Bryan Caplan  

CPI Bias Deja Vu

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I completely agree with Arnold when he remarks:
I personally do not think that the stagnation hypothesis can survive the thought experiment in which you offer somebody the choice between (a) today's median income and today's array of goods, services, and prices or (b) 1973's median income (plus, say 25 percent) and 1973's array of goods, services and prices. I think that so many people would reject the 1973 option that the stagnation hypothesis becomes untenable.
Even stranger: I learned this thought experiment over a decade ago from none other than Tyler Cowen himself!  I think he called it the "deflationary century."  His point: Most of us would rather have $1000 nominal dollars to spend on year 2000 goods than $1000 nominal dollars to spend on year 1900 goods.  Ergo: official statistics notwithstanding, the quality-adjusted price level has actually fallen over time.  Years later he blogged it:
$5.00 back then goes a longer way, but I would rather earn $100,000 a year today, and yes that is not adjusting for inflation.
Of course, Tyler might say that his thought experiment works for 1900 versus 2000, but not 1973 versus 2010.  But none too convincingly.  Ultimately, though, I'm pretty sure he realizes that there's been amazing progress over this period.  But saying "slightly less amazing progress" isn't as provocative as saying "stagnation."


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COMMENTS (21 to date)

"The great jog forward"?

John Thacker writes:

Especially since Tyler, more than most people, absolutely loves the expansion in food options to food that simply was not available in the area in 1973.

Steve Horwitz writes:

And I agree with both you and Arnold.

Mark Perry nails it here: http://mjperry.blogspot.com/2010/12/magic-and-miracle-of-marketplace.html

Jim Rose writes:

getting on a plane to anywhere was a big buzz in 1973, and overseas travel from Australia to Europe was for the rich.

these days, high school kids take two week school trips to Asia, Europe or the USA, and it is seen as normal part of growing up.

my sister saved and saved to pay for a ticket to the UK via the USA from Australia in 1973 and paid A$2000. the same ticket is about $2000 today.


do any of these cost of living estimates take account for increases in life expectancy, in line with gary becker's work?

Lord writes:

Where is your imagination. I think I should like a $1000 in gold back then to sell today. A $1000 in jewels. A $1000 in fine art. A $1000 in collectibles. A $1000 in prime coastal land. A $1000 in shares of ATT, taking the split, or Union Pacific.

What has expanded is options. This doesn't mean $1000 in food in 1900 is anything to discount. There were many that you would do well with, but you would have to be selective and you would have to have it over time as $1000 would be a lot. Beef, dairy, staples, that you could do well with would last a lifetime.

John V writes:

While I'm sure this is an exaggeration on many levels, I sometimes feel that Tyler's general POV has evolved into something more "centered" (more on that in a moment) than it was when I first started reading his blog. And while he has always seemed more moderate in his views than other libertarian bloggers, he also seems to have embraced a more status quo approach to the big issues. Part of this status quo....aka "centered"...approach involves a certain..albeit perhaps subtle...willingness to be a bit more technocratic in policy ideas...and perhaps a touch hostile to a more Hayekian/Postrel blend in terms of progress, dynamism and spontaneous order.

Is Tyler maybe finding the lesson of the "Fatal Conceit" less satisfying and convincing than he once did? Or am I more than just a little off base?

Michael Stack writes:

It's the second derivative guys - Tyler too thinks things are getting better...he just thinks they're not getting better as quickly as they used to.

Nothing above refutes his central point.

Lord writes:

The mistake you are making is thinking what you would spend a last $1000 on, rather than ask where can you spend a first $1000 such that you would have so much more to spend now. The thing is you would not spend it on what would be the latest and greatest of the age, but on the oldest and most basic that is difficult, expensive, or impossible to reproduce. The same result would occur for someone a century from now for whom modern technology would be unbearably old fashioned.

Steve Sailer writes:

From 1964-1982, my total tuition for 18 years of quality education (8 years of parochial school, 4 years of a private high school, 4 years at Rice U., and a 2 year MBA at UCLA) was about $16,000, or less than $1,000 per year.

Tyler Cowen writes:

Michael Stack is exactly right. Furthermore it is more than strange for Bryan to think that the earlier era, with the federal government at less than five percent of gdp, and open borders, did not have much higher growth for the typical family! You are the one caught in a contradiction, not I.

Steve Horwitz writes:

The language of "stagnation" suggests that it is about the first derivative. To stagnate is to STOP growing, not to grow more slowly. FWIW, Dictionary.com has the third definition of "stagnation" as:

"to stop developing, growing, progressing, or advancing"

Note: to STOP, not to slow.

So if it's really about the second derivative Tyler, perhaps you have mis-titled the book. ;)

Yancey Ward writes:

I think Kling vastly understates his hypothetical. Would you really take 1973 with only 25% added to that era's median hourly income? Hell, I find it nearly intolerable to watch a basketball game on a non HD channel, now.

Yancey Ward writes:

Indeed, I think Cowen has fallen deep into the rabbit hole in trying to use statistical data to analyze this hypothesis.

