Thursday, September 28, 2006

Are We Better Off?

One of the minor debates that swept through the weblog network in the last few weeks was whether or not the United States' economy was better off in the last few years.

Are We Worse Off?

Howard Dean thinks so, saying that:
"incomes today are $1,000 less for the typical household than during Bill Clinton's final year in office; incomes for the typical working-age household have declined every year since the president took office [...] Incomes have fallen because wages -- which provide 75% of income for typical families -- are stagnant for most workers. Under Mr. Bush, wages for college-educated workers increased only 1.3% between 2000 and 2005, as compared to 11.3% during Mr. Clinton's last five years. For the nation's lowest-paid workers, the situation is even worse, as the minimum wage is worth less now than at any time in at least 50 years."

First off, those numbers strike us as remarkably charitable - "cherry-picked" would be the euphemism were we playing basketball. Why do we compare household incomes from the next-to-next-to-last year of Bush's term to the last year of Clinton's? And considering that the last five years of Clinton's presidency were the economic boom universally referred to as the "tech bubble," is it really surprising that wages grew exponentially (as the bubble grew) and then dropped suddenly (as the bubble burst)?

But perhaps Mr. Clinton simply capitalized on a lucky spike in an otherwise sorry trudge. An August 30th editorial in the New York Times suggests that real household income has only grown an average of 1% annually since 1967.

Are We Better Off?

Don Boudreaux of Cafe Hayek uses those dates as a jumping-off point for a further argument, suggesting that the United States, and the world at large, are much better off today than we were in 1967.
But I ask: would you prefer to live in 1967 with today’s real median household income ($46,326) or live today with 1967’s real median household income ($35,379)? (These figures are expressed in 2005 dollars, by the way.)

Given these two options, I’d choose to live today with only 1967’s real median household income. The reason is that the economy today offers so very many more options than did the economy in 1967 – or even the economy of that halcyon year, 1973. Today I can buy cell-phone service; today I can buy cable television with hundreds of channels, including ones that specialize in sports, cooking, history, and science; today even the cheapest automobiles are safer and more reliable than were the finest cars for sale in 1967; today I can buy telephone answering machines (with caller-ID), microwave ovens, CDs, personal computers, Internet service, and MP3 players. Today I can watch movies in my own home – in color – whenever I want without having to wait for one of the three or four available television stations to telecast a movie for viewing on a black-and-white television.
Boudreaux certainly paints a rosy picture of the technological marvels afforded to the average household in 2006. But does the availablity of consumer goods necessarily mean the country is wealthier?

Consider: for several years, American consumers have maintained a rate of savings near zero percent, if not trending into the negative (CNN). Americans consume more than they earn on average. Their chief investments are their houses; the only way the linked CNN article can say that Americans are not perpetually in debt is by counting houses as savings. And as the housing bubble continues to deflate, we recall that housing is not a form of savings but, like all investments, a form of gambling.

If we apply for every credit card which solicits us, rack up hundreds of thousands of dollars in debt and fill our homes with plasma televisions, personal saunas and vacuuming robots, are we better off or worse off than if we'd saved? If ninety out of our one hundred neighbors do the same, are we a wealthier neighborhood or a poorer? If electronics companies, seeing the sudden burst in consumer spending, plow their budgets into R&D to come up with newer and more useful tools, is that a wise investment or a bad one?

Boudreaux and the Cafe Hayek regulars have harped in the past on the federal deficit racked up by profligate government spending in the U.S. If we may paraphrase Adam Smith, can folly in a great kingdom be considered prudence in a private household?

Does It Matter?

We cannot change places with our predecessors in 1967, or even ourselves in 1999, so it seems futile to debate. And assigning credit for the market's successes to one President and blame for the market's failings to another seems presumptuous. Not even Stalin could grow enough grain to feed Russia through central planning, and neither Clinton nor Bush nor Alan Greenspan have control over private production that approaches Papa Joe's.

But even if we could presume so, it seems to us blindly hopeful to presume that electing the same party as one gold-thumbed President could yield the same moneyed fruit. The market is such a vastly complicated affair that economists cannot even agree on how to measure its most important statistics. Who are we to presume that we know the factors that made one populace rich and another in the same geography poor? Who are we to say that we can duplicate those factors, even if we know them?

We have little faith in the power of any one person or faction to regulate the culture or economy of a society. We refrain from the debate entirely.


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