|Progress or Regress?
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By PAUL KRUGMAN
Published: September 15, 2006
Is the typical American family better off than it was a generation ago? That’s the subject of an intense debate these days, as commentators try to understand the sour mood of the American public.
But it’s the wrong debate. For one thing, there probably isn’t a right answer. Most Americans are better off in some ways, worse off in others, than they were in the early 1970’s. It’s a subjective judgment whether the good outweighs the bad. And as I’ll explain, that ambiguity is actually the real message.
Here’s what the numbers say. From the end of World War II until 1973, when the first oil crisis brought an end to the postwar boom, the U.S. economy delivered a huge, broad-based rise in living standards: family income adjusted for inflation roughly doubled for the poor, the middle class, and the elite alike. Nobody debated whether families were better off than they had been a generation ago; it was obvious that they were, by any measure.
Since 1973, however, the picture has been mixed. Real median household income — the income of the household in the middle of the income distribution, adjusted for inflation — rose a modest 16 percent between 1973 and 2005. But even this small rise didn’t reflect clear gains across the board. The typical full-time male worker saw his wages, adjusted for inflation, actually fall; the typical household’s real income was up only because women’s wages rose (although by far less than everyone’s wages rose during the postwar boom) and because more women were working.
The debate over the state of the middle class, for the most part, is about whether these numbers understate or overstate the true progress achieved by typical families. The optimists point to technological advances that, they argue, don’t get reflected in official estimates of the standard of living. In 1973, you couldn’t chat on a cellphone, watch a video or surf the Internet; many medical conditions that are now easily managed with drugs were untreatable; and so on.
The pessimists point to ways in which life has deteriorated, things that also aren’t counted by the official statistics. Traffic has gotten far worse, and commutes have gotten longer. The economic riskiness of life has increased: year-to-year fluctuations in family income have grown much larger. The rat race has intensified, as families, no longer confident in the quality of public education, stretch to buy houses in good school districts — and often go bankrupt when misfortune strikes in the form of a layoff for either spouse or high medical bills.
Does the good outweigh the bad? Never mind. As I said, the ambiguity is the message.
Consider this: The United States economy is far richer and more productive than it was a generation ago. Statistics on economic growth aside, think of all the technological advances that have made workers more productive over the past generation. In 1973, there were no personal computers, let alone the Internet. Even fax machines were rare, expensive items, and there were no bar-code scanners at checkout counters. Freight containerization was still uncommon. The list goes on and on.
Yet in spite of all this technological progress, which has allowed the average American worker to produce much more, we’re not sure whether there was any rise in the typical worker’s pay. Only those at the upper end of the income distribution saw clear gains — gains that were enormous for the lucky few at the very top.
That’s why the debate over whether the middle class is a bit better off or a bit worse off now than a generation ago misses the point. What we should be debating is why technological and economic progress has done so little for most Americans, and what changes in government policies would spread the benefits of progress more widely. An effort to shore up middle-class health insurance, paid for by a rollback of recent tax cuts for the wealthiest Americans — something like the plan proposed by John Kerry two years ago, but more ambitious — would be a good place to start.
Instead, the people running our government are fixated on cutting tax rates for the wealthy even further. And their solution to Americans’ justified economic anxiety is a public relations campaign, an effort to convince middle-class families that their problems are a figment of their imagination.