The Great Stagnation: Evidence in “Back to the Future?”

At lunch yesterday, a friend said that he has been watching the Back to the Future movies with his children and commented on how much he missed in those when he watched them as a kid.

I had the same experience a while ago when I watched them with my kid. I was amazed at how the makers of the film captured the differences in the times. Things like how the desirable subdivision that was being built in 1985 in an open field on the outskirts of town had gone down hill by 2015. Or, how absurd it seemed, even to a brilliant scientist, that a b-list actor in 1955 could become president by 1985.

While we enjoyed those movies as kids, we hadn’t been around long enough to witness the changes through the decades and see how well that was captured.

However, one comment at lunch got me to thinking. One friend laughed about what the film makers thought 2015 would look like. It was a bit too futuristic.

Could this be evidence for Tyler Cowen’s Great Stagnation?

The movie makers did a great job of capturing differences between 1955 and 1985, even 1885 (gritty water and food with buck shot) and 1985. Those time periods had already happened, so that was easy. You just needed some folks who understood the changes and progress that had been made.

Those time periods happened mostly during the time that Cowen contends standards of living improved faster because there was a lot of “low hanging fruit.”

Now, consider the film makers in the 1980s trying to project what life would be like in 2015. The only template they had to guess was how much life had changed in the previous 30 – 100 years.

Could it be that they thought similar advances would be made? Could the fact that we don’t yet have hover boards be evidence that Cowen is correct and that growth stagnated in the 70s and haven’t yet recovered? Is anybody developing a hover board? If so, let me know.

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Illusion Economics

One game plan for liberal politicians (and some conservatives) is to first convince you that you have it bad so they then can make the case that they can help.

There is a good example of this in my previous post. Graphs might lead you to believe one thing, but that’s blackboard economics. Look out the window and you will see a different story.

Thinking you have it good or bad is a matter of perspective. Poverty, itself, is a matter of perspective. Sure, if a politician compares the life of a poor person in the U.S. to a rich person, the poor person might feel slighted.

But, the observations from a student from India (via Instapundit) might help poor people in the U.S. find a better perspective:

[The U.S. is] An almost-classless society: I’ve noticed that most Americans roughly have the same standard of living. Everybody has access to ample food, everybody shops at the same supermarkets, malls, stores, etc. I’ve seen plumbers, construction workers and janitors driving their own sedans, which was quite difficult for me to digest at first since I came from a country where construction workers and plumbers lived hand to mouth.

Sometimes it’s hard to see the conveniences and standard of living the wealth of this country affords all people.

This reminds me of a news magazine show I saw long ago, when Brad Pitt was still courting Angelina Jolie. He said that on one of his visits to Africa he asked why they don’t have grocery stores and pharmacies on every street corner filled with remedies for basic ailments — ailments that kill people in poverty in other countries.

Capitalism is the answer. They don’t have much of it and we have more. Here’s why capitalism ensures we have ready access to the thousands of things that help improve our standard of living in ways that we are too spoiled to recognize.

Live in a country where the government or thieves (often one in the same) are going to take your stuff as soon as you have appeared to add value to it (like building a water well or fence to keep livestock) and you quickly learn that it isn’t worth expending the effort.

So, while the graphs Daniel Little uses and the speeches that politicians use may convince many that they are being slighted, in reality all of those people have a standard of living that is unsurpassed ever on this planet. Little’s charts don’t measure the value of having quick, easy and cheap access to basic rubbing alcohol that can easily prevent scrapes and scratches from becoming infected, life threatening injuries.

PS I also thought it was funny that the student from India thought we drank way too much coffee and thought it was crazy that we would spend so much on it, when we could brew it so easily and cheaply at home.

But, I think this goes back to his comment on the classless standard of living. We are generally so wealthy that we choose to hire others to make coffee for us.

Bad cause-and-effect

I just caught a TV news snippet comparing leisure time now to sometime in the 1950s or 60s.

Apparently, we spend 42 hours a week on leisure activities now compared with 36 hours back then. They said something like: We spend more time doing whatever we want now. What has caused this? The rise in the number of part-time jobs.

My guess is that is a result, not a cause.

