2006-03-31

Massive Increase In Average US Spending Power

Leftists like Tom and Nadir claim that the average American worker's income has stagnated over the past 30 years; plenty of Harvard studies and New York Times articles make this claim. Plenty of free market economists -- notably Thomas Sowell -- counterthat claim, showing that very few people today working in low income jobs have been doing so for 30 years, and very few people 30 years ago working those jobs continue to do so now.

For example, Thomas Sowell 30 years ago was a homeless person working as a dishwasher. The New York Times and the socialist economists point out that dishwashers today make hardly any more money then did dishwashers 30 years ago; stated another way, the "lowest 10% incomes haven't much raised in 30 years. Sowell refutes these claims as accurate, but misleading, since the majority of Americans at any given time working as dishwashers or otherwise qualifying for the "lowest 10%" incomes are tomarrow's middle class home owners.

In this article, one of my Cafe Heyak free market heros from George Mason's economics dept refutes the socialist interpretation from another, equally valid perspective: diswashers today can buy much more, and much better, stuff than did their counterparts 30 years ago. Contrast this with a socialist nation like Cuba, where today's dishwashers aren't just buying the same stuff as they did 30 years ago, they are literally buying the same cars!

7 comments:

Paul Hue said...

Consider this: 30 years ago Nadir's day could only see gay sex by going to a smut house and paying one-dollar-a-peep. Today he's got the internet, and Brokeback Mountain right there at a big fancy theater. How long did Nadir's dad have to work 30 years ago to afford a peep show ticket? How long does he have to work now to afford the Brokeback Mountain Director's Criterion Edition DVD?

Nadir said...

Cheaper technology is not the same as prosperity. Just because we have more stuff doesn't mean we have a better quality of life. They are not necessarily the same thing.

republican brother said...

Republicans need to go on a fiscal diet. I wish I could keep rasing my debt ceiling and print money to pay for it lol. Nadir, I have to disagree to a point. Every Christmas season, the number one catagory of goods sold are "home electronics. DVD Recorders, Ipods, Laptop Computers etc. America is technology junkies. In the business arena, the same rule is true. Cheaper technology leads to more productivity. A productive America is a prosperous America.

Tom Philpott said...

Part of this boom in spending power may be spectral. In food, for example, the percentage that people pay, on average, as a percentage of income has fallen steadily since the early '80s; it now hovers at about 10 percent, less than anywhere in the world. But the quality of food people are buying has fallen steadily as well--and overall health is declining. Most of this fall in price/quality has been underwritten by federal farm subsidies, as discussed here in this Grist piece: http://www.grist.org/news/maindish/2006/02/22/philpott/

As for productivity, it's true that productivity growth rose significantly in the '90s, particularly in the second half, and that productivity continues to rise. (Some economists, including one on Wall Street, claim the boom has largely been concentrated to the IT sector). But as Robert Pollan shows in his Contours of Descent, productivity gains no longer translate to wage gains. In the post-War era, wages rose steadily with productivity (wage gains tied to productivity gains aren't inflationary, since wage increases don't have to be passed on to consumers when worker output per time unit is rising). But in the 1970s, the US entered a "productivity crisis" that went hand in hand with stagflation (high inflation and sluggish growth, which in classical Keynesianism shouldn't exist). Paul Volcker's wrenching attack on inflation cured that problem. But when the economy returned to sustained growth, the old wage-productivity correlation evaporated. Starting in the 1980s and accelerating in the 1990s, productivity grew while wages stagnated. Translation: Capital's take of the nation's output grew, while labor's shrank. There's a myth that widespread stock ownership has democratized wealth. Actually, the share of stock-market value owned by the top tier of citizens grew over this period. What happened was that corporations managed to shift the burden of retirement plans onto workers under the banner 401Ks. The shift from defined-benefit to defined-contribution plans has made stock ownership look really widespread. in reality, the same crew clings to a bigger and bigger share of the cheese.

What has essentially happened is that we've shifted manufacturing overseas, using cheap southeast Asian and Chinese labor to democratize ownership of DVD players and other entertainment gadgets. While most people are staring slack-jawed at their TVs, eating cheap processed garbage, the owner class is counting its cash (and using some of it to buy boutique food like the kind produced here at Maverick Farms).

Paul Hue said...

====Nadir===
Cheaper technology is not the same as prosperity. Just because we have more stuff doesn't mean we have a better quality of life. They are not necessarily the same thing.
============

Yes, Nadir, the same or better technology available for a cheaper price certainly does constitute an increase in prosperity and quality of life; they are equivilant.

Paul Hue said...

=====Tom===
Capital's take of the nation's output grew, while labor's shrank.
===========

And a majority of that "capital take" did not end up as $20 bills used by fat cats to light $170 cigars; it ended up as increases in the retirement account of your mom's stock portfolio, as well as low interest rate used by her to remodel her kitchen into something fabulous.

Paul Hue said...

=========Tom===
While most people are staring slack-jawed at their TVs, eating cheap processed garbage
===============

Tom, you will remember in our ghetto neighborhood that people spent just as much time watching TV and eating crap; surely the masses today don't eat worse crap than the people in the 1970s Austin "East Side". I know you only spent a tiny fraction of the time in such homes compared to me, but I assume that you spent enough time in them to confirm my observation. Are they eating worse now? Absolutely NOT. They are paying less for what they DO eat, and:

1. Their Lay's potato chilps no longer contain hydrogenated oil.

2. If they do choose to eat nurishing food, they have much greater access -- even in terms of price -- today than in the '70s. Imagine even for the people who wanted then to eat as you and I do today, to purchase poptarts made from unrefined sugar and un-hydrogenated oil and whole grains. Could even $1,000 have gotten you a box? Black folks concentrate in the large population centers of the US, most of which have -- or are getting -- Trader Joes, where you can purchase poptarts, frosted corn flakes, and chocolate chip cookies made with FINE ingrediants, CHEAPER than the popular national brands, whose price you admit has dropped.

Yesterday I walked through a hard time housing project in New Orleans. I say perhaps a dozen people, of various ages, milling about. THEY ALL HAD CELL PHONES. Some were sitting on the porch playing video gams on their cell phones. Remember in our ghetto neighborhood what a rare luxury it was for any home to have that first video game?