David R. Henderson  

Noah Smith on Brad DeLong

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Noah Smith has an excellent post in which he challenges a key Brad DeLong claim. It's titled "DeLong Smackdown Patrol: How worse off are we really?"

Brad DeLong writes:

The American economy has done badly over the past generation or so.

Brad gets more specific, writing:
Moreover, across most of the income distribution Americans today are little if any better off than their predecessors back in 1979, at the business-cycle peak in the Jimmy Carter presidency. Yes, today Americans have remarkable access to incredibly cheap electronic toys. But those are a small part of expenditure, and the costs of securing the standard indicia of middle-class life-a home in a safe neighborhood with good schools and a short commute, college for the children, assurance that a major illness will not lead to bankruptcy, a secure and reasonably-sized pension-have all become more costly relative to incomes. This shift is astonishing: For 150 years before 1979 Americans had confidently expected that each generation would live roughly twice as well in a material sense as its predecessor, not find itself struggling against the current to stay in the same place.

Notice that one can agree that the current generation is not twice as well off in material terms as the previous generation, but still think that it is substantially better off.

Also, one can even think that the current generation is worse off than its counterpart a generation ago (I don't think that, but one can), without thinking that they're worse off than in 1979, which is about a generation and a half ago.

It's the idea that they were worse off in 2000 than in 1979 that Noah challenges.

DeLong names specific issues but gives no data other than on net worth and GDP per capita. (Perhaps he is planning to give data to support some of his specific claims.) Smith takes Brad's specific issues and shows that Americans were substantially better off in 2000 than in 1979. Of course, it's possible that living standards have declined so much since 2000 that the median American family or household is worse off than in 1979.

But it isn't worse off. Noah Smith focuses on living standards up to 2000. But his own data show that although median income, adjusted for household size, peaked in 2000, it is still substantially above the level in 1979. Just eyeballing his graph, I conclude that it's at least a 12 percent increase in real terms.

Here's a key paragraph in Noah's piece that takes on some of Brad's specific claims and digs into the data:

What about the rest of Brad's "standard indicia of middle-class life," whose cost has supposedly soared? Regarding "a home in a safe neighborhood," the massive crime decline in the U.S. during the 1990s probably helped the lower and middle classes a lot more than the upper classes. Regarding "good schools," the performance of U.S. public schools remained flat or risen slightly relative to other countries, and in terms of NAEP scores, over 1980-2000 (and since). As for "burdensome commutes," this is true: average commute time increased by about 40 minutes per week from 1980 to 2000, and has been flat since 2000 - but this is an area in which new technology may be especially game-changing, since cell phones, texting, games, and podcasts/audiobooks make commuting much more fun. I get more "reading" done on my commute than during any other time.

By the way, my own casual observation of high schools, both government and private, from talking to parents and giving presentations in each, is that good schools are rarer than they were. But the charter-school phenomenon seems to be reversing that. As for commutes, Brad's claim is true. Will he start advocating using prices so that we can get less congestion on roads just as we use prices to get less congestion of hotels and airline flights? [Although Brad could answer as John Calfee and Clifford Winston did in the late 1990s, that the gains from tolls are small. On the other side, see Kenneth A. Small's "Urban Transportation" in which he makes the case for, among other things, private highways.]

Noah does support some of Brad's claims for a worsening. He writes:

It is certainly true that college has gotten much more expensive, health care bankruptcies have become more common, and pensions have become less generous (though this last is partly a function of Americans' increased consumption levels as a percentage of disposable income).

The first is certainly true and one of the main contributors, ironically, is the increased federal government aid to students, much of which is sucked up by colleges, both government and private, in the form of higher tuitions. The second: I'm doubtful. The third: Noah's making a good point.

He makes many other good points also. One of my favorites:

But more fundamentally, is median wealth the proper measure of living standards? Wealth is a function of savings rates, and savings rates depend on consumption levels, which are a choice. During the 1980s and 1990s, Americans chose to consume more of their income than our peers in most rich countries (though this has recently reversed itself in some cases, e.g. in Japan). If you look at median disposable income, the U.S. was ahead of every other rich country except Canada in 2010, despite some convergence.

How much we save or consume is a choice.

One other note: Although Noah gives some striking data on rents, which I recommend looking at, it is nevertheless true that on the western coast of the United States and in the U.S. northeast coastal regions, restrictions on building, as Glaeser and Gyourko have shown, have driven house prices through the roof (pun intended.) Will Brad DeLong join me in calling for ending these restrictions? Brad?

COMMENTS (6 to date)
ThomasH writes:

If Brad does not favor congestion pricing for roads, streets and parking, he'll be the exception among economists. I'll bet he does.

Greg G writes:

Both sides are talking past each other here. 1979 probably was the high point for when the highest percentage of people felt that "the the standard indicia of middle-class life" were accessible to them. That is a point in favor of 1979. But it is only one point.

Today in 2015, no one wants to settle for 1979 health care, give up their computers and drive 1979 cars. That is a point in favor of 2015 when much better versions of those things are available to "the middle class" but "the middle class" is a bit smaller and "the upper class" and "the lower class" are a bit larger.

We want it all. Such is human nature, Always there are trade offs.

DJB writes:

While it's true that tuition costs have done up quite a bit in recent decades, it's nowhere near as high as the sticker price for college suggests. Today, on average, more than half of tuition is covered by grants, tax benefits, and scholarships.

College costs more, yes, but it isn't costing *students* nearly as much as the raw figures suggest. With the remainder often covered by very low interest loans, college is still quite affordable, as seen by record high enrollment rates, and perhaps too affordable for too many given relatively low graduation rates. See Caplan for on this. Over the same time, the premium for getting a degree has risen enormously, so college is an especially good deal today, compared to decades past, for those who can graduate.


Floccina writes:
a home in a safe neighborhood with good schools and a short commute, college for the children,

Clearly DeLong will not be happy until a higher percent of us are above median.

Crime is down, more people are graduating from college and only the children of the rich pay full price, the environment is clearer (at high cost btw) and we have smart phones and much better cars that get better mileage for the same power and luxury. Slow growth has hurt housing but even there corian countertops and even formica is better now because it has fewer seems. I could go on.

Ray Lopez writes:

Nice rebuttal of DeLong, but I think implicitly people are complaining about the second derivative, not the first: the rate of change of the rate of change is slowing, or, put another way, we have a Great Stagnation since the early 1970s. However, as a share of world income/GDP, the USA is still surprisingly about the same as it was in the 1970s, roughly 20-25% of world GDP, which suggests the "Great Stagnation" is world wide, not just in the USA, and the rise of China still has not dented the US share, for now.

James writes:
it is nevertheless true that on the western coast of the United States and in the U.S. northeast coastal regions, restrictions on building, as Glaeser and Gyourko have shown, have driven house prices through the roof (pun intended.) Will Brad DeLong join me in calling for ending these restrictions? Brad?

I believe he did so during the Cato growth symposium

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