Arnold Kling  

Income over Time

Boskin Scenario, Revisited... The $44 trillion shortfall...

I share Brad DeLong's fascination with anecdotes that illustrate historical comparisons of income. He posted one concerning the pay of a professor one hundred years ago.

our professor sees himself as a reasonable and badly underpaid man. He is not asking for what he would see as the "large salar[y], commensurate with what equal ability would bring in other lines of work ($10,000 to $50,000)"--or 20 to 100 times the then-current average level of GDP per worker, the equivalent today of between $1,100,000 and $5,500,000 a year. At 50 times average GDP per worker (roughly the mid-point of G.H.M.'s range, corresponding to a salary of $2.5 million a year), we are down to perhaps 4000 households in today’s United States (according to Piketty and Saez (2001)). That an "ordinary" professor could feel that his talents ought, in some sense, to earn such an enormous multiple of the average income is a sign of how unequal an economy and society the turn of the twentieth century U.S. was. Yet G.H.M.'s feeling of being sharply constrained by material necessity is real: as this professor goes through his budget, he expects the highly-literate and elite readers of the Atlantic Monthly to nod and agree (and we modern readers do indeed nod and agree) that his family is strapped for cash.

In the same vein, you might read my comparison of Frederick Douglass' mansion in 1895 with the nearby neighborhood today.
For Discussion. The standard of living of average citizens today has soared past that of a rich person a hundred of years ago. Will this trend continue?

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CATEGORIES: Growth: Consequences

COMMENTS (8 to date)
David Thomson writes:

This trend will almost certainly continue as long as we don’t lose our nerve.
Increased productivity levels will make us wealthier---but also possibly more insecure! The gods of Creative Destruction will demand their pound of flesh and many will become reluctant “job hoppers.” Whole industries may be eliminated. This price tag must be paid and will demand a certain level of maturity. Will we chicken out, or stay the course?

MacDonalds’s, for instance, is currently streamlining its order taking. This should get the food to the customer in a more rapid fashion. However, it will also mean the loss of employment of a good size number of employees. I suspect that perhaps at least 5% of MacDonald’s employees will be let go. Is it safe to estimate that the job losses might be in the millions?

What about the higher educated workforce? Hey, the blogging goddess Jane Galt only found a decent job in the last month. And she is not alone!

Andrew Martin writes:

Of course this trend will continue. Whether it is at quite the same pace is another question. Advances in sanitation, medicine, productivity, etc. have made life so radically different that comparing a standard of living from one era to the next is nothing but a curiosity. It surely doesn't make the case that since our poor today have access to ammenities unattainable to even the wealthiest people from the 18th century that they are to be considered priviliged in any fashion or that efforts to stem poverty should be lessened to any degree. If one were to look instead at what our society is capable of and comparing it not against what may have been possible 50, 150, or 500 years ago but what we are actually achieving, we can better focus on ridding some of societies ills. For example, we have the productivity to end hunger, the technology to develop sources of clean energy, and the resources to provide fundamental education, information, basic medical care to everyone on the face of the planet but we have failed to do it. The question is not "is society better off today than it was 150 years ago?" Of course it is. Instead we should focus on how we can continue to improve the living standard in this country as well as abroad. Comparing the livlihood of someone living in federal housing today to, for instance, Henry VIII is irrelevant.

back40 writes:

The rate of increase may well accelerate as each innovation builds on an ever more sophisticated base. The challenge is to evolve social systems so as to avoid breakdown and reversion to barbarism. Cranks, creeps, greens and the like might achive their objectives.

Eric Krieg writes:

It is hard to say whether the First World will maintain its standard of living increases. Hopefully, technology will allow the trend to continue.

But why limit the question to the First World, when 2/3s of the world does not live in modern affluence. It is in the Third World where much opportunity lies. They just need to catch up to us. It doesn't take any innovation to do that.

Look at the Chinese. Even the Japanese are in awe of the Chinese ability to churn out cheap knockoffs of western goods. And even though some of these goods are slated for export, most of it is for domestic consumption.

The Chinese have cellphones, computers, cars, interstate highways and even magnelev trains (currently being built). They are well on their way to US style affluence. Let's hope the rest of the Third World can follow the Chinese example.

David Thomson writes:

“It is hard to say whether the First World will maintain its standard of living increases.”

I respectfully disagree with Eric and strongly reiterate that it is instead very easy to asset that “the First World will maintain its standard of living increases.” The odds are overwhelmingly that this will be the case. The combination of Moore’s Law and other technological advances guarantee us a bright future. What might possibly hinder us? We could become too soft and lazy (like the Old Europeans)---and unwilling to endure the unavoidable price tag of Creative Destruction. Change will be a constant, and some folks might find this to be somewhat unpleasant. Other than that, the future looks very bright.

What about the Third World? Their situation depends greatly on us defeating the forces of political correctness in the Western World.

Eric Krieg writes:

David, I never said WHY I thought it would be difficult to maintain our rate of innovation and growth.

Falling into 1970s style stagflation due to a risk averse, regulation loving population is a VERY big potential problem. Politics could overcome tachnology to stagnate living standards.

People underestimate the extent that the computer revoluton was fostered by regulation-averse Reaganites. If the PC has been introduced in 1971 instead of 1981, it would not have had the impact that it EVENTUALLY did.

One thing I worry about is that we have already grabbed the low hanging fruit, so to speak. To come up with new innovations requires more and more brain power.

Now, first of all, you have the government schools, both here and abroad. While the schools may be better abroad, it is a marginal increase in goodness. The biggest problem with our schools are their very model of organization: a factory from the 1890s. You learn subject A on date B, and when you learn that you go from grade C to grade D. It is an assemblyline model. It is JUST a little bit archaic!

The other thing that nobody in respectible circles wants to talk about is IQs. On the optimistic side, you have the Flynn Effect, where fast paced, modern life actually seems to be increasing average IQs.

On the negative side, you have regression to the mean. You have less and less people at the upper and lower bounds of the bell curve (but with the Flynn effect, the mean is still rising).

If you think that it is at the margins of brilliance that real progress is made, regression to the mean is very upsetting.

It just seems to me that so much progress is being made by people with PhDs in biochemistry, or whatnot. How do you create more of them? Gid only knows, literally.

David Thomson writes:

The odds are in our favor as long as we are perceived as the beacon of hope for the rest of the world. I am more than willing to steal W.E. DuBois’ concept of “The Talented Tenth” for my own purposes. It is my adamant belief that a mere 10% of winners in our overall general population will suffice to advance our civilization. Also, many of the intellectually elite in India and other countries still desire to move to the United States. This will not change anytime in the near future.

Eric Krieg writes:

Forget the talented 10%. What if it is the talented 1% that advances society? What if it is those with IQs of 140 (which is much less than 1% of society)? That's like a 1400 on the pre-dummed down SAT, the type of people that go to MIT or Stanford and major in electrical engineering.

What motivates these people? How do we make sure that kids that have the potential to perform at this level do so and aren't discouraged by a school system that is optimized for the average kid, at the expense of the brilliant.

Obviously, marginal tax rates matter to some extent, maybe not as much as the supply siders think, but definitely more than the liberals give them credit for.

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