I’d also guess that we have more leisure time now because we can afford more. We trade work for leisure because things have gotten better and we can afford to — or we can work less to have the lifestyle we prefer.

The rise in part-time jobs may have resulted from being able to afford to choose to work less.

What if we discovered that the average family takes more vacations than they did in the 1950s? What caused this? The rise in the places to go on vacation.

Update: Thanks to ColoComment for the link to the BLS leisure time study press release.

Let’s add this to the curriculum

(HT: The Last Embassy)

I wish this video of the Tommy Lee Jones look-alike would have been part of the curriculum when I was in high school.

Shrinking middle class prop

Two non-pathetic economists, Don Boudreaux and Mark Perry (one has bought me beer), write in the Wall Street Journal today that the shrinking middle class is a nothing more than a political prop.

You should read their criticisms of cost and wage measurements. But, here are a few points that are more compelling to the average joe. First, the basics have never cost us less:

According to the Bureau of Economic Analysis, spending by households on many of modern life’s “basics”—food at home, automobiles, clothing and footwear, household furnishings and equipment, and housing and utilities—fell from 53% of disposable income in 1950 to 44% in 1970 to 32% today.

Second, gadgets of prosperity are available to all:

Today, the quantities and qualities of what ordinary Americans consume are closer to that of rich Americans than they were in decades past. Consider the electronic products that every middle-class teenager can now afford—iPhones, iPads, iPods and laptop computers. They aren’t much inferior to the electronic gadgets now used by the top 1% of American income earners, and often they are exactly the same.

Finally, a true measure. Would you trade what you earn and have today with someone from the 1950s or 70s?

Even though the inflation-adjusted hourly wage hasn’t changed much in 50 years, it is unlikely that an average American would trade his wages and benefits in 2013—along with access to the most affordable food, appliances, clothing and cars in history, plus today’s cornucopia of modern electronic goods—for the same real wages but with much lower fringe benefits in the 1950s or 1970s, along with those era’s higher prices, more limited selection, and inferior products.

I can’t believe anyone buys the shrinking middle class barb. For those of us that have been around for more than a couple of decades, we don’t need economists to point out that the suburban blossom of mcmansions and the roads becoming clogged 4×4 family passenger trucks occurred during this period where the middle class supposedly shrunk.

“Life Would Be So Much Better Without Capitalism!”

Thanks to Cafe Hayek for pointing me to this well done video from the Fund for American Studies:

 

All the good stuff we get from capitalism and don’t even notice is a them I like to explore often. The video does a nice job of illustrating it.We take for granted something as mundane as having 24-hour pharmacies nearby chock full of stuff to help many ailments that can be ours for a relatively small price. Have you considered that billions of people in the world now and before us would love to have.

In the video, an anti-capitalism protester who enjoys plentiful gadgets, food and overall decent standard of living (due to capitalism), is knocked out by a sign waver at the demonstration and gets to explore a world without capitalism while out cold, aided by a little dude with wings to help explain why everything is so dreadful there.

I love this line:

Anti-capitalist: My X-Box is gone?

Little winged guy: Yeh. In this world, that greedy Bill Gates works at a bowling ball factory in Akron.

Join the discussion.

They made their own pies

Wealth redistribution is often discussed in terms of “divvying up the pie fairly.” Nobody seems too interested in where exactly the pie came from.

Recently, I saw this on Twitter from the Ayn Rand Bot (thanks to @downtownjeff for RT that one):

When great industrialists made fortunes on a free market…they created new wealth—they did not take it from those who had not created it.

Great point.

Stagnant Wages! Really?

A commenter on Cafe Hayek this week lamented about stagnant wages.  While it’s unclear whether the comment was based on fact or the commenter’s gut feel, it did remind me of this passage from Steven Landsburg’s book More Sex is Safer Sex (p. 29).

In the 1930s, we had a Great Depression, when income levels fell back to where they’d been about twenty years earlier.  For a few years, people had to live the way their parents had always lived–and they considered it almost intolerable.  The underlying expectation–that the present is supposed to be better than the past–is a new phenomenon in history.  No eighteenth-century politician would have dreamed of asking “Are you better off than you were four years ago?” because it never would have occurred to anyone that they ought to be better off than they were four years ago.

