There is an issue that makes a lot of people think that I don’t understand economics. It is this idea that we are so much better off now than we used to be. This is used as a justification for things as diverse as excessive and ever growing inequality and deforestation. The theory goes: well, there may be bad things about our economic system, but everyone has so much higher a standard of living, it’s worth it. But do we really have a higher standard of living? In one way: yes. Sugar used to be a luxury; now it is cheap. But in another way, we don’t. Now we have sugar in all our foods devaluing the extra sugar we get.
But I accept that increases in food availability are important. But there haven’t been major improvements in this regard in my lifetime. When it comes to the technological innovations that people think of, I am unimpressed. Remember the great Peter Thiel quote, “We wanted flying cars, instead we got 140 characters.” I always think of music distribution. When I was very young, I had a transistor radio and we used to walk around listening to it. Later there were Walkmans. Then MP3 players. And now Pandora. Each of these are marginal improvements, but hardly revolutionary. None of it is any better than wandering around a used record store and finding Buzz or Howl Under the Influence of Heat and having a religious experience.
I was very pleased to read a recent Dean Baker article, Is the Middle Class Better Off? Economists’ Poor Logic on New Goods. The article is in reference to the hypothetical, “Would you be willing to trade an income of $50,000 in 2015 for an inflation adjusted $100,000 income in 1980, knowing that you can only buy the goods and services available in 1980?” The answer is supposed to be, “Of course not! How would I ever live without Netflix?!”
This falls right into what I was talking about before. At that time, we had VHS players. What’s more, there were actual good local rental companies where you could get what you wanted. I’m not saying that things aren’t better now. But they aren’t substantially different. And if you are interested in things that are a little out of the ordinary — little films like Medicine River — you may not be able to find them at all now. Of course, you could instead go to your satellite television where you will find half the stations running paid advertisements, reruns of Pawn Stars, and other content that is in no way better than the reruns of Gilligan’s Island that I grew up watching.
Baker noted that this question is a false one. “Ask someone who lived in the suburbs in the 1960s how they would feel living without a car. It would be pretty awful, but just 30 years earlier most middle class families did not have a car or think they needed one.” I’ve lived without a car for many years now. Overall, I think my life is better for it. Sometimes it’s a pain, but that is due to the way society is now organized around the car. Or consider the cell phone. I now feel freaked out if I leave home without my phone. But that’s ridiculous and I quickly realize that it is no big deal. I’m sure there are a lot of people who would gladly give up their cell phones if it would mean that their free time was unmolested.
But the biggest issue with this hypothetical is that a $100,000 income would provide something exceptional that no amount of consumer gadgets will ever compensate for: economic security. The biggest thing that limits happiness in modern America is economic uncertainty. Along with that better income at that time comes certainty that you will maintain that job and retire with a pension. It means allowing you to do what you want with your time. Sure, you wouldn’t have your movies streamed by Netflix. But if you lose your job tomorrow, you are going to lose you your Nixflix account anyway.
Technological progress is a great thing. But it comes at a cost. More and more, I don’t think that cost is worth it. But regardless of where anyone comes down on the question, everyone should agree that there are very real costs we pay for our constant marginal improvements in the “goods and services” that we can buy.
In the economics blogosphere, the question of the marginal utility of the last 30 years’ worth of consumer electronics has become a fierce proxy fight over the merits American political economy. Twitter and smart phones and Apple products have become avatars of the current economic order. Conservative economists defend and extol the virtues of iPhones and liberal economists dismiss them as toys and gadgets. In a way, conservative economists tip their hands in this discussion. They may go through the motions of saying that government gets less and less libertarian every year but they know that on the big economic questions, they have been winning and as a proxy way of saying so they exclaim “facebook is amazing so shut up about inequality already.”
On the face of this argument, on the question of utility alone, I tend to side more with the conservative economists, I really love social media and my smart phone. However, you and Dean Baker raise an interesting point about today’s technology and the basis for comparison. If marginal utility is right now versus a hypothetical tomorrow where our tech goods simply vanished, then the MU of tech goods looks massive. If marginal utility is right now versus, the time before the good came onto the market, then marginal utility is not as great. Conservative economists tend to use the former criteria and liberal economist use the latter. Even using the latter method, I still think that tech has improved out lives quite a bit.
In the broader context, I think that both sides make the error that tech and other economic fundamentals have a close, causal relationship. Four decades of public divestment, deunionization and favoritism towards capital and finance have clearly eroded the pillars of middle class life, wages stagnate, jobs become insecure, education and home ownership and healthcare cost more. Meanwhile and luckily for the elites, better and cheaper electronic goods have helped to mask the more fundamental economic decline.
I feel that there is not much of a tradeoff between social democracy and better and cheaper consumer goods and services. If anything, there is probably a mild and positive relationship between social democracy and improvements in electronic consumer goods. By investing in higher education and NASA and research, we are increasing the supply of consumer electronic goods and when you have middle class with secure jobs and disposable income, the demand for new and cheap and improved tech goods and services increases dramatically.
The issue isn’t that technology doesn’t help. It is just that there is such a strong tendency to oversell it. It is still the fact that the invention of container ships is what has allowed globalization, not computers. There’s a tendency to make a big deal out of “gee whiz” technologies that don’t really change the economy very much. Television is great, but it still is just an entertainment platform. It greatly increased productivity in the entertainment industry. It didn’t do anything to improve the farming and clothing industries.
Liberals are very much focused on how economic fundamentals are effected by feedbacks within the economy. One of the great debates in economics right now is if income inequality causes lower economic growth. Conservatives in general don’t even want to consider the possibility. It goes along with the liberal narrative, however, and so people like Krugman want to be very careful before they accept that it is happening.
The bottom line is not that these marginal gains aren’t gains — just that they are marginal. Facebook allows grandparents to keep in touch with their grandchildren. But so did breaking up AT&T and lowering long distance rates. The question is whether such marginal improvements justify the excessive inequality that goes with them. I would say no, because we saw the same margin improvements when we had a much more equal society.