Living in the 70s*

by John Quiggin on September 17, 2011

A bunch of standard measures of US economic wellbeing (median household income, real wages for workers with high school education, educational attainment by age 25 and so on) show strong improvement from 1945 to the early 1970s, followed by stagnation or very slow growth thereafter. A variety of arguments, have been put forward to suggest that the standard statistical measures understate improvements in wages, incomes and so on since the 1970s. Some of these arguments are valid (for example household size has fallen), some not (for example, the fact that we now have more of goods that have become relatively cheaper). Regardless of validity, the main reason people believe these arguments is that, for anyone who was around at the time, it seems implausible that our parents’ living standards in the 1970s were comparable to our own today (assuming roughly similar class positions)

This reasoning is invalid for a reason that should be familiar to those on the conservative side of debates over inequality. The measures mentioned above compare snapshots of incomes at different times. But (as conservatives regularly point out) standards of living are determined mainly by lifetime incomes, not by income in any particular year. Given the pattern described above, lifetime income for someone who worked, say, from 1940 to 1985 was well below that for someone in a similar class position who started work in 1970, just when the long increase in real wages was slowing for most and stopping for some. For every year of their working life, the 1970 starter gets a wage (adjusted for age, education and so on) that’s as high as the maximum attained by the 1940 starter after 30 years of steady growth. Unsurprisingly, that translates into a bigger house, and more of most items that require savings, whether or not their price has risen relative to the CPI.

You can see a similar effect illustrated for education here. Although the proportion of young people completing high school or gaining bachelors degrees reached a plateau in the 1970s, the proportion of the entire population with these qualifications kept on growing into the early 2000s

The two work together. Real wages for high school educated males haven’t risen since 1970, on the standard measures, but a man born in 1950 would not only earn more lifetime income than his father, assuming both had high school education, but would be much more likely to have gained a college degree. By contrast, a man born in 1980 is no more likely than his father to have completed college**, and, assuming high school education, would have similar lifetime earnings.

  • Australians of the right cohort will recognise the allusion, otherwise Google should work

** I haven’t checked college completion by gender. I’d guess that if rates are stable overall, those for men must have fallen.

{ 140 comments }

1

Lemuel Pitkin 09.17.11 at 11:34 pm

(as conservatives regularly point out) standards of living are determined mainly by lifetime incomes, not by income in any particular year.

Conservatives do regularly say this. That doesn’t mean that it’s the case.

The lifetime income hypothesis is pretty clearly another zombie idea, just as false as the ones you talk about in your book. Apart from the very poor and the very rich, I doubt that the gap between annual consumption and annual income is normally much above 10 percent or so. Beyond measured income, it’s true that some of our material standard of living depends on things purchased some time ago, but not very much. Add up the replace value of all your durable goods that are more than a few years old, and what fraction of your income is that going to be?

The big exception on both points is housing. That’s really the unique case in which a kind of lifetime income framework makes sense. But there’s so much else that’s changed in the housing market over the past decades, that if the standard of housing available to someone today is markedly higher than than available in the 1970s, the dynamic you’re describing will only be a part of the reason, probably a small part.

2

Lemuel Pitkin 09.17.11 at 11:44 pm

(As a historical note, when Milton Friedman formulated the permanent-income hypothesis, he actually had in mind something much closer to the old-fashioned Keynesian consumption function, in that households were supposed to discount future income at 30% or more, so that income more than a couple years out is essentially irrelevant. There’s really no basis for thinking permanent income has any economic meaning, it’s just a toy for people who like to play with models of intertemporal optimization.)

3

Adrian Kelleher 09.17.11 at 11:47 pm

The figures would be even more dramatic if it weren’t for the luxury items the Federal budget took aboard in the 1960s. According to the FAS, military expenditure topped off at a stupefying 9.5% of GDP in 1968 (compared with 11.7% rather closer to home during the Civil War; in 1865 Lincoln could sit out on a rooftop and personally observe fighting in the suburbs of Washington DC).

Simultaneously, the USA put men on the moon at barely less staggering expense; the NASA budget rose from a negligible fraction to 4.4% of the Federal budget between 1959 and 1966.

Whatever anyone makes of these budgetary choices, the economic return was nil in each case. Only a real behemoth could afford to burn through so much cash. The shift in fiscal priorities to the economy in the mean time has helped to disguise the trend illustrated.

4

John Quiggin 09.18.11 at 1:06 am

@LP Bottom quintile consumption/income ratio is IIRC, around 140 per cent , top quintile around 70 per cent, so I think you’ve overstated the case by a long way. That’s for Australia so YMMV.

5

P O'Neill 09.18.11 at 1:27 am

Changes in pension arrangements would be another part of the picture. Someone in last 10 years of working life in 1970s may have just run into the earnings plateau, but with some form of final salary-linked pension, the retirement income built in the good years. But with pensions having since shifted to some form of career average and/or invested through at least 3 financial crashes (1987, 2000, 2008-present), that worklife profile of income is extended into retirement as well.

6

Jake 09.18.11 at 2:07 am

If I remember my history correctly, didn’t 1945 mark the end of a period where lots of industrial infrastructure was destroyed and millions of people were killed in pretty much every industrialized nation except the US?

I’d expect workers in the sole industrial superpower to do pretty well for themselves. And to do less well once they actually had competition from other parts of the world. I’m sure it’s not the only factor, but it seems like a pretty big one not to mention.

7

Simon 09.18.11 at 3:04 am

@ John Q. Libertarians and conservatives like to also like to point out that the panel data points another story (as Russ Roberts claimed in his interview with you). What I understand they are saying is that income goes up over the lifetime so cross sections don’t tell you about any individuals. Is this what you are referring to when you speak of lifetime income?

8

Lemuel Pitkin 09.18.11 at 3:35 am

So tell me — when you say the standard of living of a worker earning the median income in 2010 was higher than the standard of living of a worker earning the same income in 1975, because the lifetime income of the former was higher, what concretely do you have in mind?

The canonical lifetime income hypothesis answer would be that the 1975 worker was paying back the loans he’d taken out when he was younger in anticipation of his higher future income, while the 2010 worker knew his future income would be the same as his current income, so didn’t borrow when young and doesn’t have to pay it back when old. When you say conservatives believe in lifetime income, that’s the story they have in mind. Can we agree that it is definitely not the case that disposable income in 2010 is higher than in 1975 because people have less debt to repay?

Or maybe you mean that the 2010 worker has accumulated a larger stock of durable goods, because of higher income over the earlier years of life? That sounds more plausible, superficially –except that by far the most important durable good for most households is the house, and the value of the housing stock has tracked the growth of income pretty much exactly. So that won’t work either.

So let me ask you, John: What is the mechanism by which a higher lifetime income is producing a higher standard of living for the 2010 household, compared with the 1975 one?

9

Happy Heyoka 09.18.11 at 4:18 am

When the sun sets over Carlton… you get comments from the cheap seats in Oz.

Weirdly enough, before I read this I had a conversation with my mother regarding her circumstances versus her mother at a similar point in their lives… on the face of it – working from family photos – I think my mother is more affluent (house size, stuff in the house, car etc).

That’s tricky to unravel given:
– Different arrangement for income (fixed government pension versus self funded share based superannuation)
– Different eras in deregulation/privatisation.
– Different trade/tariff situations (cheap Korean car vs tariff protected domestic model, Chinese electronic gadgets).
– Completely new services (mobile phone, internet).

Is it not difficult to reconcile the change and type of inputs to the models over this kind of time frame? What is a good approach to “factor out” this stuff to come up with some measure of “affluence”? Is income even a good proxy for it?

10

Bruce Wilder 09.18.11 at 5:07 am

Jake @6

I’ve never understood the argument you make. How exactly is the material productivity of American workers enhanced by the destruction of Japanese or English or French or German factories? And, when production resumes abroad, and Americans can trade for those goods, that hurts Americans how exactly?

If I am rich, and some other guy is poor, I can, sort of, understand how I can better dominate him, and, maybe, my relative status is enhanced by his poverty, but how is my material prosperity enhanced? Although I can think of immiserating scenarios, why shouldn’t we presume Pareto improvement results from getting the poor guy a better job, so that the total produced is more, and both of us can have more, because there is more?

11

Cian 09.18.11 at 9:55 am

the main reason people believe these arguments is that, for anyone who was around at the time, it seems implausible that our parents’ living standards in the 1970s were comparable to our own today

I wonder if that’s true. Most of the people who engage in these kinds of debates are in the top 25% of the income distribution. Their income has gone up and they’ve done fairly well over the last 40 years, very well if they’re in the top 10%. So the reason it would seem implausible to them is that its simply not true.

You might get a very different answer if you were to ask an auto worker in Michigan, say. I suspect for a lot of the country the idea that things were better in the past is simply a given at this point. If you can’t keep a roof over your head, or pay for medical help – the basic premise is going to be so obvious so as not to even be worth asking.

12

zamfir 09.18.11 at 10:43 am

@bruce wilder: a few things might be relevant. First, credit. An industrialized country with a destroyed industry is not a development country on an uncertain path to riches. It’s a country that can borrow lots of money to rebuild with a fairly high certainty that they will be able to repay in the future. Especially when they are militarily beholden to their creditor, so they can’t easily dodge the debt by default or depreciation.

Second, most stuff doesn’t trade at marginal cost of production. Attractive businesses to be in are those where you can charge a nice premium, by virtue of a strong market presence. By being the only seller, or a unique quality seller, or having the most economies of scale. Ww2 turned a wide range of American industries into such attractive businesses, at least for a while. And it allowed American businesses to become dominant market leaders abroad even in the long run, in markets where they previously had to compete at unfavourable terms with established local firms.

13

John Quiggin 09.18.11 at 10:57 am

@LM I think you get the same answer (maybe even more so) with a standard Keynesian model in which people’s marginal propensity to consume out of income increases is below their average propensity to consume in the long run. If you have steadily rising income, you save. If income stabilises, your consumption adjusts to your income. If it falls (and maybe even if it falls relative to what you expected) and credit is easily available, you borrow.

A corollary of that story is that our parents generation, despite lower lifetime incomes, had enought savings to afford a comfortable retirement while ours (that is the cohort currently nearing retirement) doesn’t. I think that fits the data.

14

Hidari 09.18.11 at 11:02 am

‘the main reason people believe these arguments is that, for anyone who was around at the time, it seems implausible that our parents’ living standards in the 1970s were comparable to our own today.’

This is the sort of statement that makes me really wonder about the various worlds people live in. My parents’ living standards in the 1970s were incomparably superior to mine now, in every way. And I am not alone, looking at others in my generation. What seems implausible is that anyone is really doing well in the current economic climate (apart from the super rich).

