In a new video for the PolicyEd channel, economist Russ Roberts takes on the popular—though misleading—narrative that ordinary working Americans haven’t made any real economic progress in the last generation or so.
Russ asks us to re-think what we know about prices and inflation. We can compare how much an average working American paid for a television in 1973 to how much they would pay today, but if we don’t get any more specific than “a television” (or “a refrigerator” or “a new car”), than we’re really not making a direct comparison. Today’s televisions offer features and content access that simply didn’t exist in 1973, in addition to radical improvements to the specifications of the device itself, such as size and resolution.
This means that when we make direct comparisons to consumer goods of the past, we often underestimate how much our quality of life has improved. The average paperclip might not have changed much in 40+ years, but the average computer certainly has. So even if, for example, average cash wages have not increased significantly, the quality of the products and services we can afford may still have left us substantially better off.
Marian Tupy made this point in a 2016 article for Reason magazine, in which he took on the “stagnating wages” issue by pointing out that falling real prices for consumer goods and rising non-wage benefits have both benefitted American workers. He could have added the value of government benefits, which are often left out of such calculations, as pointed out by Ron Haskins in a 2012 article for the Brookings Institution.
Marian rounded out his article by pointing out that, while the prices of most consumer goods have declined in recent decades, prices for things like education, healthcare, and housing have “risen at a faster pace than total compensation.” The rise in prices for those big-ticket items has swamped many of the gains Americans have seen in other parts of their household budgets. It should come as no surprise that those categories are among the most-heavily regulated industries, and ones for which government is most intimately involved with financing. Reforming the federal and state (and local) policies that have driven up prices will be much easier than monkeywrenching the economy, via the political process, into a left-wing politician’s dreamscape of shared prosperity.