Home > Economics - General > Living in the 70s* (repost from CT)

Living in the 70s* (repost from CT)

September 21st, 2011

A bunch of standard measures of US economic wellbeing (median household income, real wages for workers with high school education, educational attainment by age 25 and so on) show strong improvement from 1945 to the early 1970s, followed by stagnation or very slow growth thereafter. A variety of arguments, have been put forward to suggest that the standard statistical measures understate improvements in wages, incomes and so on since the 1970s. Some of these arguments are valid (for example household size has fallen), some not (for example, the fact that we now have more of goods that have become relatively cheaper). Regardless of validity, the main reason people believe these arguments is that, for anyone who was around at the time, it seems implausible that our parents’ living standards in the 1970s were comparable to our own today (assuming roughly similar class positions)

This reasoning is invalid for a reason that should be familiar to those on the conservative side of debates over inequality. The measures mentioned above compare snapshots of incomes at different times. But (as conservatives regularly point out) standards of living are determined mainly by lifetime incomes, not by income in any particular year. Given the pattern described above, lifetime income for someone who worked, say, from 1940 to 1985 was well below that for someone in a similar class position who started work in 1970, just when the long increase in real wages was slowing for most and stopping for some. For every year of their working life, the 1970 starter gets a wage (adjusted for age, education and so on) that’s as high as the maximum attained by the 1940 starter after 30 years of steady growth. Unsurprisingly, that translates into a bigger house, and more of most items that require savings, whether or not their price has risen relative to the CPI.

You can see a similar effect illustrated for education here. Although the proportion of young people completing high school or gaining bachelors degrees reached a plateau in the 1970s, the proportion of the entire population with these qualifications kept on growing into the early 2000s

The two work together. Real wages for high school educated males haven’t risen since 1970, on the standard measures, but a man born in 1950 would not only earn more lifetime income than his father, assuming both had high school education, but would be much more likely to have gained a college degree. By contrast, a man born in 1980 is no more likely than his father to have completed college**, and, assuming high school education, would have similar lifetime earnings.

* Australians of the right cohort will recognise the allusion, otherwise Google should work
** I haven’t checked college completion by gender. I’d guess that if rates are stable overall, those for men must have fallen.

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  1. Dan
    September 26th, 2011 at 09:55 | #1

    @Chris – I’m giving them the benefit of the doubt, as in person some libertarians I know are agreeable or even generous.

    Also there are plenty of examples of people who espouse libertarian ideals *against* their own economic interests (the bulk of the Tea Party comes to mind).

    But I think the lack of knowledge of even recent history is certainly a factor – a lot of these folk don’t even know that Iceland went to pieces, let along that they went to pieces after undertaking neoliberal reform of their banking sector!

  2. Jarrah
    September 27th, 2011 at 15:31 | #2

    “in general the world is awash with increasing inequality and poverty, and it is all going to get dramatically worse.”

    Inequality, sure, but far less under the spread of market economies than the feudal structures they replaced. And inequality between countries is decreasing, as shown by your source. For why, see below.

    Poverty? Poverty has decreased faster and further in the last few decades than during any other period of human history. Why? Mostly because large, poor countries liberalised their economies to a certain extent. The transformation of Asia, where the bulk of the poverty reduction has occurred, is due to increased quantity and quality of the capitalist processes.

    Growth defeats poverty, but can easily create inequality within a society. Policies to prevent or minimise inequality can easily eliminate growth. Systems that combine the best of both worlds are rare, and difficult to create and maintain.

    If I wanted to contest ecological impact, for an overall picture I would point to the equally bad records of capitalist and socialist societies, and the correlation between levels of wealth and concern for the environment (which suggests the best way to get people caring about the environment is to get them to a comfortable level of prosperity).

    For a brief dip into specifics, I would point to the fact that ecological resources are by and large not subject to the ownership and valuation process that capitalism allows, hugely limiting the feedback processes that protect things that have market value. Where an effort has been made to give market value to the environment (beyond mere commodities), the result has been quite good from a conservation point of view. See, for example, individual transferable quotas for fisheries, the privatisation of wild animals in Namibia, and Canopy Capital.

  3. Chris Warren
    September 27th, 2011 at 17:24 | #3

    Jarrah :
    “in general the world is awash with increasing inequality and poverty, and it is all going to get dramatically worse.”
    Inequality, sure, but far less under the spread of market economies than the feudal structures they replaced. And inequality between countries is decreasing, as shown by your source. For why, see below.
    Poverty? Poverty has decreased faster and further in the last few decades than during any other period of human history. Why? Mostly because large, poor countries liberalised their economies to a certain extent. The transformation of Asia, where the bulk of the poverty reduction has occurred, is due to increased quantity and quality of the capitalist processes.

