Sunday, October 29, 2006


Economic Mud Wrestling

On Friday, Charles made a post about economics. This post attracted the attention of a jargon-spouting right-winger who, now that I that think about it, sounds like he's reading a variant of the Austrian-by-way-by-of-Alabama script written up by the conservative nutjobs of the Ludwig von Mises Institute (more about which can be found here). Sad, really. The right-winger asked for statistics on just how Americans are worse off now than they were a few decades ago. His counterargument was based on the Mises Institute's Gadget Fallacy, which states that we must be better off because we have IPods! and microwaves! Never mind that these IPods and microwaves are all built overseas in places like China, so what we're really doing is exporting our cash and well-paying manunfacturing jobs out of the country -- to the point where families that used to do just fine on one income thirty years ago now can't keep afloat with two. In any event, he probably won't understand the stats we gave him. (Nevertheless, I'll lob one more his way, just for grins.)

I don't discount hedonic corrections, PW, but people need to understand that they are second order corrections, and those tend to cancel out. For every gain one can mention, one can mention a decline.
In your post here you said that a right winger asked for reasons why we were better off thirty years ago. You have not said why so please tell him so he'll understand and go away. I think if you are explicit he will get the point. Thank you.

I did notice one thing in your post that I am unclear as to why you included it. You said that we are exporting our cash and well-paying manufacturing jobs. Does that mean it should be illegal for an American to buy products from other countries? Please explain. Thank you.
I certainly don't want to beat a dead horse here, but some questions remain unanswered. I am sort of looking for help to combat those who think we are better off today (in the US) than in 1976. Please give us some more ammo.

The Ezra post does not give evidence as to why life is not better now. It also doesn't address why human technological advance should not be weighed when determining what makes life better.

Your links to attacks on the Mises school of thought are justified, yet they do not show why life is not better today that in 1976.

Also, the wage statistic is also good. Yet I hear people say that even if incomes go down, that is not an indication that people are poorer. Even if prices go up and wages go down, the numbers still are not proof. For example, cars today are much sounder and break down a lot less than cars made in 1976. Yet even if real wages go down and real car prices go up, we could still be better off spending money on a 2006 car. What do I tell people that ask me why were we better off 30 years ago? Help!
Hmmm, Anonymous. I keep lobbing genuine stats at you and pointing you to things which should answer your questions, yet you keep saying that they don't answer your questions. I hope you're not just interested in seeing me waste time on you.

But anyway, here are a few questions for you:

1) How much money did your parents manage to save? Did/do they have any credit-card debt?

2) Have you managed to save any money? Do you have any credit-card debt?

3) If you were to start life in the same industry your father/mother worked in, would you have a better income than he/she did, adjusted for inflation?

4) Was your parents' family able to thrive on one income when you were growing up? Is your current family able to thrive on one income now?

The drop in real wages over the last four decades has been nearly as astonishing as the post-WWII boom. This drop has largely been compensated (or masked) by the rise in the number of working women. But even with the additional income brought in by women, the decline in real wages has led to a rise in household debt and an eventual drop in household income.

Here's a Paul Krugman column from 1997 wherein he discusses the drop in real wages since the end of the 1960s.

Here's a chart from 2001 showing real wage trends. Note that after 1971, there are a lot more -- and deeper -- valleys than peaks? Even the gains of the 1990s weren't enough to make up for the losses that came before (and after). And as Charles points out today, that boom is over.
Yeah, Anon, I'm afraid that economics is not as precise as physics or chemistry. The statisticians try to build in quality issues through what is called hedonic adjustment. You can read how it is applied to digital cameras here. So, people who say that improvements in quality are not accounted for are just plain wrong.

On the other hand, it's good to double check that sort of statistic with a device called a b--ls--t meter. Phoenix Woman has given you a number of excellent examples of how to apply it.

My own favorite application is this: Since about 1975, there have been enormous gains in productivity, which allowed companies to do things better, faster, cheaper. But every dime of actual money gains went to a very small group of people at the top. They want you to believe that you got a slice of a pie that you can't smell, you can't taste, and you can't eat, even as they take a slice of pie that you can not only eat, you can take it to the bank and use it to make more pie.

And speaking of pies, a good rule is that you don't let the same person cut the pie and choose his piece. But that's exactly what the wealthier 20% have been doing for the last 30 years.
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