Wednesday, October 19, 2011

Time is marching on

James Pethokoukis claims that income inequality in the US is a myth.

I take no position on his statistical arguments (the situation amounts to two groups with different numbers each insisting that their numbers are the right ones), or on whether they add up to the thesis in his title, for that matter.

I just wanted to separate out his fifth point for a moment:

Set all the numbers aside for a moment. If you’ve lived through the past four decades, does it really seem like America is no better off today? It doesn’t to Jason Furman, the deputy director of Obama’s National Economic Council. Here is Furman back in 2006: "Remember when even upper-middle class families worried about staying on a long distance call for too long? When flying was an expensive luxury? When only a minority of the population had central air conditioning, dishwashers, and color televisions? When no one had DVD players, iPods, or digital cameras? And when most Americans owned a car that broke down frequently, guzzled fuel, spewed foul smelling pollution, and didn’t have any of the now virtually standard items like air conditioning or tape/CD players?"

No doubt the past few years have been terrible. But the past few decades have been pretty good--for everybody.

I've had disagreements with people that I think boil down to just this point: in order to assess a person's wealth, you need to realize that cheap and easy access to resources is itself a form of wealth that needs to be considered in the total.

If Bob has money worth the equivalent of $4500 and can buy an Apple II* with it, and Frank has money worth the equivalent of $400 and can buy an iPhone 3G with it, which is holding more "wealth"? The ubiquity of extremely powerful pocket computers today indicates some amount of wealth, whether those devices were all bought dearly, or were sold for next to nothing.

To illustrate the point with an extreme, consider the future culture with perfect replicator technology, where anybody can have anything he wants at any time: everything is almost free, so most people will have very, very little money. Does that mean they're dirt poor compared to us?

It's undeniably true that there are a lot of poor people in the US, and (and it feels like I can't emphasize this enough, things being as they are) there are real-true grievances against our system I don't intend to dismiss. I simply mean to say that, while juggling the numbers to look at income trends in the US, it's important not to forget that those trends don't account for the mindboggling increase in the quality and power of the tools we buy with those inflation-adjusted dollars. Whether that adds up to an overall increase or decrease in the standard of living, I don't feel qualified to say.

[* - According to the The Inflation Calculator, the Apple II's $1300 MSRP at its introduction in 1977 would be $4622.20 in 2010 dollars.]

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