Rising income is only part of the story.  Not only are we richer than ever before, we also work less and have better-quality products.  One hundred years ago, the average American workweek was over sixty hours, today it’s thirty-five.  One hundred years ago, only 6 percent of manufacturing workers took vacation; today it’s 90 percent.  One hundred years ago, men entered the full-time labor-force in the early teens; today labor-force participation by young teenagers is essentially zero.  One hundred years ago, only 26 percent of male workers retire by age 65; today over 80 percent of 65-year-old males have retired.  One hundred years ago, the average housekeeper spent twelve hours a day on laundry, cooking, cleaning, and sewing; today it’s about three hours.

If wages are stagnant for a little bit, so what?

Don’t get me wrong, I like standard of living improvements as much as the next guy, but I also recognize and am thankful for how good we have it.  Now that we’ve set the bar high for improvements because they have come so consistently during our lifetimes, we’re disappointed when those high expectations are not met.

Oh no! Stagnant wages!  That means we have to live approximately like we lived last year, which happens to be the best standard of living that humans have ever experienced?

Landsburg continues by giving us more specifics about the daily life a hundred years ago.

Here’s a typical laundry day for a housewife in 1900: First she ports the water to the stove, and heats it by burning wood or coal. Then she cleans the clothes by hand, rinses them, wrings them out (either by hand or with a mechanical wringer), then hangs them out to dry and moves on to the oppressive task of ironing, using heavy flatirons that are heated continuously on the stove. The whole process takes about eight-and-a-half hours and she walks over a mile in the process.  We know all of this because the United State government use to hire researchers to follow housewives and record every step they took.

Very well written.  For some reason, I imagine Louis CK’s voice as I read that.

Landsburg didn’t mention that this process wasn’t done very frequently since it was laborious, expensive and there was much other laborious work to get done.  The idea of wearing clothes once and washing would seem insane to those living around 1900.  So now, since it’s much easier and cheaper to wash clothes, we do it more often and that improves our lives by spreading fewer germs and being less smelly.  Such mundane, yet exponential, leaps in quality of our lives are nearly invisible to us.

Update: Another thought occurred to me.  I imagined the folks who recognized how laborious doing laundry was and invented ways to make it easier.  That’s innovation.  With less innovation our standard of living doesn’t advance as quickly.  I wonder if the commenter complaining about stagnant wages realizes that the cause of that, if true, could be stagnant innovation.

Margins

Small margins fascinate me. They’re all around.

It amazes me that we live in an environment that is really made up of only a small marginal sliver of inhabitable environment when compared with all the space around us.  Move a few thousand feet up or down and we would have a much tougher time surviving.

I attended a local fall festival last weekend.  The festival draws a lot festival goers, but small margins matter.  On the main strips throngs of people roll through and purchase hot dogs, funnel cakes, leather goods, you name it.  But the booths just a few feet off the beaten path might as well have not been there.  That small marginal space was enough to keep the throngs away.

The standard of living we enjoy has only been available for a small marginal sliver of time and it’s truly only available in relatively small marginal spaces.  It’s good that we have folks like comedian Louis CK to remind us of this as he did in his appearance on the Conan O’Brien show where he explained that everything is amazing and nobody’s happy.

I found another healthy dose of a reminder in Steven Landsburg’s book, More Sex Is Safer Sex: The Unconventional Wisdom of Economics (p.27):

Modern humans first appeared about one hundred thousand years ago.  For the next 99,800 years or so, pretty much everyone lived just above the subsistence level–on the modern U.S. equivalent of $400 to $600 per year.  In a few fortunate times and places it was a bit more than that, but almost never more than twice as much.  There were usually tiny nobilities who lived far better indeed, but numerically those nobilities were quite insignificant.  If you’d been born any time before the late eighteenth century, it’s astronomically probable that you’d have lived on the equivalent of under $1,000 a year–just like your parents and your grandparents, and just like your children and your grandchildren.

Then in the late eighteenth century–just a couple hundred years ago, maybe ten generations–something happened.  People started getting richer. And richer and richer still.  Per capita income, at least in the West, began to grow at the unprecedented rate of about three quarters of a percent per year.  A couple of decades later the same thing was happening around the world. Continue reading