Ak Mike writes:

I think most of you are too biased by presentism to see that there were substantial advantages forty years ago that have been lost today, balancing to some extent the gains. An exhaustive list would make a treatise, but some examples:
- Middle class families had maids or cleaning ladies. Also, the wife/mother did not work. Also, much less time was spent ferrying kids to lessons, organized sports, etc. Cleaner, less harried lives. Less divorce.
- Neighborhood bakeries and butcher shops. Much higher quality in that area.
- I used to get to the airport 5 minutes before the plane left, and make my flight.
- Art house movie theaters, all gone now. Hollywood garbage was not as universal.
- Jim Rose, your experience was different than mine. I spent a summer in Europe in 1975, $180 for a rail pass that let me travel everywhere for 10 weeks, American and European kids were all over.

If you focus on electronics, then yes, things are much better today. Medicine, too, of course. But personal services were more affordable, including tuition, medical care, repair and maintenance. Oddly enough, home music was in some ways better then, since people listened more on their component stereos and not on their cheesy little earbuds and mp3s.

Bryan, who has no experience of 1973, looks around and sees all the things he likes that were not around then, and is certain that today is far better. But what he does not see is all the things that existed then but not now.

Hugh writes:

What we can consume is only part of the equation: in '73 a median guy could have looked forward to a stable life in a stable job. No offshoring, no outsourcing and only a moderate chance of getting fired.

In DCF terms that stability has value.

Oh yeah - and the music was better too.

Steve Miller writes:

This isn't about ideology, for Tyler, Bryan, or anyone else except maybe the progressives giving Tyler's book such glowing reviews.

In a sense it would be nice for us, the free-marketers, if we could make the case that growth in government spending has led to stagnation. But it hasn't, because there is no stagnation. Whether that's because of or despite of growth in government is a separate issue. The stagnation hypothesis ONLY fits the income data. It does not the purchasing power (in labor hours) data, not at all. It doesn't fit with the economists' standard of greater choices, either. In the 1980s Robin Williams' character in Moscow on the Hudson collapsed in a small grocery store because he was overwhelmed by the coffee selection. What has happened to those choices since the 1980s?

Further, it doesn't pass a basic sniff test. Forget the 1950s kitchen, I have a 1980s kitchen, and it sucks. The modern microwave, toaster oven, and dishwasher make it tolerable, but nowhere near as nice as the 2005 kitchen in the house we rented a few years ago. Of course that is in addition to HUGE growth in transportation, entertainment, and communication since the 1980s or even 1990s. Wasn't it less than 15 years ago that we had to use an envelope and a stamp to send someone a photo? In the past I have been skeptical about the singularity and other Hansonian visions of accelerating progress in the near future. But if the evidence in TGS is the only counter to it... well then maybe I should be bracing myself for the singularity after all.

Okay, maybe CPI-adjusted median household income is stagnating. Consumer surplus isn't -- it's accelerating. Some will argue that's because government spending is almost a third of GDP; I wouldn't. But that doesn't change the fact that innovation accelerated throughout the 20th Century. It wasn't constant, and it didn't stagnate.

I mentioned this video on one of Arnold's posts:

http://www.collegehumor.com/video:1788161

Between that video and Mark Perry's post, I don't see how stagnation holds up.

Bryan Caplan writes:

Hugh - Stable job? Take a look at unemployment 1960-present. From the mid-90s until 2008, U.S. unemployment basically matched what people remember from the "good old days."

John V writes:

Good point, Bryan.

I have grown increasingly cynical of the "Good Ol' Days" talk that generally seems to end in the early 70s.

This is not to deny anything that may have generally been better back then. HOWEVER, the overstatement of those long lost days needs some serious attention because they seem to get better as they become more in the past. And by that, I don't mean "seem better in relative terms". No, I mean that those days are actually made out to be better than they were in absolute terms.

The pros and cons and highs and lows of fading eras tend to blur into a conventional view that makes them seem larger than they really were.

There's your next book, Bryan. ;)

Hugh writes:

I agree that the unemployment figures don't give me much support. I guess the statistic I would like to see would be the percentage of people who had to change job involuntarily due to plant closure, offshoring or whatever. Has that percentage grown in the last 30 years?

I would guess that it has - but you are free to disagree.

K Smith writes:

This is like saying if I buy 4 tickets to a Yankees game, when my 3 friends and I get to the gate I should be happy when the ticket taker says they sold 1 of my seats to someone else and only 3 of us can get in because they have replaced the old jumbotron with hi def.

I am not happy. I bought 4 tickets. I want my 4 tickets to admit 4 people. The fact that the image on the jumbotron is more crisp has nothing at all to do with how many seats I bought. The two things are independent of each other.

I have been ripped off. I paid for 4 tickets. The right to my use of the seats does not change with the quality of jumbotron. What I bought is independent of the quality of what may or may not be available in the future.

This is what inflation does. It rips me off. The wealth I created and earned thru work in the past is independent of the quality of what may or may not be available to me in the future. The money I earn should hold its value. If it doesn't I am being ripped off.

ajb writes:

I'm sorry Bryan Caplan, but this goes too far. Perhaps I'm in the minority. But I lived through the 80s and I'd rather have (let us say) an income of 100K nominal dollars in 1980 than even 150k-200K in 2011. I just don't value the internet as highly as you do. I do value nice houses, cheap private schools, quality labor services, and higher relative status far more than you do. I suspect many would also agree with me. I would miss many of the medical innovations, but as Hanson would note, these don't seem to have kicked life expectancy up that much. I would also argue that traffic was lower and crowding was less severe in many of the places I would have wanted to live.

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