15

Walt 09.18.11 at 11:40 am

At the same time, zamfir, a country with a destroyed industry has nothing worth trading, other than raw materials or agriculture. The whole argument is based on a fallacy that the purpose of trade is to make money, not trade stuff for stuff you want more.

The US is in the same position with China now that it was with post-war Europe and Japan. The US had the advantage of an installed capital base, and high productivity. Europe and Japan had a much smaller capital stock, and low productivity. Japan in particular could only export low-end manufacturing. Yet in that era American incomes went up. Now, we have a China in the exact same position, specializing in low-end manufacturing, and instead we’re seeing wage stagnation.

16

Watson Ladd 09.18.11 at 11:53 am

It seems that we are all forgetting something: I don’t know my future income. So a rise in income only counts 1/x, where x is the number of time periods until retirement, towards an increase in my average income, and so I save the excess. So a constantly rising income fools people into saving more then they otherwise would. But this shouldn’t make you feel good: as Freud pointed out the satisfaction of having money is pathological since green paper doesn’t do anything for you. Also don’t forget that many goods like higher education were subsidized in the 1970s. A lot of working class people could feel confident their children would be able to go to university and do better. Today that is much harder. Does anyone know the statistics for Brezhnev era Russia vs. todays Russia?

17

John Quiggin 09.18.11 at 12:19 pm

Of course, I don’t have useful firsthand knowledge on this. Australian incomes have risen across the board. The big problem here is that houses are stratospherically expensive to buy, but just about everyone has a higher standard of living in all non-housing respects than did someone in a comparable position in 1970.

18

Henri Vieuxtemps 09.18.11 at 12:59 pm

I don’t see why this absolute comparison would be enlightening; it has to be considered relative to productivity. If I produce 10 times the amount of widgets my father was producing 40 years ago, but can only afford 3 times more, then even though my standard of living has vastly improved, it’s still clear that someone is robbing me.

19

mw 09.18.11 at 2:14 pm

Some of these arguments are valid (for example household size has fallen), some not (for example, the fact that we now have more of goods that have become relatively cheaper).

But in the U.S., the category ‘goods that have become relatively cheaper’ includes virtually everything with only a couple of notable exceptions — namely, medical care and education (and relative means — relative to to median hourly wages). And, of course, you’re leaving out the the many goods and services that people value highly and that did not exist at all (or were prohibitively expensive) in the 1970s — which is at least as important as the falling prices for existing goods & services.

It seems to me, though, that there are two arguments being conflated here:

1. Living standards have not improved since the early 70s.

2. The rate of increase in living standards has slowed since 1970.

#1 is absurd. #2 is defensible. Although, I do think there is one possibly serious problem with the bachelor’s degree measure. Using a 0-25 as a measure of current bachelor degree attainment does not capture the people who earn degrees later in life (whose numbers have grown since 1970). Also — the number of undergraduates grew 72% between 1970 and 2000 while U.S. population grew only 38%, so there’s a big discrepancy there, too (perhaps a greater fraction of 2-year degrees? Or students who begin under age 25 but who don’t finish until later? Or who don’t finish a degree? Or all of the above?)


Today’s undergraduate population is different than it was a generation ago.
In addition to being 72 percent larger in 1999 than in 1970 (with fall enrollment growing from 7.4 to 12.7 million), proportionately more students are
enrolled part time (39 versus 28 percent) and at 2-year colleges (44 versus 31
percent), and women have replaced men as the majority (representing 56
percent of the total instead of 42 percent) (indicator 5, U.S. Department of
Education 2002a). There are proportionately more older students on campus
as well: 39 percent of all postsecondary students were 25 years or older in
1999, compared with 28 percent in 1970 (U.S. Department of Education
2002b).

http://nces.ed.gov/pubs2002/2002012.pdf

20

Alex 09.18.11 at 2:29 pm

Yeah, my parents’ standards of living were pretty good in the late 70s. It’s why my dad wooed her in the MGB, they got married, went on a honeymoon in California (although mates’ rates were involved), had me and my sister, and moved into a pretty sizable gaff with a dales view on the strength of a promising civil service career.

I’m about to write a review of the new Tinker, Tailor, Soldier, Spy flick that makes the point that the 1970s were not actually grimdark in doomed Britain and that the official memory of the postwar era being a time of grey tea and also of massive utopian reconstruction schemes and yet also of whorish consumerism is self-evidently nonsense, engineered for political ends.

We can’t have been simultaneously stagnating in rotten decay and also luxuriating in prosperity, unless your point is just that Those People got paid and waaah.

21

kosimba 09.18.11 at 3:18 pm

I am not an economist but my understanding was that globally both house prices and youth unemployment have soared since the seventies – n’est pas? In which case is not the perception of us youts – that our parents had it much easier – about facts and not just aspirations??? In any case looked at as an anthropologist access to ‘social reproduction’ – (becoming a socially validated adult) which in our society is granted above all by work and housing – are more distant than ever.

22

Cian 09.18.11 at 3:44 pm

Again, I think a lot of this is to do with class. Most of the people on this board are from the class that has done pretty well over the last 30 years. I think if you asked the same question of people in the bottom 25% the response would be “Well of course my parents were better off”, cos its true. On the other hand if you asked a banker that question they’d look at you as if you were mad.

23

Zamfir 09.18.11 at 3:47 pm

At the same time, zamfir, a country with a destroyed industry has nothing worth trading, other than raw materials or agriculture. The whole argument is based on a fallacy that the purpose of trade is to make money, not trade stuff for stuff you want more.
But of course those countries had something worth trading, namely their very credible promises to pay in the future when they would be functioning economies again, but with dollar-denominated debts to the US.

When people measure US wages and living standards in the 1950s, those numbers also include the retirements savings those people were building up. And in those days part of those savings consisted of claims on foreigners, which were easy to build up when those foreigners were willing to pay excellent prices for American stuff.

Modern China on the other hand is building up foreign-denominated debts, from countries that it cannot force to stay pegged to the renminbi in the long run. So their savings will almost inevitably buy a lot less gear when they get redeemed.

In other words, China is running a trade surplus at favourable terms for their trading partners, because China really needs its exports as part of its internal development, even at low prices. But the 1950s US ran a trade surplus at favourable terms to the US, because its tradings partners needed the imports, even at prices.

24

Main Street Muse 09.18.11 at 3:48 pm

I find this blog post missing several key points. If one remembers the 1970s, one must remember Viet Nam, Nixon’s fall from grace, sky-high interest rates on mortgages (well into the teens). OPEC’s rise to power, the Iran hostage situation and gas rationing (yes, Virginia, there was a time in America when we rationed gas – and I’m not talking WWII).

So things were, as they are today, humming with massive economic hits to the consumer and the violence and expense of war.

In terms of “standard of living” – I once lived as a child in a neighborhood that included doctors, lawyers and laborers – this in the historic early 1970s. Today, that’s not possible. Income stratification since the Reagan Revolution prohibits such a mix. The rich live in McMansions; the middle class and below live elsewhere. All have seen the value of their homes first skyrocket, then vanish in the recent crash of the housing market.

In the 1970s, I would be curious to know how much debt families took on to pay for their standard of living. In today’s world, debt is a key lever in attaining a higher standard of living. It’s used by consumers to fund our need for immediate gratification. It’s used by students to gain a college degree. And debt is used by corporations to fund their focus on short term gain (at the expense of long term growth.)

In post-millennial America, debt is pretty much the only pillar of our economy left standing, and it’s a rickety pillar to rely on. We saw in 2008 that our financial sector’s reliance on debt and leverage left the global economy completely exposed and vulnerable to collapse. Were it not for government interventions across the globe, the global financial sector would have ended up in bankruptcy.

So when we talk about income inequality in America, and we ponder whether or not it has grown since the 1970s, we must factor in all the variables – especially the post-1970s reliance on debt to finance an unsustainable standard of living. It is a fallacy to think that debt-financed acquisitions represent an improvement in our standard of living. Instead, it’s a false standard and should not be held as an example.

25

John Quiggin 09.18.11 at 3:53 pm

“But in the U.S., the category ‘goods that have become relatively cheaper’ includes virtually everything with only a couple of notable exceptions—namely, medical care and education (and relative means—relative to to median hourly wages).”

By definition, everything can’t get cheaper relative to the CPI and since (as stated in the OP) real wages for high school educated male workers haven’t risen relative to the CPI, the same must be true for them also. Of course, the post omitted some other points that have been discussed repeatedly here, such as new products and product quality – I think we can take the argument on these as read for the purpose of this post.

26

bianca steele 09.18.11 at 3:57 pm

@Cian
I don’t think anybody is disputing that a person’s class affects how they answer the question whether they are better off than their parents are, or whether they expect to be. “Wages fell over 30 years” does not mean “everyone’s wages fell.” “Standards of living won’t rise over the next 30 years” does not mean “nobody will be better off in 30 years than they are now.”

27

John Quiggin 09.18.11 at 3:57 pm

@LP The obvious case intermediate between houses and household durables is cars. I’ll check, but my impression is that car ownership kept rising until quite recently.

So, to sum up a bit, if you have more and better houses and cars (explained by lifetime income) and more and better consumer durables (explained by relative prices), it’s not hard to conclude that data suggesting little or no growth in real incomes must be wrong – and the comments I was originally responding to were mostly along those lines.

28

Omega Centauri 09.18.11 at 4:12 pm

Bruce @10. Your argument about most of the rest of the world had been knocked backwards, is very free tradeish. However, I want to consider two sorts of goods traded on the world market. The first is industrialized finished goods, for which your argument (that relatively poor trading partners don’t help) is valid. But, I think we have a second commodity type of good, mostly natural resources, like for example oil, whose rate of supply doesn’t seem to scale with global prosperity. Certainly the ability to buy tracts of land in foreign countries is in the later category. But many natural resources are at least partially in the second category. So for instance in todays economy, advancing prosperity in the BRIC countries, means they can bid up the prices of global commodities, such as oil, forcing the rest of us to consume less. I believe we are entering an era where multiple commodities will be supply limited (mainly by geology/biology, as opposed to technology and capital). In the supply limited environment, relative economic prosperity determines ones ability to enjoy physical prosperity.

