experience here is $84,000, which is higher than the median family income. A principal makes well over $100,000. So a family with a single worker who is a teacher is considered solidly middle class, and a family with a Principal in it is upper-middle class, even on one income.
I know there are states in the U.S. where teachers make significantly less than they do here in Canada. But there are plenty of states where they make as much or more. What’s the median salary for an experienced teacher or principal in your state, and how does it compare to the median family income?
Those are just examples of inflation. Inflation does not diminish purchasing power unless wages do not keep up. When inflation is small and predictable, it has no real influence on overall purchasing power, as prices, investment returns and other monetary factors correct for it.
The real question is, could a person with a certain job live a better life 20 years ago in exactly the same situation? It’s a tricky question, because we don’t know what we’d miss until we have it. I was perfectly happy without the internet 30 years ago, but I would be miserable without it today.
OK, let’s vote on what government’s job is and see who wins. (I don’t expect I’ll like the results, but I’ll have to live with them.)
But our job has to be to change their minds. A Republican party that constantly holds its finger to the winds and builds it’s strategy around containing losses will continue to have losses. We’re only quibbling over how long it will take for it to be completely destroyed.
We have to start actually convincing people again. Reagan didn’t follow public will – he turned the public in his favor.
As I said, if it’s a choice between Democrat and Democrat-Lite, the people will choose the Democrat, every time. I can remember a time not that long ago when Democrats had to play Republican-Lite and hide their true goals because they just didn’t have the people with them. Now they do. You can either try to contain the damage, or you can step up and defend your ideology and convince the other side that you are right.
As a conservative populist (or populist conservative) this is the part I disagree with. So you could start by convincing me.
I think we SHOULD acknowledge people’s pain. We should be very concerned about outcomes as well as opportunity. As far as what the proper role of government is, I am pretty much in agreement with you. But we shouldn’t just go about it mechanically. We should pay attention to the outcomes that result from policies and by changes in new economic modes. If you want to start convincing people, you’re not going to get very far if you’re not willing to analyze causes and effects.
Government has no obligation to fix people’s economic or other problems. It has a duty to not cause them in the first place.
Can the government create economic growth? Nope. But it can inhibit growth, and it is doing a good job of that right now.
Government’s duty is to remove the harmful policies that are imposing economic hardship on the citizens.
I agree with reticulator that we should acknowledge people’s pain, and (by finding communication skills somewhere) help them understand what’s causing it.
I wish conservatives knew how to sell that.