Thursday, July 15, 2004

We Live in the Best of Times

Arnold Kling makes the argument that ours is hardly the era of stagnating wages that some would make it out to be, whatever inflation-adjusted wage rates might imply to the contrary. He has a point, in that until recently few people bothered to take qualitative improvements into account when calculating the level of inflation. To pick a hypothetical example, while $1 in 1914 money may supposedly be worth, say, $10 today, most of the goods we actually consume today wouldn't have been available in 1914 at any price, and of those goods available both then and now, a great many have undergone such changes in quality as to be scarcely the same items. John D. Rockefeller himself wouldn't have been able to buy a bargain-basement PC, an iPod or a weekend return ticket to Paris on a 747 even if he'd had the vision to imagine such things were possible, and as for hip replacements, heart bypasses, anti-cholesterol drugs and other medical treatments older Americans now take for granted, one might as well forget about it. It cannot be denied that ordinary methods of calculating inflation fail miserably to capture the scale of the increase in standards of living enjoyed by people in Western societies over the last century (for an alternative approach, see here).

Where Kling does seem to engage in rhetorical overreach is in eliding the difference between saying middle class Americans' standard of living has stagnated over the last century (which nobody in his right mind would argue) and making the same claim about the last 3 decades. While it is clear enough from his first two tables that even the poorest Americans are now able to afford items that were out of reach to all but a few in the 1970s, it isn't at all obvious that this is due to a genuine rise in income per hour worked at all levels, rather than simply being a consequence of lower-class Americans working a lot harder. Although I myself favor the former argument rather than the latter, I just don't see how it falls out of the data Kling does provide: Americans in 1875 no doubt enjoyed a lot less leisure time than they do today, but what most people are concerned with is the era commencing in 1973, and here he provides no information.