29

Charles Peterson 09.18.11 at 5:12 pm

This is fine, but is only a small part of quality of living. Nowadays, many of us may live with greater luxury of one kind or another (most commonly, electronic gadgets almost unimaginable to our parents) but with far greater economic insecurity (in USA). It is that lack of security rather than lack of goods that has increasingly dominated quality of life. My mother, for example, frequently quit jobs or even moved to a different state and had another job lined up in a couple weeks. Nowadays, people losing their jobs (and there are far too many) face a daunting 10 month average time to re-employment. Sending kids to college wasn’t so bad in the 1960’s when many great state universities were nearly free (say, $200 annual tuition at the University of California). Now, those same state universities might cost $20,000. And bankrupting healthcare costs (in the USA), declining availability and quality of pensions, high cost of housing (particularly owned housing, the kind you can fix up and show off), high minimum cost of new cars (yes they are much better, thank you, but you need one anyway). And what about insecurity about the future, with global warming and peak fossil energy and fracking going on everywhere? The e-gadgets of today were ultimately made possible by government funded research after WWII. Where is the comparable government funded research making possible the unimaginable luxuries of the future, let alone guaranteeing social survival in the face of well understood environmental crises?

30

Jim Harrison 09.18.11 at 5:15 pm

Technological progress has softened the effects of the marked change in the relative economic and political power of middling people in the U.S. You have to go into debt peonage to pay for a college education, but look at this Ipad. You can’t afford your own place, but you and your roommates have a wonderful T.V. It may be that future innovations in areas such as biotech and nanotechnology will bail us out, but in the absence of such a god on the machine (machine on the machine?), I think we can look forward to an era of profound social strife as it becomes clearer to the losers that they have indeed lost.

31

ejh 09.18.11 at 5:36 pm

I think there’s something in that. The number and quality of gadgets available to us is quite incredible compared to when I was a kid (i.e. the Seventies) and this fact is accentuated by the way much of life seems to revolve around them. It’s an age of miracles, and yet the straightforward – like a roof over your head – seems harder to secure than it did before.

32

Bruce Wilder 09.18.11 at 5:43 pm

@28

You make an excellent point.

I’m not tempermentally inclined to be “free tradeish” at all, but I try not to lose track of such basic points of economics as the importance of specialization to productivity. Specialization and trade, as another commenter pointed out, should not be modeled as a road race, with a winner and a loser.

The U.S. was, relative to other countries, very wealthy, in 1945, because it was technologically very advanced, had the largest market and so had been able to go farthest in exploiting increasing returns in mass production and mass distribution, had enormous natural resource endowments relative to its population size, had a remarkably honest government, etc. These kinds of factors explain why the U.S. (and the Soviet Union) had won the Second World War. Winning the Second World War doesn’t explain the prosperity, even if escaping massive destruction helped.

Going forward from ~2000, the world’s economy has passed an important inflection point, with regard to natural resource constraints. Malthus is back. That doesn’t obviate anything about specialization and trade, and their relation to productivity and trade. Some of the most prosperous countries in the world haven’t been exactly loaded down with natural resource endowments, historically. (And, no, I’m not the kind of pollyanna, who doesn’t see the importance of European world conquest to the industrial revolution.)

With all the frequently nonsensical argument over Keynesian stimulus and austerity, the critically important issue of the commodity-price ceiling looming over world prosperity is ignored by Krugman and Barro, alike. Economics is blind to the second law of thermodynamics, and that’s a problem for analysis of our prospects. But, it does have insights about externalities and congestion costs, which apply.

If you think economic trade, post peak oil (and peak farmland, etc.) is becoming a zero-sum game, you are wildly optimistic.

33

Simon 09.18.11 at 5:48 pm

@Bruce. Could you expand on what your saying a little more, I’m really interested in it. What exactly are you anticipating post-peak oil, peak farmland etc? Do you not anticipate that alternative energy, GM foods etc will help us down the road?

34

Omega Centauri 09.18.11 at 6:04 pm

Bruce @32, Thanks for the response, it is clear you understand that constraints are an increasing part of our future. No, I don’t think post peaks, that trade is a zero sum game. However on the extreme end of the scarcity spectrum, where a finite resource can only be divvied up, your trading partner’s misfortune becomes your fortune. The world economy consists of a basket of goods, some of those goods will behave in a near zerosum way wrt the global economy, while others will more closely approximate the classical comparative advantage theory. But, the weighting is moving more towards the zerosum end of the spectrum, then we’ve seen before. The effects on international relations are likely to be profound.

35

Tom S. 09.18.11 at 6:22 pm

“By contrast, a man born in 1980 is no more likely than his father to have completed college**, and, assuming high school education, would have similar lifetime earnings.”

I think this is presumptuous since the returns to education have changed. For instance, a son who earned a college diploma will receive higher earnings for his accomplishments than his father. Meanwhile if father and son both only have a high school diploma, the father would have higher lifetime income.

So yes, the probability of educational attainment is the same, but the conditional earnings on attainment have changed. Unfortunately, this supports the idea of greater inequality but only muddies the argument about quality of life.

36

Lemuel Pitkin 09.18.11 at 6:30 pm

think you get the same answer (maybe even more so) with a standard Keynesian model in which people’s marginal propensity to consume out of income increases is below their average propensity to consume in the long run. If you have steadily rising income, you save. If income stabilises, your consumption adjusts to your income. If it falls (and maybe even if it falls relative to what you expected) and credit is easily available, you borrow.

This sounds reasonable, but it is not the lifetime income story that conservatives believe. Just the opposite. While people are supposed to borrow in response to transitory declines in income and save in response to transitory increases, a rising path of income over the lifetime leads to borrowing early in the lifecycle, not saving. The purpose of credit in this story is to flatten consumption over the lifecycle relative too the rising path of income, both because of pure time preference and declining marginal utility of income in each period. So we should expect to see *more* use of consumer credit in a world where incomes rise over time, than in one where they are flat.

If you want to say, the standard of living is higher for the median earner in 2010 than in 1975 because they are saving less, so consumption is higher relative to income, fine, I agree. That’s true. Add that one big reason for this is that people are acculturated to expect incomes to rise over time so they borrow more than a rational intertemporal utility maximizer would, and I like it even better. But that’s really nothing like the permanent-income hypothesiis you hear from conservatives.

37

Lemuel Pitkin 09.18.11 at 6:34 pm

Sorry, that should be a declining marginal utility of *consumption* in each period.

On car ownership — ok, maybe. I really doubt that that’s quantitatively significant, but there’s no reason for you to trust my gut feeling over yours.

38

Henri Vieuxtemps 09.18.11 at 6:35 pm

The effects on international relations are likely to be profound.

What, you guys don’t believe in a world without nations and peoples, with “one vast and ecumenical holding company for whom all men will work to serve a common profit and in which all men will own a share of stock, all necessities provided, all anxieties tranquilized, all boredom amused”?

39

Watson Ladd 09.18.11 at 6:49 pm

Henri: No, because that would reify the exchange of labor for money. (But honestly, in this debate we are on the same side, Henri) What is being outlined is something that can only be overcome by a vanished form of politics.

40

John Quiggin 09.18.11 at 7:33 pm

LP, perhaps I was being a bit too clever, in trying to hoist conservatives on their own petard. I don’t buy the idea of perfectly rational forward looking consumers etc. but I don’t think I need to do that for the argument to work.

My main point is that, however you divide it up, lifetime incomes affect current wealth and standards of living, and lifetime incomes kept rising for some decades after current incomes flattened out.

41

purple 09.18.11 at 8:00 pm

The fact of the matter is the US dollar needs to decline a great deal, but can’t because of its global reserve status. The overvalued dollar makes it inevitable that the US will continue to be hollowed out as a productive economy. Those in power are simply too entrenched in their positions to even think of a global rebalancing, and they will take the ship down with them.

42

DS 09.18.11 at 8:27 pm

It seems obvious to me that standards of living were higher back in the 70s.

My parents talk about being able to just walk onto a place of employment and land a job. Even before the recession it was nothing like that.

The HUGE difference was that housing was cheap, cheap, cheap. If you had roommates, you could basically be a bum with a part time job and spend the rest of your time on other pursuits. If you had a full time job, there was no question that you could afford your own place.

Also, the safety net was much stronger. Getting health care if you were uninsured wasn’t as difficult as it is today. A lot of older people will say things like “Oh, you can just go to a county hospital and get free care” when they hear about the uninsured. That sort of thing was at least partially true back then.

Today, if you go to a county hospital for “free” care you’ll have a $60,000 lien against you for the rest of your life.

Yes, we have iPads today, but we also have college graduates living with roommates or their parents, with no access to health care, and staggering student loan debts.

43

ScentOfViolets 09.18.11 at 8:46 pm

I don’t see why this absolute comparison would be enlightening; it has to be considered relative to productivity. If I produce 10 times the amount of widgets my father was producing 40 years ago, but can only afford 3 times more, then even though my standard of living has vastly improved, it’s still clear that someone is robbing me.

This.

44

Watson Ladd 09.18.11 at 9:22 pm

But any narrative of robbery has to be tempered by the fact that there isn’t what we ordinarily think of as coercion taking place. The exploitation of the laborer is a consequence of his second nature, not some plot by the capitalist.

45

James Wimberley 09.18.11 at 9:28 pm

JQ: “A variety of arguments, have been put forward to suggest that the standard statistical measures understate improvements in wages, incomes and so on since the 1970s. Some of these arguments are valid (for example household size has fallen)…”
I don’t get this. Smaller household size means that activities that used to be carried out within the non-market household (eg cooking) have moved out into the market economy: a GDP but not necessarily or even probably a welfare increase. Also you have far less efficient use of housing, domestic appliances, energy, and transport. So the change leads to an overstatement, not an understatement, of real income gains. After divorce, both the former spouses now have TVs where before they shared one.Where’s the welfare gain? That’s before you get into the psychological impact of these smaller households. People living by themselves are often lonely and unhappy. Marriage usually raises welfare; marriage breakup usually lowers it. Widowhood and widowerhood always do.

46

ScentOfViolets 09.18.11 at 9:52 pm

But any narrative of robbery has to be tempered by the fact that there isn’t what we ordinarily think of as coercion taking place. The exploitation of the laborer is a consequence of his second nature, not some plot by the capitalist.

What do you mean “we”, Kemosabe? You, personally, may think that the choices “work or starve” represents a real set of choices. Everyone I personally know of does not.

Thank you for pointing once again point out the necessity of giving your figures for the optimal splitting of productivity gains before it’s measured and not after ;-)

47

Watson Ladd 09.18.11 at 10:14 pm

ScentofViolets, kill the robber and he goes away. Kill the capitalist and capital is again remade by the working class. Even the Soviet Union still had “work or starve”, reconstituting the need to labor from what was a political victory of the proletarians.

48

shah8 09.18.11 at 11:00 pm

*sigh*

Dudes.

