fbpx
01 / 05
Are We Really Poorer Than Our Parents?

Blog Post | Economic Growth

Are We Really Poorer Than Our Parents?

Hourly wages do not reflect the massive expansion in non-wage benefits since the 1950's.

Spread of products into American households

In recent years, many US politicians and journalists have warned that the millennials are at the risk of ending up “poorer than their parents.” The evidence certainly suggests that the Great Recession has led to wage stagnation and high unemployment among young Americans, who have soured on the idea of achieving the American Dream.

The just-released Victims of Communism Memorial Foundation’s Annual Report on Generational Attitudes toward Socialism in America, for example, has found that 52 per cent of millennials would prefer to live in a socialist (46 per cent) or a communist (6 per cent) country. Conversely, only 40 per cent want to live in a capitalist one. Mercifully, Americans tend to associate socialism with the high-tax and high-redistribution welfare states of Scandinavia rather than the Marxist dictatorships of the days of yore.

Before they reject American-style capitalism, however, millennials should consider how prosperous ordinary Americans really are.

Economic prosperity is often measured in terms of personal income or wealth. Neither of those two measures, however, provides a full picture of people’s material wellbeing, for standards of living can increase due to either income growth or falling prices. People with stagnating incomes, for example, can experience material improvements if prices decline. Even people with falling incomes can be better off – as long as the cost of living decreases at a faster pace than incomes shrink.

As Ball State University economist Steven Horwitz wrote in his 2015 article Inequality, Mobility and Being Poor in America, “If the reason we care about incomes and wealth is because of what they enable people to consume, and thereby acquire goods that add to some broad notion of well-being, then it might also be worthwhile to look at some of the data on consumption to see what it suggests about … the real condition of the poor.”

Consider the cost and adoption of home appliances. As late as 1971, only 43.3 per cent of all US households had a colour TV. By 2005, 97.4 per cent of poor American households owned one. Similar stories can be told of washing machines, dishwashers, clothes dryers, refrigerators, freezers, stoves and vacuum cleaners.

As Horwitz noted, “Poor US households are more likely to have basic appliances than the average household of the 1970s, and those appliances are of much higher quality.” Not only do more people across the income spectrum enjoy access to previously unaffordable goods, but the speed of adoption of new products is increasing.

As W Michael Cox and Richard Alm from the Southern Methodist University showed in their 2015 paper Onward and Upward: Bet on Capitalism—It Works, it took about 50 years between the time that the telephone was invented and the time that 50 per cent of US households owned one. In contrast, it took just 12 years from the emerge of the smartphone for 50 per cent of individual Americans to own one.

Note that all this material progress took place even though the hourly wages of many American workers stagnated. Between January 1968 and January 2018, the inflation-adjusted average hourly wage in the manufacturing sector rose from $20.43 to $21.27. Manufacturing accounts for 19 percent of all US employment and wage stagnation among factory workers may be seen as analogous to the flat-lining incomes among millennials.

Source: W Michael Cox and Richard Alm, Onward and Upward: Bet on Capitalism—It Works

Bearing the above wage numbers in mind, how come most Americans can now enjoy goods that were previously owned only by the rich?

First, it is important to note that hourly wages do not reflect the massive expansion in non-wage benefits, which rose from 19 per cent of wages in 1951 to 44 per cent in 2015. Today non-wage benefits include relocation assistance, medical and prescription coverage, vision and dental coverage, health and dependent care, flexible spending accounts, retirement benefit plans, group-term life and long-term care insurance plans, legal and adoption assistance plans, child care and transportation benefits, vacation and sick paid time-off, and employee discount programs from a variety of vendors, etc.

Also, many commonly owned goods have declined in price. In 1968, for example, a 23” Admiral colour TV cost $2,544 or 125 hours of labour in the manufacturing sector. In 2018, a 24” Sceptre HD LED TV cost $99.99 or 4.7 hours of labour in the same sector (all prices are in 2018 US dollars). That’s a reduction of 96 per cent in terms of human effort.

The upshot is that growth in nominal wages, or lack thereof, does not reflect the real changes in the standard of living experienced by vast majority of Americans. That’s something to keep in mind when young Americans contemplate the choice between capitalism and socialism.

This first appeared in CapX.

Blog Post | Cost of Technology

MacBooks Galore! Laptop Abundance since 1991

Since 1991, laptop abundance has increased by a factor of six up to a factor of infinity.

In 1991, Apple introduced the PowerBook 100 priced at $2,500. Blue-collar hourly compensation at the time was $14.93, so the time price was around 168 hours. Today you can pick up a 13.3-inch MacBook Air for $999. With blue-collar hourly compensation around $36.50 today, the time price is just over 27 hours. You can get six MacBook Airs today for the time price of one PowerBook 100 in 1991.

The PowerBook 100 weighed 5.1 pounds and featured a 640×480 monochrome LED screen, 2 megabytes of memory, and 20 megabytes of storage. The battery was good for three hours. The MacBook Air has 13.3 times more pixels (in millions of colors), 4,000 times more memory, and 12,800 times more storage than the PowerBook 100. It weighs 45 percent less, and the battery lasts six times longer. The MacBook Air has Wi-Fi, a 720-pixel camera, and stereo speakers and comes with 32 apps ranging from music programs to spreadsheets.

While it’s hard to make a direct comparison, a simple way to do an analysis is to ask MacBook Air users how many PowerBook 100s they would need to give up their one Air. Most users now think the PowerBook 100 has negative value due to the disposal costs. That would make the MacBook Air infinitely more valuable.

This article was published at Gale Winds on 11/7/2023.

Blog Post | Cost of Technology

Atari to Xbox

Get two Xbox Series X consoles for the time price of one Atari 2600.

The Atari 2600 was introduced in 1977 and was priced at $199. Unskilled wages at the time were $3.15 an hour, so the time price was around 63 hours. Today you can pick up an Xbox Series X for $499. With unskilled wages today being around $16.50 an hour, the time price is just over 30 hours. You can buy two Xbox Series X consoles today for the time price of one Atari 2600 in 1977.

Atari 2600 home video console system next to an Xbox series X

The Atari had a chip running at 1.19 megahertz (or 1,190,000 cycles per second) and had 128 bytes of random access memory. The maximum resolution was 160×192 with 128 colors.

Combat (video game) for the Atari system, and Gears 5 (video game) for the Xbox series x

The Xbox Series X graphics chip runs at 12 teraflops, or 12 trillion floating-point operations per second. It has 16 gigabits of memory and 1 terabyte of storage and can display billions of colors on an 8K display.

The Series X can display 1,080 times more pixels in millions of more colors 10 million times faster with 125 million times more memory. In the past 46 years, computer creativity has grown exponentially abundant—just as Gordon Moore and George Gilder predicted.

A version of this article was published at Gale Winds on 10/24/2023.

The Human Progress Podcast | Ep. 37

Stephen Barrows: The Economic Madness of Malthusianism

The economist Stephen Barrows joins Chelsea Follett to discuss the intellectual history of population economics, the benefits of population growth, and what we can expect from a future of falling fertility.

Blog Post | Cost of Technology

Portraits Were Just Expensive Selfies

This was originally published on Pessimists Archive.

In the process of exploring reactions to the advent and development of photography, we came across a fascinating article about ‘sun pictures, ’an early name for photography. One notable observation—something we don’t think about today—was that photography extended portraits to everyone. What was once only for kings, queens and titans of industry became available to everyone. This got us thinking, weren’t portraits just expensive selfies? And aren’t selfies just the portraits of modern times?

The full article can be read here and is well worth your time.