On Ordinary Americans’ Living Standards

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After reading a few days ago Pierre Lemieux’s excellent essay – “A Slow-Motion Collapse” – in the current issue of Regulation, I saw in it an opportunity to drive home a point that I’ve made before about the connection between arguments over the fate of ordinary Americans’ living standards and political ideology. Until now, though, I put off doing so (for no reason other than that I’ve been busy with other tasks). But now that David Henderson has pointed to Noah Smith’s excellent response to Brad DeLong’s claim that ordinary Americans have stagnated economically since 1979, I’ll finally weigh in with what I want to say about Pierre’s essay.

First, however, I can’t resist commenting here on this passage in DeLong’s post:

Moreover, across most of the income distribution Americans today are little if any better off than their predecessors back in 1979, at the business-cycle peak in the Jimmy Carter presidency. Yes, today Americans have remarkable access to incredibly cheap electronic toys. But those are a small part of expenditure….

It’s an error to minimize the significance (and size of benefits) of Americans’ “remarkable access to incredibly cheap electronic toys” on the grounds that “those are a small part of expenditure.” The fact that American households today are filled with lots of these economic goods – and are getting more filled as time goes on – means that the fact that acquiring these goods requires only a “small” expenditure renders Americans’ “remarkable access” to such goods a huge benefit.

Consider the extreme case: suppose that in a year or two electronic goods of the sort that DeLong has in mind become so inexpensive that each American household annually buys goo-gobs of them with a total expenditure of $0.01. The portion of households’ expenditure used to acquire these goods would be much lower even than it is now. But would anyone conclude from the fact that Americans’ spend such a paltry amount on these goods that the contribution of these goods to raising Americans’ standard of living is minimal? Would anyone conclude that the contributions of these goods to raising Americans’ standard of living would be greater if they were priced higher and if, as a result, Americans spent more in total to acquire such goods? I certainly wouldn’t.

Also note that DeLong’s calling these electronic goods “toys” trivializes their significance. It’s true that some of these goods are toys, but most are not. Automatic dishwashers create more leisure time for household members; cell phones – with zero-marginal-cost long-distance calling and texting – increase people’s opportunities to communicate in real time with loved ones, friends, and co-workers; GPS navigation means that we get to our destinations faster and with less anxieity and fewer wrong turns; cameras in our smartphones means that we can much more easily and on the spur-of-the-moment capture memories and share them more widely than any denizen of the disco decade could have done; ebook readers make the purchase of books less costly and the carrying of reading material easier. This list can be extended.

….

Now to the point inspired by Pierre’s essay: I have argued earlier that I see no obvious ideological advantage for free-market types (such as myself) to insist that the living standards of middle-class Americans have in fact risen significantly over the past 35 or 40 years. Nor do I seen any obvious ideological disadvantage for “Progressives” to deny this improvement in living standards.

Here’s the opening paragraph of Pierre’s article:

Six decades ago, fewer than 5 percent of Americans needed some sort of professional license (not counting mere certification) to work in their field. Today, that proportion is almost 30 percent. The growth of government regulation like licensure requirements seems to be a defining characteristic of the 20th and, thus far, 21st centuries. Most, if not all, economic life has been gradually brought under some kind—and usually many kinds—of regulation.

This paragraph nicely captures a theme of Pierre’s essay – namely, that government regulation, on the whole and despite some real deregulation in the late 1970s and early 1980s, has grown more and more burdensome for at least the last 60 years. If you read the essay, you’ll find further evidence in support of this claim.

If this evidence is correct (as I believe it to be) – that is, if it’s really true that government has intruded more and more into markets over the past several decades – then it would be easy and ideologically convenient for someone like me to go along with the likes of DeLong, Robert Reich, and Paul Krugman and agree that the living standards of ordinary Americans have stagnated. The culprit would be this increasingly burdensome regulation. And yet, as much as one part of me would like to find easy evidence that increasingly burdensome regulation has caused such stagnation, I cannot deny what my reading of the evidence tells me: Ordinary Americans’ living standards have improved dramatically over the time period that many “Progressives” insist have witnessed economic stagnation.

(On the other side, I’m sincere when I ask: Why do so few “Progressives” admit the impressive rise in the living standards of ordinary Americans and proclaim “See! Government works!” If I were a “Progressive,” I’m pretty sure that that’s what I’d do – loudly and frequently.)

Pierre makes the case that, absent such regulatory growth, ordinary Americans would today be much richer even than they currently are. I believe that he is correct.

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