It’s not work or starve, since work results in the things that allow us to keep going…

It’s that the ability to work is only granted if you’re willing to hand all or even more of your surplus to someone else for the privilege of using someone else’s hoarded resources.

49

engels 09.18.11 at 11:03 pm

there isn’t what we ordinarily think of as coercion

Ever heard of a little thing called ‘the State’?

50

Patrick 09.19.11 at 12:44 am

Is there anything in this that marks the fact that in the 70s a smaller percentage of households contained two full time workers than today? And that hours on the job have remained stagnant or increased for people lucky enough to have employment?
If there’s increased stress on people because their jobs are less secure, and people cannot choose the family structure they remember (perhaps mistakenly), and because life seems (and often is) precarious with everybody working as hard as she/he can, no wonder there’s nostalgia for a time that I personally remember as pretty bleak.

51

ScentOfViolets 09.19.11 at 1:00 am

ScentofViolets, kill the robber and he goes away. Kill the capitalist and capital is again remade by the working class. Even the Soviet Union still had “work or starve”, reconstituting the need to labor from what was a political victory of the proletarians.

You’re wandering rather far afield here. Your original reply was something to the effect of applying your personal definition of “coercion”. My response was that many (most?) people don’t share it. End of discussion.

52

ScentOfViolets 09.19.11 at 1:10 am

Is there anything in this that marks the fact that in the 70s a smaller percentage of households contained two full time workers than today? And that hours on the job have remained stagnant or increased for people lucky enough to have employment?

I’m sure this has been posted here many times already, but for convenience let me post Elizabeth Warren’s The Coming Collapse of the Middle Class. There’s also a pdf of this lecture you should be able to find for yourself.

It’s got all sorts of good information that goes against the current truthiness; for example, the “average” 4-person family of today lives in a house that is about half a room larger than it was in the 70’s. That’s a little bit bigger, yes – but not the hundreds or thousands of square feet bigger that those factoids comparing the square footage of houses being built today as opposed to the square footage of what was being built in the 70’s. As she points out, what’s really happened is that the market as shifted from building starter houses to building second or third houses, because that’s where the money is.

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Watson Ladd 09.19.11 at 1:33 am

I’m pointing to the fact that the coercion you see in capital is constantly reinstated by the working class. Its very different from everyday coercion. I’m not sure what coercion is doing here other then being emotive.

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ScentOfViolets 09.19.11 at 1:53 am

I’m pointing to the fact that the coercion you see in capital is constantly reinstated by the working class. Its very different from everyday coercion. I’m not sure what coercion is doing here other then being emotive.

Sigh. No, you’re giving your opinion and you want it to be taken for fact.

Enough. You haven’t done anything to convince me that your opinion is the correct one, nor are you likely to do so, and contrariwise, I get the impression that no matter how hard I work, you’ve decided in advance that nothing is going to change your mind.

So further discussion is quite profitless. Feel free to get in the last word and say that no, your opinion really is “fact”.

55

ezra abrams 09.19.11 at 2:07 am

my wife and i are PhDs who live in the boston area; our std measure is salary for 1st year tenured prof/cost of house; this ratio has gone down a lot since the 70s.
It take an awful lot of cheap TVs and low cost fried food dinners to make up for housing costs.
But what is “standard of living “?
I assert that it is a psychological thing, not an economic thing.
For most people, it is by comparision, both to your neighbor and to your own past/future.
For most people, standard of living has ideas of fairness and progress for the future.
If a small pool of neighbors (perhaps seen on TV) are doing well , and you wage is not going up, your std of living, in a way that matters, is not getting better.

Certainly for the middle class, there has been a huge transfer of risk onto the ordinary family; from a defined benefit plan maintained by your employer to a self managed 401K, where one is robbed at every moment by fees; from well funded public colleges to having to pay 50K+ (!). A more subtle form of this risk transfer can be seen everyday at the local chain store: seasonal goods (halloween) are available way, way before needed, but for a limited time; this transfers inventory risk onto the consumer.

I know Erlich is supposed to have lost the bet on metals, but I think that quiet and wilderness ahve become much, much rarer; how do you value these things ?

Finally, the idea – already mentioned on this blog – that it is ok to have increased productivity, but not to share this, is fundamentally wrong. Most people don’t value money; they value other things such as fairness far more; a society where a small number of super wealthy people take an ever larger slice of the pie eats at this fundamental idea.

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ezra abrams 09.19.11 at 2:14 am

Bruce @32
Peak Oil – SO WHAT ? all the energy we need shines in AZ and blows in ND. sure, there are load mismatch (the sun ain’t shining in the middle of the night in a New England Winter) but those problems ain’t that hard.

Cropland – that is more difficult; I don’t think people really understand how fragile our ecosystem is; however, people will put up with a lot if it occurs slowly.
I maybe a pessimist, but I actually expect my grandchildren to live in a world with 12 billion people, and never eat meat, cause meat is to exspensive to produce. but they will look at people in India or wherever, where cannibilism is rampant, and think things are great in the US.
If you just compare my childhood, when large areas of cape cod were still house free (now coated with icky mcmansions) or the area around Hilton Head Island was still undeveloped, and full of wildlife, you can see how far we have fallen…
Isn’t adaptability a great survival mechanism ?

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Watson Ladd 09.19.11 at 2:47 am

ezra, you are completely nuts! India feeds itself thanks to semidwarf rice and new maize varieties. We can already feed 12 billion people: the main issues are distribution. Just wait for the new lysine enhanced corn varieties that I’m sure someone has cooking in a test tube right now. There is an issue over how we control the benefits of increased productivity, but I had to pick between you getting a lot more then me and me getting a little bit, versus us getting nothing, I’ld probably prefer the first especially under most conditions. I don’t think we can describe private ownership of the means of production in those terms.

SoV, are there differences between the workings of capital in society and mundane thuggery? What is coercion? And how do we overcome capital? I view capital along the lines of shah8, as private ownership of the means of production. We need to overcome that and with it the way labor is mediated. Otherwise, we have the increasing brutality that ezra so vividly described. But it’s not that direct!

58

Peter Whiteford 09.19.11 at 5:19 am

Have a look at http://dx.doi.org/10.1787/421373283813

This shows that among 9 OECD countries, the USA was the only country that saw falls in real full-time earnings for males in the bottom half of the earnings distribution between 1980 and 2005.

(The data for Canada only covers the period from 1997 to 2005, although it seems likely that the Canadian labour market is influenced by proximity to the US labour market. )

Now you also get this for some periods in Australia – but not over the whole 25 year period as in the USA. In the UK, earnings inequality widened even more than in the USA – but all deciles of workers had rising real earnings – it is just that they were a lot higher at the top than at the bottom.

Now it is plausible that real wage levels (PPP adjusted) in the USA were higher at the beginning of the period than in other countries.

More of the the total US compensation bill went to healthcare and private pensions in 2005 than in 1980 – although it seems likely to me that much of this went to workers in the top half of the earnings distribution rather than those in the bottom half. and even if the cost of employer-provided pensions went up, the coverage went down. (In contrast, in Australia during this period we got the reintroduction of universal health care and the introduction of compulsory private pensions – both of which were more likely to benefit the lower paid than the better paid.)

I think there is also a story in here about joblessness – in this period (although not now) the USA kept more people in employment than many other countries. In Australia and the UK and Germany, for example, joblessness is a lot more concentrated among households where no one is in paid work compared to the USA.

So one possible story is that in response to the recessions of the 1970s and early 1980s the more flexible US labour market kept a higher proportion of people employed but at the cost of falling real wages at the bottom.

One of the problems with falling real wages at the bottom is that this puts pressure on your welfare system – how do you have adequate welfare benefits for the poor, when wages for the low paid are falling for 10 or 15 years or longer? Ultimately you end up “ending welfare as we know it”.

Also of course, this trade-off only works while you maintain high employment among low skilled workers. Post 2008 the model looks much less attractive.

59

ragweed 09.19.11 at 6:17 am

Jake, Bruce Wilder, etc. – if you look at the actual numbers, there was no huge rise in US net exports as a percentage of GDP after WWII. There was a slight bump in 47-49, most likely from the Marshall plan, but by the 1950s it was back to the historical average. Post WWII, Europe had lost much of its manufacturing base (though this was more true of Germany than say the UK) but a bombed out country also doesn’t have much money to buy imports – it does have a lot of idle human resources to put to work. Plus, the whole idea of the Marshall plan and the rebuilding that went on after WWII was to rebuild, not create a mercantile dependence on US imports – I don’t think most Europeans were driving Fords and GMs in 1950s.

James Wimberley at 45 – You think the average divorced couple had only one TV when they were together? With a lot of households it’s more like one TV per room. I know that there are some hard numbers behind the idea that divorced couples are less efficient because of duplication, but I think we should not underestimate the increased consumption that goes with having two incomes. The divorced couple may each end up in a separate house/apartment with a fridge, but that doesn’t mean they didn’t have a spare (beer?) fridge in the garage/basement before. Also, anecdotally I see a lot of divorced couples landing in shared housing situations, but I don’t know if that is the norm.

To the extent that smaller households are the result of divorce/delayed coupling, there is a case for welfare reduction. To the extent that smaller households are the result of fewer children, I am not so sure. At the very least there are more resources per child.

John

60

maidhc 09.19.11 at 7:23 am

My income is exactly the same as it was ten years ago. (We haven’t had a raise and promotions have been frozen for the last ten years.)

Ten years ago I used to buy sandwiches from the local deli for lunch because they only cost $3.29. Now they cost $6.29 and I never buy them; I bring sandwiches from home. And I notice the deli has reduced staff and cut back their hours.

On the other hand, I think nothing of going out for an afternoon’s scenic drive and taking 100 pictures with my digital camera, because it costs nothing for the photos. I would never have done that when I had to use a film camera and pay for processing. But the cost of gasoline used on the trip has more than doubled, so that should be included in the total cost of my photos.

So according to the Sandwich Index I’m falling behind. By the Scenic Photo Index I’m probably still ahead.

I think the difficulties in measuring value because of technological change go back further. For example, more people owned automobiles in the 1970s than the 1950s. But they lost access to a number of services that were available in the 1950s: public transportation in general, milk delivery to your house, laundry pick-up and delivery to your house, etc. You get a car to drive to the supermarket, but the milkman doesn’t come around any more.

There’s an interesting discussion about the economics of delivering groceries in the 1930s in The Grapes of Wrath. My father could remember the butcher’s cart coming round to the house and his mother buying meat for dinner. That economic model assumed that the wife was always home to buy household items while her husband was at work.