    I agree that many nations have been transformed through growth, but the benefits of liberalisation are based on, and do not necessarily add much to the benefits of literacy, education, science and technology, and population growth. They would have existed (and continued) without capitalism, and presumably with less inequity, less rightwing dictators and less street riots. Capitalism destroyed the benefits of liberalisation in:

    Argentina,
    Iceland
    New Zealand
    Japan
    Spain
    Greece
    Italy
    Ireland
    Portugal

    Some countries that did not liberalise – had better outcomes than those that liberalised, particularly China. China’s GDP average annual growth 1965-80 was 6.4%, over 1980-87 it was 10.4% And in industry and manufacturing the figures [World Bank] are even higher.

    Yugoslavia which only liberalised slightly but based their economy on workers cooperatives achieved average annual growth of 6% from 1965-80. Then nationalism denied that nation much future after Tito died, but they still averaged 1.5% over 1980-87.

    Australia could not match this even with all the economic nonsense of Liberals and rightwing Labor and achieved 4.2% (1965-80) and 3.2% (1980-87). UK capitalism was a disaster achieving a failing 2.4% average (1965-80) and 2.6% (1980-87).

    I don’t recall that Malta was known for it liberalisation – and it also was a star performer 1965-87 (ann.av. 7.6%).

    The same applies to the United States – less than half the average growth rate than China doe the entire period 1965-87.

    Then in the 1990′s, liberalised Japan collapsed and has never recovered. NIKKEI was over 35,000 in 1990 and has continued its long capitalist decline ever since to now sit around 8,400 and trending south.

    We have had a series of economic crises ever since in liberalised capitalism including collapses of major airlines and the US savings and loans debacle which cost $88 billion and punctured US capitalism.

    We won’t bother mentioning the 1987 stock market crash, which economies took years to overcome but at the cost of making the next one worse – the current GFC.

    So liberalisation needs to be accompanied with less capitalism and more regulation. We should have learnt this lesson in 1929 and in 1987. We didn’t – so we have to learn it now.

    Of course growth defeats poverty, but there is no point having growth that produces 20 million of people on food stamps, and squads of millionaires feasting in luxury – as in America.

    Liberalisation and capitalism produce wealth and inequality and it is not clear which is greater.

  4. TerjeP
    September 27th, 2011 at 21:12 | #4

    1929 was a product of regulation.

  5. Dan
    September 28th, 2011 at 09:53 | #5

    Inappropriate regulation was definitely one thing that *worsened* the Great Depression, it’s a much longer bow to draw to say that “1929 was a product of regulation”.

  6. TerjeP
    September 28th, 2011 at 10:03 | #6

    Dan – it’s a long debate but I meant what I said.

  7. Dan
    September 28th, 2011 at 11:25 | #7

    No doubt!

  8. Jarrah
    September 28th, 2011 at 16:07 | #8

    “but the benefits of liberalisation are based on, and do not necessarily add much to the benefits of literacy, education, science and technology, and population growth.”

    That’s a big claim. I’d like to see evidence. For example, Mao brought health to China, but couldn’t manage growth.

    Regarding growth comparisons, I think you are dead wrong. To quote from a similar debate I had with THR some time ago:

    A few outliers aside, the trend is clear. Sachs and Warner analysed the correlation for the 1970s and 1980s, with ‘closed’ industrial countries with average annual growth of 0.74%, ‘open’ industrialised countries getting 2.29%, closed developing countries 0.69%, and open developing countries 4.49%! It continued in the 1990s – closed developing was -1.1%, open developing was 5%!

    Think about it. Compare Vietnam and Burma, Bangladesh and Pakistan, Costa Rica and Honduras, Uganda and Kenya. The trend is unmistakeable.

    “Then in the 1990′s, liberalised Japan collapsed and has never recovered.”

    Thanks to Keynesian policies! You really need to start distinguishing between the various kinds of capitalism.

    “the US savings and loans debacle which cost $88 billion and punctured US capitalism.
    We won’t bother mentioning the 1987 stock market crash, which economies took years to overcome but at the cost of making the next one worse – the current GFC.”

    I actually agree, but you fail to realise that the policies (guarantees, bailouts, etc) enacted by governments in the wake of busts were actually anti-capitalist! No proper creative destruction. No large-scale re-assignment of resources to better uses. Just the propping up of banks and corporations, the protection of investors, the privatisation of gain and the socialisation of loss.

  9. J-D
    September 28th, 2011 at 22:05 | #9

    TerjeP :
    1929 was a product of regulation.

    If there were no regulation, shares as we know them would not exist; hence, there’d be no share markets and no share market crashes. I don’t know whether that’s what you want.

