This week, the Census Bureau released data on the median family income in the United States. They found that it is lower than it was in 1989. That’s a big deal because the US economy has seen huge increases in productivity since 1989, but none of it has trickled down to the people. That isn’t really surprising. In general, since the late 1970s, productivity growth has not been shared with workers. There were modest gains during the Clinton years, small losses during the Bush years, and then huge losses following the 2009 crash. Still, it isn’t obvious to everyone. In particular, Matt Yglesias just doesn’t believe that people today are doing worst than they were 24 years ago.
I understand where he’s coming from. We have bigger houses now. We have more cars. More of us are graduating from college. He speculates that the consumer price index (CPI) is inaccurate over long periods of time. There is something to that. The CPI doesn’t just look at increases in costs; it also factors in technological improvements. So cars today are worth more than they were 24 years ago because they are now better. So even though the absolute price of a car may have doubled in that time, the inflation wouldn’t be 100% because now we get something equivalent to a car and a half. All of this means that the CPI is an imperfect measure, even though the example I just gave should (if anything) overstate how well we are doing today.
But I think that Yglesias is falling into the trap of thinking that marginal changes in standard of living are bigger than they really are. As Ha-Joon Chang noted, “The washing machine has changed the world more than the internet has.” This is an argument that I’ve been having with high tech friends for a long time. In the 1950s, people had AM radios in their cars. Now they have satellite radio and MP3 players. Is this an improvement? Sure! But it is only a marginal improvement. It is easy to overstate the importance of such things.
The things that Yglesias mentions as indicative of affluence don’t really mean that much. Having a home is a lot better than living on the street. Having a 1,700 square foot house really isn’t any better than having a 1,600 square foot house. Having more cars is probably more a function of lifestyle changes—especially more members of the household working—than it is anything else. And more education has not led to more wealth for workers. What’s more, Yglesias admits that fewer people have health insurance now than did then. But even there he diminishes the change by noting that there are procedures available now that weren’t available then. Well, for one thing, that’s a very marginal improvement. But more important, a larger share of people’s income is going to medical care, so that must swamp any improvements and provide a distinctly decreased quality of life.
I think the graph that he provides tells us all that we need to know:
What we see here is roughly what we already knew. During the end of the Reagan-Bush years, wages had stagnated. Under Clinton wages went up. They again stagnated under Bush until the crisis when they plunged down. Are we worst off now than we were in 1989? Maybe yes and maybe no. The main thing is that we aren’t doing much different than we were 24 years ago. This is during a time when per capita GDP has increased by more than 70%. I think that Yglesias is just being picky. I don’t think he would question that the median family is not doing substantially better today. And that is the important point, regardless of how accurate the CPI is.
Update (20 September 2013 9:23 pm)
Matt Yglesias has written another article on this subject, The BLS Says Incomes Are Up Since 1989. In it, he notes that the BLS data indicate that after tax incomes are 11% higher since 1989. He is too caught up in the details of this. The point is, as I said above, that after 24 years the median family is at best doing very slightly better. The fact that statistics might be off by a few percentage points after all that time is not a story. The fact that Americans are not sharing in large productivity gains is a story.