More on the Middle Class

In an interesting coincidence, just as I got into a debate over changes in median income at Dispatches, Jason Kuznicki commented at League of Ordinary Gentlemen on my “part-time labor can buy a 1950s middle class lifestyle” post, leading to a vigorous argument over there as well.

The most interesting argument is about what caused stagnation in median household income growth from the mid ’70s to the present, after phenomenal growth from 1945 to the mid ’70s. But through the debate I came to realize that the discussion implicitly treats the 1945 to ~1975 era as “normal” and the time since then as a deviation from the norm. But I think that assumption is questionable, to say the least, for several reasons.

First, 1945-1975 is a thirty year period. 1975-2011 is a 36 year period. Even if we jigger the break point, say moving it to 1980, so that the growth period is longer than the stagnation period, we’re still talking about roughly equal periods of time. Taking one period of time that’s roughly equal to another period of time and saying, “This one is the norm and the other is the abnorm” is a dubious proposition that requires real justification. And the more I think about it, the more dubious I get that it’s justified. So here I want to pitch an argument that the 1945-1975/80 period is in fact an abnormal period. There’s no statistics here, no claim of proof, but for the present just a rhetorical argument, laying out the basics of the case.

First, a point I’ve long made, in the immediate post-war period the U.S. was the only major industrial country that hadn’t been heavily bombed. (We could count Canada, but they weren’t as “major” as the U.S. Still, I would hypothesize that if we looked at the data we’d find good growth in Canada post-war, compared to the past 30 years). A good portion of our economic productivity went toward helping Europe rebuild. That process took a couple of decades.

Second, after the mid ’70s there was increasing modernization in developing countries. Whatever the norm was prior to then, that trend can be expected to continue, so it is the new norm. As those countries mobilize labor and improve labor productivity, much of the prior advantage the U.S. enjoyed is whittled away. We had the privilege of not really having to compete, but we no longer have that privilege. (So, ironically, much of the liberals’ complaint is a complaint about the end of White American privilege–delicious.)

Third, and most intriguing to me because it’s something I hadn’t thought of before, is the role of labor mobilization in the U.S. from the end of WWII to the mid 1970s. One of my interlocutors at Dispatches claimed that the stagnant income growth of the past 30 years had come despite the entry of women into the work force. But surely the entry of women into the work force didn’t begin, and didn’t even accelerate, in the 1970s? During WWII women went to work in the factories, and afterwards were relatively reluctant to leave the labor force. It was the female equivalent of “how are you going to keep them down on the farm after they’ve seen Paree.” Without yet looking at the data, I’d wager that women’s entry into the labor force mostly occurred between 1945 and ’75, so that the degree of new entry in the past thirty years could only have been an increasingly small fraction of that period.

This is particularly interesting because that 30 year post-war period was the period of great median household income growth. With more wives entering the paid workforce, household income would necessarily increase. Once that process of labor mobilization was complete, household income growth would stagnate, all other things being equal.

Labor mobilization has often fooled people into thinking that some country with rapid economic growth has discovered some new formula for economic success that is superior to traditional capitalism. In the ’80s it was the Asian Tiger, but as Paul Krugman pointed out in one of his books (Peddling Prosperity, perhaps), that was primarily a process of labor mobilization. And indeed those countries have over the past two decades failed to match their previous growth rates. About 25 years ago in college I read a book that showed how great the Soviet Union’s growth rate was compared to the U.S., reaching rates of 7-11% annually and proving that socialism was economically superior to capitalism. I was impressed, never having studied any economics at that point, until one of my friends said, “Ah, that was just labor mobilization.”

So was the 1945-’75 period in the U.S. one of labor mobilization as much as anything else? Was that our “Asian Tiger” moment? If so, then it clearly was not a normal period, in the sense that we are now in a deviation from which we can return to that “norm.”

This raises the question of what period we could look to as “the normal economic period” in the U.S., and I don’t think there is one. Prior to the post-war period we had a decade+ long depression, which clearly was not normal. Prior to that we were in a multi-decade long industrial revolution, which was not really completed until past mid-20th century, so that period is not a long-term norm, either. And before that we were in a mostly pre-industrial period, which may have been the norm at one time, but clearly is no longer a relevant norm.

This suggests that treating any economic time period as a norm to which we can aspire to return is a fool’s errand. The structural economic changes may be too substantial to bear that type of comparison.

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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One Response to More on the Middle Class

  1. DensityDuck says:

    Incidentally, here’s a VC guy who agrees with you (to some extent) regarding this.
    http://www.paulgraham.com/unions.html

    “…ask anyone who worked as a consultant building web sites during the Internet Bubble. In the late nineties you could get paid huge sums of money for building the most trivial things. And yet does anyone who was there have any expectation those days will ever return? I doubt it. Surely everyone realizes that was just a temporary aberration.

    The era of labor unions seems to have been the same kind of aberration, just spread over a longer period, and mixed together with a lot of ideology that prevents people from viewing it with as cold an eye as they would something like consulting during the Bubble.

    Basically, unions were just Razorfish.”

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