My father battled his way up into the middle class, helped by a subsidized university education because of his service in WWII, but his own efforts still were a major contribution. But once he’d arrived, he had a secure career and a comfortable retirement. He wasn’t wealthy, but I don’t think he really worried that much about money. He could buy season tickets to the opera, stock up a nice wine cellar and buy clothes from Brooks Brothers (and occasionally from Gieves & Hawkes) without batting an eye.

In some ways I live better than him, but I’m constantly pinching pennies and I have no idea whether I’ll ever be able to retire.

Can economists measure how much that lost sense of security is worth?

61

Henri Vieuxtemps 09.19.11 at 7:44 am

Maybe we could think of the post-war period as an equivalent of strong protectionism. It could be reproduced today by instituting a complete ban on all industrial imports. It would result, I imagine, in many new industrial jobs, and in highly increased bargaining power of national labor, and, consequently, lower inequality and higher standard of living for a vast majority of the population. Whether the rest of the world is destroyed or merely kept out is irrelevant.

62

reason 09.19.11 at 8:26 am

I think if you look closely, you will see that biggest change is that things that really matter to families (health, housing, education) have got more expensive and things that really matter to singles (entertainment, eating out etc) have got cheaper. My father raised 5 university educated children on basically a single income and ended up with a very comfortable retirement. He was educated to Ph D level but never earned a particularly large salary. (He was part of the “lucky generation” – born during the depression – that was generously supported by the state when raising children and benefited from massive land price (often mistakenly called house price) inflation.) Only the very elite can do that now.

63

reason 09.19.11 at 8:27 am

P.S. (After university – none of the children started in debt – although the youngest was affected by the Australian graduate tax).

64

Chris Bertram 09.19.11 at 9:14 am

I was thinking about this post in the context of my own experience (b. 1958) and the nature of the house I live in in the UK (constructed 1911). ….. rather than in terms of income.

One thing it might be interesting to know: how have house prices altered over the period since 1911 in terms of multiples of the median wage?

But thinking about how things have changed for occupants of a building like my house in terms of capabilities, functionings etc. I.e changes in real experience rather than income numbers.

1930s – a radio
Some time around 1950is (I’m guessing, the house gets a bathroom).
Some time around the 1960s – TV
Some time around the 1970s – colour TV
1970s – washing machine
1970s – central heating …. A big change in well-being!
1970s – HiFi music reproduction at an affordable price
1980s – a computer
1980s – drier
1990s – loft conversion and more space
1990s – internet connectivity, cable tv
1990s – dishwasher
2000s – more channels, wireless internet, second bathroom

Most of the changes since the 1970s are things that people adapt to, well-being wise. To lose some of them now would be a welfare loss, but never to have had then not so much.

** The really big gains: Indoor bathroom, central heating, washing machine. – all by the 1970s.

(The other gain is the car … though this is less of a gain given that everyone else has one too, and some more than one, meaning there’s nowhere to park and everybody is stuck in jams. )

There’s also some relevant detail concerning the kinds of people who used to live in a house like mine earlier in the century. Then it was the upper layers of the working class, now it is people like college professors who (as recently as the 1960s) got to live in the really posh parts of town.

65

Joshua Cullick 09.19.11 at 10:08 am

@Adrian @3:

(minor quibble)

Recall conventional wisdom said there were myriad technological spin-offs resulting from NASA’s Apollo program, and that these had quite substantial economic effects through multiple industries over the next decades. If true, the failure to account for these effects formally would signal the deficit in the sophistication and resolution (graphics metaphor) of economic modeling.

@Standards-of-living discussion:

(sorry, deep, and I probably not quite pulled this off)

The discussion on standard-of-living comparisons reminds of what I think of as (the science of) economics’ primary stalling point: nothing within its formal ontology is well-defined. No academic community has gotten around to constructing a well-formed ‘plane of reference’ valid over the entire domain of inquiry and discourse. That entire domain necessarily includes sociology, anthropology etc. Development indicates unification.

Without such a comprehensive formal semantic system (synonyms: terminological system, formal ontology, technical vocabulary) it’s impossible to form propositions equal to the situations one seeks to describe.

Economics borrowed mathematical tools and applied them to some good effect, also applied them in a lot of misinformed ways. If it had borrowed mathematical rigour, it would have been chastened and compelled to take a leap back, survey the situation in holistic totality, and work on foundations. The constructions of science are the developments of un-natural artificial languages, describing new abstract objects in formal systems. Both physics and mathematics have languages composed of appropriated words given new definitions, under comprehensive formal ontological systems. This is the basis for being able to form meaningful and substantially important propositions about phenomena in those domains. I don’t think that the domain of inquiry and discourse of the social sciences is intrinsically not subject to scientific method, it’s just going to require more of a coordinated sophistication on the part of the intellectual community. I don’t think the basis of science is hypothesis, experiment, validation, … as is conventional wisdom. That methodological chain is necessary but not sufficient. Without a well-defined “plane-of-reference” (as used, cf Deleuze&and Guattari, “What is Philosophy”) neither hypotheses, experiments, nor conclusions can be meaningful, ie say much about the world. The basis for science is a system of reference, ie a language, a language equal to the domain of inquiry and discourse.

In the meantime, one may proceed, as in this discussion, in a kind of vague, guessing, common-sensical mode, with tacit implicit assumptions taking roughly the form of “of course this is what everyone means by standard-of-living,”this is what everyone means when they say state capitalism“, or “this is what everyone means by socialism” etc.

But hardly anyone ever means exactly the same thing, and nobody’s terms are well-defined, under a well defined system of functors, so the progress of collective perception is halting, the discourse weak and plagued by disparate-agenda motivated obfuscational strategems, in addition to the honest confusions. (kw: blind people, elephant)

The veracity of the propositions is almost irrelevant; they are just too weak and simplistic for that to even matter very much. That (un-credentialed outsider) opinion aside, I highly value having access to the wonderfully brilliant discussions on this site and others.

Parting remark to a comment-that-got-out-of-hand: What would it take? What would it look like? Truly a massive undertaking. Armies of graduate students I guess, engaged in what is in many respects essentially no different to a very big programming project. A very big modelling and simulation project, where all of the variable (object) names are intended to be used in human discourse as well as machine operated simulational work. In one sense you are making a model or a game like Sim-City. Simultaneously though you are making an entire language from scratch; a lot of new words (I would imagine a lot of use of subscript and superscript numerical indexing).

There is the creative aspect to constructivism: one community’s constructed system need not follow another’s.

It might be said that this magnitude of project would require a fundamentally larger and more intelligent population of intellectual community. I would guess endeavoring to undertake it might also simultaneously stimulate the development of such.

Clearly this and similar projects would be going against the grain of conservative and pessimistic fashions in the academic world over the last few decades which have paralleled developments in society-at-large. I think that’s a good thing, and that it’s past time to start bucking those trends. It’s not such a stretch to make the case that human survival and progression (any of a variety of possible) depends upon it, ie upon the development of a highly performing social-scientific facility.

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Charlie W 09.19.11 at 10:52 am

I was thinking about this post in the context of my own experience (b. 1958) and the nature of the house I live in in the UK (constructed 1911). ….. rather than in terms of income.

The 1911 (coincidentally) UK census is good for this sort of thing. In that year, the house we now live in was occupied by a builder’s clerk and his mother (so: non-professional, single income). There’s been population growth since 1911, of course, and I don’t know how you’d disentangle that from competing explanations of change.

67

Barry 09.19.11 at 11:14 am

John Q: “But (as conservatives regularly point out) standards of living are determined mainly by lifetime incomes, not by income in any particular year.”

And what’s happened to lifetime incomes? For example, we haven’t seen anything like the current collapse since the 1930’s (in the USA). Unemployment is high, and staying that way; long-term unemployment is at record levels.

68

Barry 09.19.11 at 11:15 am

ragweed 09.19.11 at 6:17 am

” Jake, Bruce Wilder, etc. – if you look at the actual numbers, there was no huge rise in US net exports as a percentage of GDP after WWII. There was a slight bump in 47-49, most likely from the Marshall plan, but by the 1950s it was back to the historical average. “

Thanks for checking this.

“Post WWII, Europe had lost much of its manufacturing base (though this was more true of Germany than say the UK) but a bombed out country also doesn’t have much money to buy imports – it does have a lot of idle human resources to put to work.”

Which will be at a very low level of production.

69

Del Cotter 09.19.11 at 12:07 pm

Bruce @ 10: If I am rich, and some other guy is poor, I can, sort of, understand how I can better dominate him, and, maybe, my relative status is enhanced by his poverty, but how is my material prosperity enhanced? Although I can think of immiserating scenarios, why shouldn’t we presume Pareto improvement results from getting the poor guy a better job, so that the total produced is more, and both of us can have more, because there is more?

You’re better off surrounded by poor people because you can get their labour more cheaply. Why do middle class people pretend this is such a quantum mechanics rocket science head scratcher, when so much middle class bile is directed at working class people who “don’t want the jobs”? (“at the wage I’m offering” goes unspoken)

“The poor we have with us always” turns out to be a fervent prayer.

70

Adrian Kelleher 09.19.11 at 12:15 pm

@65, Joshua Cullick

NASA’s own claims for Apollo programme spinoffs are distinctly modest. This isn’t that surprising; only relatively recently has NASA started tackling technology independently from the requirements of specific missions and synergies between rocketry and the civilian economy are hard to imagine.

Against this unimpressive list must be set not just the direct expense incurred but also the opportunity cost of detailing to the project so many people of such undoubted talent. Of course satellite technology has found a myriad of important commercial applications, but these would have been attainable with the missile technology of the 1950s in any case.

The military contribution to technology is much more impressive, albeit on a larger budget. Once again, the opportunity costs of the technological hothousing of the 1940s-60s must be taken into account, however.

Latterly, NASA has adopted the DARPA approach to fostering innovation. I must admit I’m very impressed by DARPA which has often worked wonders with tiny budgets (relatively speaking). I’m ambivalent about many sorts of government interventions in the economy, but DARPA demonstrates that judiciously chosen and effected interventions can achieve results the private sector never will.

71

CharleyCarp 09.19.11 at 12:42 pm

Expectations change.

The beer is better now. And the bread.

Glad I’m not send 4 kids to college, as my father did.

72

OCS 09.19.11 at 2:00 pm

@52
If you’re like me you won’t watch an hour-long Youtube lecture, so here’s a link to a Harvard Magazine story by Elizabeth Warren, “The Middle Class on the Precipice”. Her major points: Since the 1970s household incomes have risen about 75 percent, but that includes the second income, which wasn’t routine a generation ago. At the same time fixed costs (housing, transportation, childcare, insurance) take up twice the portion of the household budget, so that real discretionary income is actually less than it was in the 1970s. In other words, people today are actually spending less on food, clothes, entertainment, etc., in real dollars, despite the two incomes.

