In assessing the health of our economy, many have been quick to proclaim the worst, whether pointing to flatlining wages or a supposedly static quality of life. Economic progress has halted, they say; thus, something must be terribly amiss with modern-day capitalism.
“If you were born in 1973, the median wage went from $17 to $19 an hour in your lifetime,” wrote Sen. Bernie Sanders in a recent tweet. “…The top 1%’s annual income tripled: $480K to $1.45 million. That’s why we need a political revolution.”
Or consider a recent report from Pew Research, which strings together a variety of studies and comes to a similar conclusion. “Despite the strong labor market, wage growth has lagged economists’ expectations,” writes Drew DeSilver. “In fact…today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago.”
Yet such arguments rely on a particular interpretation of a specific set of data—not to mention an overconfidence in the underlying assumptions.
As economist Russ Roberts explains in a new short film, the task of measuring economic progress is a bit more complicated, requiring more than simplistic comparisons of prices and products over time. As we aim to evaluate our present situation, we ought to stretch our economic imaginations accordingly.
“Measuring economic progress requires an accurate measure of inflation,” he explains. “But measuring inflation is harder than you might think because rapid changes in quality often aren’t taken into account. When goods and services improve rapidly over time, it is more likely that inflation will be overestimated and changes in the standard of living will be underestimated.”
To challenge the corresponding blind spots, Roberts encourages us to put ourselves in the shoes of a 1973 consumer. Setting aside the various effects of inflation, would we actually prefer the products and services of yesteryear if we could still purchase them at those original prices?
Roberts paints a compelling picture, inviting us into a world in which homes, cars, appliances, medical services and higher education are far less expensive—and much more antiquated. We would have no smart phones or personal computers; no internet, social media, or search engines; no streaming videos or music; no e-commerce or online retail; no safety enhancements and modern efficiencies in any number of gadgets; and no life-saving medical and technological advancements.
“Would you take the deal?” he asks. “Would you give up the new products and the quality improvements of the last 40 years for the chance to pay 1973 prices?” Whatever our response, such a thought experiment certainly makes the sweeping calls for “political revolution” taste a bit more bland.
“If you’re hesitating, and I think a lot of people would, maybe the PCE [Personal Consumption Expenditures] and other price indices don’t accurately capture the change in your purchasing power over long periods of time,” he explains. “Paying 1973 prices for 1973 quality goods and services wouldn’t make you 5 times richer; you might even be worse off. That means our measures of inflation and the change in our standard of living aren’t off by a little; they’re off by a lot. The average American is almost certainly doing a lot better than the standard number suggests.”
It’s not the first time questions have been raised about such matters, of course. Yet Roberts’ goal isn’t to win some kind of data-crunching competition, or even to take a side in which decision a consumer should actually make. He simply demonstrates how hard it is to actually measure such progress, let alone respond with various policies and programs.
Of course, our individual values and priorities ought to feed into the picture as well. “How much stuff people can buy isn’t close to all we care about,” Roberts reminds us. “The motto of life isn’t ‘whoever has the most toys wins.’ And even if the typical American is, in fact, doing a lot better than the numbers suggests, this doesn’t mean everyone has a carefree economic life.”
None of this is to say our current system is perfect or can’t be improved, yet making such improvements will be far more difficult if we don’t have a clear perspective on how far we’ve actually come and why, exactly, it matters. For in seeing the richer complexity of economic progress, we begin to realize that what we truly value is not, fundamentally, about the data or the numbers or the various material comforts and conveniences.
For most of us, Roberts’ thought experiment won’t lead to easy and simple answers—neither nostalgic Luddite fantasies nor materialistic clinging to smartphones. More likely, it will raise questions in our hearts and minds about how such progress has (or has not) helped to foster flourishing across all areas of life—our spirits and souls, our relationships and communities, our time and treasure, and so on.
When we look before and beyond the more heated debates about inflation and wages and prices, then, we see a multitude of intangible, hard-to-measure human factors at play (moral, social, and otherwise). To truly assess the health of our economy and the likelihood of future progress, we’ll need to account for far more than products vs. products or prices vs. prices.