  10. Chris Warren
    September 29th, 2011 at 00:31 | #10

    @Jarrah

    This is very poor. The issue you raised was liberalisation, now you switch to openess.

    I prefer World Bank, OECD, IMF, or UN data and analysis, not some unreferenced product from Sachs and Warner.

    Maybe there is an objective standard measurement of openess.

    If you want to switch again you could try the Index of Economic Freedom. But even here the nation with the highest index, Hong Kong, has collapsed [eg Hang Seng at 18,000] along with the rest of Asia and by the way, never had minimum wages until 2010. It appears to have one of the unfairest, most exploitative minimum wages according to the List of Minimum Wages on Wikipedia (assessed as % of 2010 per capita GDP).

    If you want to switch again, maybe try “privatisation” or how about “competitiveness” or any other ideological tools of confusion and cherry-picking.

  11. Jarrah
    September 29th, 2011 at 11:24 | #11

    “The issue you raised was liberalisation, now you switch to openess.”

    What do you think liberalisation means? It means opening the economy to competitive pressures.

    “I prefer World Bank, OECD, IMF, or UN data and analysis”

    Go ahead and give it, then. You haven’t so far done any analysis.

    “Hong Kong, has collapsed [eg Hang Seng at 18,000] along with the rest of Asia”

    Talk about switching! Now nominal stock market values are somehow evidence of “inequality and poverty”, the subjects of our discussion! For the record, HK’s inequality is high, but is very rich.

  12. Chris Warren
    September 29th, 2011 at 12:20 | #12

    Gee, are you still contesting “inequality and poverty”?

    Blimey, I thought you were trying to claim that liberalisation was the panacea and reduced poverty.

    When this argument failed – due to the data, you switched to “openess”. Whether a economy is open is very different to whether it is “liberalised”.

    Maybe you had better find proper definitions for your terms and some way they can lead to classifying economies over time.

    Nominal stock markets crashing are evidence of the failure of capitalism and liberalisation. The resulting poverty is a downstream impact when governments force the standard austerity programmes or other textbook economic medicine (similar to President Cardoso’s 1997 tax rise, spending cuts in Brazil).

    I find it hard when people do not read what is in front of them. Why say:

    Go ahead and give it … You haven’t etc

    when I gave World Bank data above.

    If you really want to continue claiming that liberalisation and some sort of increased quality of capitalism (?!), has done something contrary to what I demonstrated using World Bank and UN data from 1965-1987, then fine – go ahead – but try to use concepts consistently and define them in a meaningful objective manner.

    You will need to subtract any impacts from liberalised economies borrowing from the IMF and the US Export-Import Bank (eg to purchase Boeings), and any artificial growth through increased debt.

  13. Jarrah
    September 29th, 2011 at 14:05 | #13

    “Gee, are you still contesting “inequality and poverty”?”

    That is the topic, hadn’t you noticed? That and the historical facts that support my contention that liberalisation helps poverty, even if it increases inequality, and that this is the preferable outcome than vice versa.

    “Whether a economy is open is very different to whether it is “liberalised”.”

    Whenever I think I will be unable to be amazed by your ignorance any more, you go one better. Liberalisation is the reduction of government control over the economy. This can take lots of forms, but many – reducing tariffs, reducing quotas, allowing foreign investment, privatisation, disbanding government monopolies – all OPEN the economy to competitive pressures. It is these competitive pressures that, overall, improve growth and thus reduce poverty.

    “when I gave World Bank data above.”

    You gave partial, broad-brush data without any attempt at analysis. You identified zero liberalisation policies, nor attempted to draw causal links. It would fail high school standards of argumentation, let alone adult ones.

    Since you’re so keen on the World Bank, you should know that they estimate welfare gains to developing countries from full liberalisation of merchandise trade would be $200 billion per annum and about 127 million people – more than 10% of the world’s very poor – would be lifted out of extreme poverty. They also say that getting rid of anti-capitalist agricultural subsidies (beloved of many a social democrat) would reduce international inequality and reduce the number of poor people worldwide by 3%. I could go on, but hopefully this is getting through even your dense skull.

    http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTPROGRAMS/0,,contentMDK:20227695~menuPK:475424~pagePK:478091~piPK:475420~theSitePK:475417,00.html?

  14. Chris Warren
    September 29th, 2011 at 15:36 | #14

    @Jarrah

    Just go back and read the relevant post.

    Data, by country, to 1 decimal place, by two time periods is not broad brush.

    All your slinging-off does you no credit.

    Most reasonable people would be more interested in looking at evidence of where there has been a change (however defined) and then subsequent effects.

    Claims by economists that certain gains will happen – are not evidence.

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