Warren makes the point that there is no margin of error today. Back then the potential second earner could go to work in case of a layoff or illness. Today, the second earner has to work just to make the mortgage and car payments. If one or both gets sick or loses a job, there’s nowhere to trim. And a worker today is much more likely to face a layoff than in the 70s.

The whole thing is worth reading.

73

Zamfir 09.19.11 at 2:06 pm

Adrain Keller, I don’t think DARPA is well-described as working wonders on small budgets. According to Wiki, their yearly budget is 3.2 billion/year on average. Which is for example nearly half the budget of the entire National Science Foundation. On top of that they have the implied promise of sales to the DoD. Which makes private partners very willing to subsidize part of the efforts, keeping the official numbers low.

Arguably, DARPA is mostly good at PR. If something successful is funded by them their name gets mentioned, often with the implication that they organized the program instead of just funded it. And they are very skilled at bringing small programs to the front, with the suggestion that those are their typical level of expenditure.

74

Watson Ladd 09.19.11 at 2:08 pm

Henri, explain why North Korea isn’t so fantastically rich because it doesn’t import anything. What part of Lenin on trade union consciousness did you forget? Sit down, take a good microeconomics book or Das Kapital, or any econ book you care for, and work out what tariffs do to the workers. This is guild consciousness, not even trade union consciousness. Down with guilds! Down with the protectionist nation state!

Del, having cheap labor isn’t a good thing. It means there aren’t that many good ways to use it, because if their were it would be more expensive. Right now China is about to go through a wave of inflation and appreciation of the currency because the supply of labor is about to dry up. That’s not going to hurt capitalists: they gain from the increased productivity.

75

John Quiggin 09.19.11 at 2:10 pm

@Barry, yes that was my point.

The evidence of stagnation and (since the crisis) decline over the last decade or so is unequivocal, unlike the situation from 1970 to around 2000, when the data showed stagnation, but could be challenged in various ways.

76

Henri Vieuxtemps 09.19.11 at 2:27 pm

What does North Korea have to do with this? And, as a matter of fact, they had their period of very rapid and successful economic development too.

And who said anything about “fantastically rich”? Some do, indeed, get fantastically rich by paying Chinese workers 25c/hr to produce sneakers sold in the US for $150 a pair. Same pair of shoes could be produced in the US by people paid $20/hr, sold in the US for the same price, and no one gets fantastically rich off it; that’s the point.

77

Cian 09.19.11 at 2:31 pm

Down with the protectionist nation state

So should we feel sorry for the workers of Japan, or the vastly richer workers of S. Korea prior to the GATT liberalisation? I’m confused, they certainly seem a lot richer. They don’t seem to go hungry any more.

78

MPAVictoria 09.19.11 at 3:00 pm

“And who said anything about “fantastically rich”? Some do, indeed, get fantastically rich by paying Chinese workers 25c/hr to produce sneakers sold in the US for $150 a pair. Same pair of shoes could be produced in the US by people paid $20/hr, sold in the US for the same price, and no one gets fantastically rich off it; that’s the point.”

You see this is what drives me crazy! Companies were making a healthy profit building the damn shoes in the US and paying decent wages. All of a sudden that isn’t good enough and some sociopath decides to lay-off all of these working people, some of who have been with the company for decades, and ship the whole operation to some third world hellhole. Just to make an already profitable company even more profitable. Is there no limit to these peoples’ greed?

79

Watson Ladd 09.19.11 at 3:02 pm

Cian, protectionism means that instead of importing capital a country gets it by squeezing the industrial workers and farmers. I don’t think that’s a good thing.

80

Watson Ladd 09.19.11 at 3:03 pm

So they help those who want the jobs more get them? I don’t see a problem with letting people eat in the third world. If the job wasn’t better then the alternative, people wouldn’t take it. The only thing worse then capitalist exploitation is not being exploited. Short of revolution we can’t change that.

81

LFC 09.19.11 at 3:07 pm

Henri:
I assume you realize that even in some alternative political universe in which country X — say the US — banned all “industrial” imports (or all imports, period), every country whose exports to the US were banned could file WTO legal actions. That is, if some of them didn’t decide to do something a bit more aggressive/retaliatory first. I don’t see how one can feasibly go back to a world in which sneakers were made in the US rather than China or tennis balls were made in the US rather than the Philippines, etc. That train has left the station. At least some rich countries can still manufacture lots of products (cf. Germany) but they aren’t sneakers.

82

Henri Vieuxtemps 09.19.11 at 3:11 pm

@78 Well, of course it’s not people, it’s market’s invisible hand. If you don’t ship your operations there, someone else will, and then you’re out of business anyway. It can only be stopped by the national government.

@80, so, it sounds like you don’t disagree with my suggestion that the post-70s income stagnation has a lot to do with competition from cheap labor abroad. You just think it’s a good thing. So then, moral judgments aside, we agree.

83

Henri Vieuxtemps 09.19.11 at 3:16 pm

I don’t see how one can feasibly go back to a world in which sneakers were made in the US rather than China or tennis balls were made in the US rather than the Philippines, etc. That train has left the station.

Well, as long as national governments are still here, I imagine most of them can still do whatever they want. Well, at least those that have the bomb.

84

MPAVictoria 09.19.11 at 3:25 pm

“I don’t see how one can feasibly go back to a world in which sneakers were made in the US rather than China or tennis balls were made in the US rather than the Philippines, etc. That train has left the station. At least some rich countries can still manufacture lots of products (cf. Germany) but they aren’t sneakers.”

Inact tarrifs to level the playing field. Problem solved.

85

Watson Ladd 09.19.11 at 3:30 pm

Henri, I don’t think it has to do with foreign trade so much as a decrease in domestic redistribution. But even if I accept your mechanism, how can you justify letting the bottom billion not work while the labor aristocracy of the first world feasts? Its just unfair!

86

Alex 09.19.11 at 3:34 pm

Barry @67: Try this chart at K-Drum’s. It may be true that lifetime income determines the standard of living, rather than any particular year’s results – but particular years, especially recessions, determine lifetime income.

87

Henri Vieuxtemps 09.19.11 at 3:36 pm

For the bottom billion it would be wise to feast too, by producing goods for themselves, instead of making billions for a few executives and bankers.

88

Bruce Wilder 09.19.11 at 3:38 pm

@69: You’re better off surrounded by poor people because you can get their labour more cheaply. . . . “The poor we have with us always” turns out to be a fervent prayer.

Yes, and this “insight” (their insight that they want most people to be poor), and a degree of elite ambivalence about it, drives a lot of elite politics. In Victorian politics, Liberal revulsion at the spectacle of the Irish potato famine gave the Liberals a presumptive majority, and Home Rule for Ireland took it away. In antebellum American politics, revulsion at slavery drove the fervent embrace of free labor, free soil and free men, but didn’t seem to dull the fervent breaking of unions.

One reason many people do not seem able to grasp this bit of “rocket science” is that neoclassical economics fervently denies it. Ask Krugman, and I’m sure he would assert that an economy with any income distribution can be a full-employment economy. It’s not true, but he would say it, and beleive it, I think. Lots of commentators have juxtaposed an abstract increased inequality in the American economy with disinvestment, high and persistent unemployment and general sense of decline, without sharpening the stick of class warfare.

The rich, out of an instinct for self-preservation I suppose, actively suppress and discourage the reciprocal insight that the poor have the rich to thank for their oppression and deprivation.

89

Cian 09.19.11 at 3:42 pm

Cian, protectionism means that instead of importing capital a country gets it by squeezing the industrial workers and farmers. I don’t think that’s a good thing.

No it doesn’t. It means that a country has restrictions on what can be imported and exported, as well as having restrictions on what can be done with imported financial capital.

90

Bruce Wilder 09.19.11 at 3:45 pm

Neoclassical economics also contributes the hoary doctrine of comparative advantage and a head-up-your-ass theory of trade, which results in thoroughly confused discussions, like the one above between Henri, Watson Ladd, LFC, et alia.

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Watson Ladd 09.19.11 at 3:46 pm

Henri, we already had a world in which each village tended its own garden. Need I remind you of the Crisis of the Third Century and how that made an era of universal slavery to the Pope? Why don’t we all make candles and blott out the sun that provides us with free light? Why not make a negative railway, where we have porters move goods? You are arguing against a demonstration that takes five minutes on a blackboard. I think I will bet on Ricard, Marx, Smith, and generations of economists since instead of you.

Does it ever occur to you that Amsterdam’s liberty, prosperity, and giant port are all connected? Trade and the instrumentalization of production are not going to vanish when the workers take political control: they will serve the interests of society.

92

James Wimberley 09.19.11 at 3:56 pm

ragweed @ 59: “I think we should not underestimate the increased consumption that goes with having two incomes…”
Wives have gone out to work as well as divorcées. The general “more women going to work” effect clearly swamps your hypothetical “both former spouses now having to work”. More interesting is the fact that young single working women can afford to marry much later. That freedom is clearly a welfare gain, that offsets the economic inefficiencies of living alone.
I notice that John Q has not replied to my comment or corrected what I still think is a simple mistake in the post.

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Henri Vieuxtemps 09.19.11 at 3:57 pm

Watson, I’m not arguing for or against anything, I’m suggesting an explanation for a phenomenon. Ricardo, Marx, and Smith all died long before 1970s, so they can’t help you here, I’m afraid.

This modern world does, naturally, have the highest degree of specialization of labor in history, and so smaller countries (leave alone villages) do have to trade, but I think empirically we can observe that a country with ~60 million population (France, the UK, Italy, Germany) still could be (if so desired by the population) more or less self sufficient. A 300 million country – without a doubt.

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Cian 09.19.11 at 4:04 pm

So if I’ve understood Watson correctly, the USA needs to turn itself into a giant port.

Incidentally, as Bruce observes, the Theory of Comparative Advantage doesn’t actually work in practice. So there’s that.

95

Watson Ladd 09.19.11 at 4:06 pm

Henri, why does trade happen? Persons A and B have means, each of which the other desires more. So they swap and are happier. Interrupting that process will make them less happy. That’s Smith, Ricardo and Marx. I don’t see anything wrong with that argument. Secondly let’s look at Japan. It has a stranglehold on the production of discrete components in electronics, which are shipped to china to be assembled into items that are sent back to Japan. But those raw materials arrived from all around the world. We live in a deeply international division of labor: reconstituting it on national lines will do damage.

96

Bruce Wilder 09.19.11 at 4:08 pm

Capital controls, and select non-prohibitive tariffs, Henri. Autarky, even for an area the size of North America, with its still relatively modest population, is a bad, bad idea.

97

Bruce Wilder 09.19.11 at 4:12 pm

WL: “We live in a deeply international division of labor: reconstituting it on national lines will do damage.”

Damage to whom, exactly? It seems to me that it has been laid out as it is now, with an eye to doing considerable damage to the interests of the working and merely middle classes.

Is financialization of the U.S. necessary? Is breaking Boeing into matchsticks, necessary? Is making a dust bowl out of Michigan and Ohio, necessary?

98

mpowell 09.19.11 at 4:13 pm

Going back to the original post, I think this lifetime earnings argument is a very interesting one, but on it’s own it’s not very convincing. Maybe you need to follow up with an argument that a false expectation of ever increasing income has led to consumer fueled debt expansion which has just now blown up on us. Which is especially compelling if you consider that the real stagnation did not set in until 2000 or so, right around the start of this late housing boom.

It’s also possible that we’re just mistaken about the quality of life in the 70s. Maybe it was just as good, if not a bit more boring and restricted. What about healthcare, though? When health insurance costs go up, is this all measured as inflation? What if the quality of care is improving? Does anyone know how this get figured if at all? I’m pretty sure the improvement in quality of care doesn’t justify the absurd increase in cost since the 70s, but there really has been an awful lot of improvement in that sector.

99

Watson Ladd 09.19.11 at 4:16 pm

Cian, got a cite on that? If TCA didn’t work, I would be shocked.

100

Henri Vieuxtemps 09.19.11 at 4:25 pm

Watson, I got nothing against trade. The assembly line worker in Detroit trades with the farmer in Iowa, and they are both better off. One gets food every day, the other a new car every 5 years. That’s trade, what’s the problem?

Now tell me what the assembly line worker in China gets from the guy in America in exchange for his iPad.

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Watson Ladd 09.19.11 at 4:31 pm

Money. Its impossible to trace out what is traded because the money nexus makes things hard to track. I’m not sure why you single out foreigners. Why not left handed people or those south of the Mason-Dixon line?

102

MPAVictoria 09.19.11 at 4:36 pm

“I’m not sure why you single out foreigners. Why not left handed people or those south of the Mason-Dixon line?”

Don’t we have a responsibility to take care of people in our community? And I don’t think we have to impoverish Detroit to enrich Shanghai?

103

Cian 09.19.11 at 4:43 pm

For a layman’s debunking, Steve Keen’s book is perfectly decent. And Ha-Joon Chang is very good on development. I’ve only read his academic stuff, but I’ve been told his layman’s stuff is good also.

There is a reasonable professional literature critiquing comparative advantage which you could probably find from those two books, but I don’t have any citations ready to hand. Its basically a simple model, which doesn’t work when you start to use assumptions based upon what happens in the real world. I’m sure Robert Vienneau knows the exact paper, but I am not he alas.

104

Henri Vieuxtemps 09.19.11 at 4:46 pm

If the guy in Detroit starts buying cheap wheat from Russia, and the farmer in Iowa cheap cars from China, then both of them lose their jobs. To get them back, they’ll have to lower their standard of living down to that of the Russian peasant and Chinese factory worker, and some more. I know, you like the idea, but they probably don’t.

105

Bruce Wilder 09.19.11 at 5:07 pm

@101: “the money nexus makes things hard to track”

“hard to track” — I’ll make a note.

106

mpowell 09.19.11 at 5:21 pm

Henri, the problem with your argument is that you could apply the same critique to any industrialization process. How can the handmade furniture maker compete with assembly line goods? How can the day labourer compete with automated farm equipment? Won’t they both be worse off? In fact being able to acquire goods more cheaply generally improves quality of living, whether the source is automation, some form of worker productivity enhancement, or cheap foreign labor. To advance your argument you have to establish what is particularly special about the case you’re interested in. There is something there, I believe, but not where you are looking.

107

Henri Vieuxtemps 09.19.11 at 5:43 pm

Handmade furniture maker goes to work at an assembly line, and he works fewer hours to produce the same amount of furniture. That’s productivity, it saves time. But what happens to the furniture maker when all the furniture is imported? What is it that he can produce instead, that can’t be made, for a bowl of rice a day, by starving people somewhere and imported?

108

ScentOfViolets 09.19.11 at 6:37 pm

In fact being able to acquire goods more cheaply generally improves quality of living, whether the source is automation, some form of worker productivity enhancement, or cheap foreign labor.

How about acquiring goods more cheaply because a foreign factory is allowed to dump all it’s toxic waste into the nearest sewer and vents its sooty high-sulfur coal emissions unscrubbed into the atmosphere?

Your argument is way too broad.

109

CDW 09.19.11 at 6:37 pm

Why haven’t you mentioned two-earner households, which are much more prevalent today that in the distant past. And what about credit cards? Most purchases were made with cash and if it was a large purchase, it was made with savings.

110

ScentOfViolets 09.19.11 at 6:38 pm

What is it that he can produce instead, that can’t be made, for a bowl of rice a day, by starving people somewhere and imported?

Much bloviating and willful ignorance to the contrary, btw, this is not an example of comparative advantage.

111

Frank in midtown 09.19.11 at 7:35 pm

Imho we continue to fight communism by exporting good capitalist manufacturing jobs, and have taken the fight to their homeland.

112

LFC 09.19.11 at 8:29 pm

As an addendum to my earlier comment above, I’d note that in the US itself, manufacturing output, in absolute terms, has not fallen in recent decades (h/t an exchange a while ago w K. Winnecoff), though manufacturing employment of course has fallen, as has mfg output as a percentage of GDP (as well as, I would assume, the nature of what is manufactured).

Henri says national govts can do whatever they want (at least those that still have nuclear weapons). In terms of economic policy, no. Nat’l govts cannot do whatever they want. One ex.: Capital flight forced Mitterand to change his ec. policy in c.83. France has nuclear weapons. That didn’t seem to matter.

If the US slapped high tariffs on imports of soccer balls and sewer pipe caps from India, India would put high tariffs on its imports of Harley-Davidson motorcycles, fancy tractors, nuclear power plant parts, jet engine parts and whatever else it may import from the US. I doubt the results would be happy.

I’m not denying that the displaced furniture worker (and the loss of mfg jobs more generally) is a problem. And there may be a place for protection of certain established industries in certain cases. But I don’t think autarky is a solution.

113

ScentOfViolets 09.19.11 at 8:46 pm

If the US slapped high tariffs on imports of soccer balls and sewer pipe caps from India, India would put high tariffs on its imports of Harley-Davidson motorcycles, fancy tractors, nuclear power plant parts, jet engine parts and whatever else it may import from the US. I doubt the results would be happy.

It depends on how the tariffs are administered, doesn’t it? If company A can make it’s product ten cents cheaper per unit than company B by sole virtue of the fact that it’s sited in a location that has lax or unenforced pollution standards, then I’d say that gigging the offending company the amount it saves by dodging pollution controls would be seen as fairly kosher all the way around.[1]

If, otoh, a tariff was imposed simply to protect a certain industry – say one that historically contributed heavily to the incumbent party’s election coffers – well, I’d think that more people would be put out and with more reason.

[1] As always, the devil is in the details. The argument for “free trade” is nothing more than saying linear optimization works (which tends to be obscured by people who don’t know what they’re talking about braying about “comparative advantage”). But determining the true costs of a product that allows one to intelligently optimize? That’s much harder. And more subjective than a lot of free trade advocates would like to admit.

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Walt 09.19.11 at 8:59 pm

Honestly, the US really could do whatever it wanted, as long as it avoided an oil embargo. If the US is trading high-end motorcycles, fancy tractors, nuclear power plant parts, and jet engine parts for soccer balls and sewer pipe caps, I’m sure we could find a way do without the soccer balls.

115

bianca steele 09.19.11 at 9:07 pm

@107
I assume you mean factory-made furniture is imported? If handmade furniture is imported, he can duplicate the same furniture for a slightly lower cost (which shouldn’t be difficult since he’s saving himself a certain amount of design time).

116

Henri Vieuxtemps 09.19.11 at 9:30 pm

If the US slapped high tariffs on imports of soccer balls and sewer pipe caps from India, India would put high tariffs on its imports of Harley-Davidson motorcycles, fancy tractors, nuclear power plant parts, jet engine parts and whatever else it may import from the US. I doubt the results would be happy.

So, what about that post-war economy: 1950s, 60s, 70s? That wasn’t too long ago. Did the US import soccer balls from India? Did it export motorcycles and tractors, except perhaps as a part of those post-war European recovery programs? How come it’s suddenly unthinkable to produce a soccer ball, and to sell Harley-Davidsons domestically? And remember, this means no Honda, no Suzuki, no BMW.

117

bianca steele 09.19.11 at 9:47 pm

I also don’t get the claim that wanting poor people all over the world to be lifted out of poverty requires us not to think about nation-states. The claim–in practice–means rich white people in rich countries should move their capital and all that to certain other countries. It doesn’t mean all countries: Ukraine not Spain. And it doesn’t mean people of color at home, who are supposed to accept the need to promote Ukraine and China right now, presumably, and give up those jobs.

118

Joshua Cullick 09.19.11 at 10:11 pm

Adrian @ 70

I think your argument is a good one. I have no strong views on whether or not Apollo programme was a good decision economically, though it occurred to me to mention the oft-repeated cw on the issue, which ironically is not repeated in full force on the link you provided–as you say very modest claims there.

DARPA another example. Though I kind of think Apollo programme and associated cultural appetite for engaging in projects of such magnitude part of what made DARPA et al possible. In this view, the direct single-generation technological descendants of the Apollo programme much less important than the organisational/cultural halo which surrounded it. So many people, so many new problems and dealing with solving them. I’m focusing less on the machine hardware and primitive computational technology and more on human expertise developed. These people would have gone on to contribute to the milieu which produced Apple, et cetera.

The word that pops up often in this kind of conversation when someone makes claims similar to those I’m making is “intangibles” (not so much academics thankfully, but mgmt culture loves this word), but I don’t like its unscientific ring (as if there were a ghost in the room, somehow present but distinct from material reality, not subject to measurement, intrinsically unamenable to scientific inquiry and explication). Imo, something may be subtle, difficult to measure or to model with regards to conditioning/inputs, eg creative problem solving culture or generic intelligence, but there is nothing in the least bit ‘intangible’ about the resultants/outputs, eg economic and structural ramifications of high technology.

This is in not intended as rebuttal of your assessment re Apollo programme in particular. I’m just thinking further about the issues of economic modeling and measurement of subtle, dispersed conditioning factors to not-so-subtle phenomena in conditioned states-of-affairs.

119

bianca steele 09.19.11 at 10:22 pm

Re. the Apollo program: It’s also the case that when the program was wound down, a reasonably large swath of US industry was decimated, that is, in the early 1970s.

120

soru 09.19.11 at 11:38 pm

This Stross post has suggestions and discussion on what a US-only economy would look like:

http://www.antipope.org/charlie/blog-static/2010/07/insufficient-data.html

Around 1900, it took the effort of about 20-30% of a nation’s work-force to provide food for everybody; and another 30-50% working in factories to produce clothing, machinery, and processed materials like bricks and billets of pig iron. Today, we only need 0.5-1% of the work force to feed everyone, and another 1-4% working in industry to produce the basics — but the microspecialities have exploded, to the extent that a lot of our needs seem to require a trans-national economy to provide.

121

ironIke 09.20.11 at 12:12 am

What about reckoning the relative rate of ‘improvement’ of the standard of living of a certain type/group to that of distinct groups, specifically to relate the rate of change of both of their consumption or control patterns in regards to the increasing total amount of social goods that can possibly be consumed? As more overall social goods that can be consumed by individuals/groups become available (rationalization, computerization, etc. increase productive power; market/finance/business engines of profit), doesn’t the average American do progressively worse as relatively more social goods than he/she has access to are claimed by wealthier sectors of society? Doesn’t this alter their relative positions of social power?

I think if you look at the change in patterns of social power that have accompanied this dynamic, you see that this is not merely a stagnation or plateauing of the general trend of improvement of earning power and social condition of middle & working class people- these are only symptoms of a deeper problem. There are structural barriers that limit the ability of “average” Americans to consume or control certain types of social goods, or certain amounts of social goods. This better explains the explosion in wealth of the top fragments of the social order and the stagnation or relative decline in the situation of middle, working, and lower classes.

It is hard to get at these structural issues if you look at the problem by only comparing the the ‘same’ group to itself at different points along a timeline (“us” to our similarly middle or working class parents).

122

LFC 09.20.11 at 12:20 am

Henri 116:
It’s not that it “suddenly became unthinkable” to produce a soccer ball in the US. The word “suddenly” is out of place, and the word “unthinkable” probably also out of place.

There are, I presume, people around here who are more qualified to discuss this argumentatively with you than I am. But I guess they have better things to do. And come to think of it, so do I. You win. I wish you luck with your new soccer ball factory in Indianapolis. (Unfortunately I don’t know any venture capitalists so I can’t help you on that front.)

123

LFC 09.20.11 at 12:33 am

SoV 113:
Maybe, if laxer pollution standards were the only thing at issue.

124

Barry 09.20.11 at 12:37 am

bianca steele:
” Re. the Apollo program: It’s also the case that when the program was wound down, a reasonably large swath of US industry was decimated, that is, in the early 1970s.”

I’ve heard this period credited towards the creation of the modern Silicon Valley (combined with the drawdown in aerospace spending).

125

Bruce Wilder 09.20.11 at 1:48 am

@123 See Rare Earths as an example of a country using its willingness to accept a lot of pollution in a narrow specialty, to gain a strategic advantage in a broad range of industry.

126

Watson Ladd 09.20.11 at 2:59 am

Strategic advantage for a pile of waste? I’m not sure I see the problem if the people who have to deal with the waste are fine with it.

127

Bruce Wilder 09.20.11 at 3:15 am

@95, you seemed to be completely unaware of either strategic industrial policy in general, or of the Rare Earths gambit in particular. Apparently, there’s no end to the problems you don’t see.

128

ScentOfViolets 09.20.11 at 3:25 am

Strategic advantage for a pile of waste? I’m not sure I see the problem if the people who have to deal with the waste are fine with it.

Sigh. Iow, you really don’t see how comparative advantage works, do you? In fact, I’d guess that you’re confusing it with absolute advantage.

129

maidhc 09.20.11 at 8:39 am

I just read an article about the display of some old US spy satellites on their 50th anniversary. The first set of satellites took film pictures and parachuted them back to earth. The concept was the same as the U2 spy plane, only flying higher. The satellite was obsolete as soon as it ran out of film.

Then somebody got the idea of digital imaging, so the satellite could stay up there taking digital photos and sending them back via radio. The resolution was ridiculously low by modern standards. Now, decades later, we have digital cameras to immortalize our picnics and birthday parties.

The Russians tried sending people up into space to take photos out the window of the spacecraft. With sidearms in case the Americans tried to invade.

It was the Communist John Henry craftsmen versus the capitalist steam drill integrated circuit.

So would it be difficult to find a good hand-sewn soccer ball these days?

130

Cian 09.20.11 at 9:08 am

I’m not sure I see the problem if the people who have to deal with the waste are fine with it.

The people who have to deal with the waste are not the ones who made the decision to process the rare earths, nor are they the ones who benefit.

You didn’t learn your Marx from the Spiked guys did you? Because you’re the strangest Marxist I’ve encountered, and I’ve met some odd ones in my time.

131

Cian 09.20.11 at 9:13 am

Time was that industrial development occurred in the west through increasing mechanisation. This was largely driven (and still is to a lesser degree in places like Germany) by the cost of labour. If you couldn’t force the cost of labour down, then you had to reduce the contribution of labour to the final product. This reduced the need for industrial workers in particular industries, but increased the need for industrial machinery and tended to result in new kinds of things being invented as spin offs. Economic development. Woo Hoo. Driven by unions and class war. Fantastic.

The modern US way is apparently to instead find the cheapest labour anywhere in the world, and when that labour gets more expensive, find cheaper labour elsewhere (Watson Ladd thinks this will make them rich). Kill union workers, fry the environment until nothing is left. Hard to see how that will lead to development in quite the same way.

132

Cian 09.20.11 at 9:23 am

Henri,
there’s nothing wrong with trade per se. Specialisation is not only a good thing, but tends to happen naturally. Clusters of industry end up in a geographical area, and very few countries are big enough to produce all their needs anyway.

The other thing, is why would we particularly want to produce soccer balls. They’re a fairly low value item (sold for a lot – but that’s a separate story) – that’s exactly the kind of thing poor countries should be producing, particularly as they can’t produce other things very easily.

But I think you are getting at something. One of the big problems with outsourcing to the third world, is its basically a way for corporations to screw labour and the environment. Not only would we not want to have workers working for 12 hours with a bathroom break (I exaggerate, but only slightly), neither would we wish to rape our environment to do so. But its not really in our interests for it to happen across the world either.

So we should probably be talking instead about fair trade barriers. Tarifs on goods made in countries which don’t meet certain minimum protections. Not only would that probably be better for our own economy (often it would be possible to produce many of these things in the USA with increased skills, mechanisation, etc), but it would be better for ordinary people living in those countries. If there is an advantage in cheap labour, which is not horribly exploited, then that seems reasonable. If there is an advantage in using workers who die of industrial diseases by the age of 30; no, that doesn’t seem fair. That seems disgusting.

And of course the other thing is that we should allow countries to set up capital controls like China does.

133

Henri Vieuxtemps 09.20.11 at 9:58 am

Well, as far as moral judgments go, I think that indeed there is something curious about this (admittedly cartoonish) model of neo-liberalism, where, if there is, anywhere in the world, someone who is hungrier than you, that immediately puts your own livelihood in danger, because s/he’s likely to bump you out of your job.

If you want to stick with this model, you’ll probably have to build not only capital-preserving institutions like WTO, World Bank, and IMF, but also some sort of global social safety net as well. Or else you’ll have instability all over the place.

134

Watson Ladd 09.20.11 at 10:41 am

Cian, when the cost of labor increases its because labor has moved up the value chain. China is experiencing inflation and outsourcing to Vietnam and Cambodia not because the Chinese workers are on strike, but because they are now able to negotiate better because the manufacturers are more productive. Also, Marx was for the development of productive forces around the world. I learned my Marx from Moshe Postone and Chris Cultrone, and he learned it from the Sparticists. Making a labor conditions tarrif is something I would support as it could potentially lead to an international mobilization of labor.

Henri, the only way to have a global safety net is worldwide revolution. A return to autarky will doom all hope of international redistribution.

135

Cian 09.20.11 at 11:05 am

Oh you’re a Spart and affiliated to Platypus. Suddenly all becomes clear.

Cian, when the cost of labor increases its because labor has moved up the value chain.

The cost of labour can go up for all kinds of reasons. This is only one. Labour has moved up the value chain in China because the factories are operated by local capitalists who are not internationally mobile. This does not apply to FDI.

You seem to think there’s some magic mechanism whereby if workers get job A, over time they will somehow end up more skilled, with better jobs.

136

kosimba 09.20.11 at 2:06 pm

Look I understand that therse are times when for whatever reason economists have to talk in these terms but there is a lumpen utilitarianism in all of this (does anyone seriously believe that Ipods have made us happier?, and it seems to me their is a much stronger argument for cars as disutility than the opposite, especially from the seventies when they ceased to be a luxury on empty roads for going to the beach and became iron cage surrounded by others in traffick) .
Anyway as I understand it JQ’s post basically confirms that lots of crap got cheaper but access to education stagnated (it improved as a percentage of population because oldies without education died) and homeownership and employment, got worse. Maybe this is wrong, have houses got cheaper relative to income in other parts of the forest, is youth unemployment a local problem?

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Frank in midtown 09.20.11 at 6:15 pm

Capitalists WIN!!! Commies LOSE!! Capitalists change offering in response to failure of competitor in market place of ideas. Pensions, gah capitalist hate those things, gone. Social safety net, gah, capitalists hate those things, gone. Pooling of risk by the government, gah, capitalist hate those things, oh wait financial risk, Capitalist love that thing.

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ScentOfViolets 09.20.11 at 9:55 pm

Cian, when the cost of labor increases its because labor has moved up the value chain.

So the cost of labor can’t increase with increased bargaining power? Which could happen by, say, starting or joining a union?

Like what’s happened many, many times in U.S. history over the last hundred-odd years?

I think I can safely say that this one has jumped the shark.

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Watson Ladd 09.20.11 at 10:20 pm

Scent, I don’t think unions were ever powerful enough in the US to lead to a mass increase in wages outside of a few industries. The peak of unionization was in 1949, and was decreasing ever since. How does unionization get you a sixteen times increase in annual income over the lifetime of capital?

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Watson Ladd 09.20.11 at 10:21 pm

Unions might affect the distribution of the gains of labor vs. capital to some extent, but they can’t do so by more then returns on capital and labor.

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