By Kindred Winecoff
In a recent post I suggested that one could argue that the entire increase in per capita income over the past 50 years was pure inflation (and hence that real GDP per capita didn’t rise at all.) But also that one could equally well argue that there has been no inflation over the past 50 years. The official government figures show real GDP/person rising slightly more than 150% since 1964, whereas the PCE deflator is up about 6-fold. …
Here’s one thought experiment. Get a department store catalog from today, and compare it to a catalog from 1964. (I recently saw Don Boudreaux do something similar at a conference.) Almost any millennial would rather shop out of the modern catalog, even with the same nominal amount of money to spend. Of course that’s just goods; there is also services, which have risen much faster in price. OK, so ask a millennial whether they’d rather live today on $100,000/year, or back in 1964 with the same nominal income. Recall the rotary phones and bulky cameras. The cars that rusted out frequently. Cars that you couldn’t count on to start on a cold morning. I recall getting cavities filled in 1964, without Novocaine. Not fun. No internet. Crappy TVs, where you have to constantly move the rabbit ears on top to get a decent picture. Lame black and white sitcoms, with 3 channels to choose from. Shorter life expectancy, even for the affluent. No Thai restaurants, sushi places or Starbucks. It’s steak and potatoes. Now against all that is the fact that someone making $100,000/year in 1964 was pretty rich, so your social standing was much higher than that income today. So it’s a close call, maybe living standards have risen for people making $100,000/year, maybe not. Zero inflation in the past 50 years may not be right, but it’s a reasonable estimate for a millennial, grounded in utility theory. In which period does $100,000 buy more happiness? We don’t know.
I think if we really don’t know the answer to this question then it’s only because happiness is subjective. To me it’s obvious that a $100,000/year salary is worth more today than it used to be. For one thing, in 1964 tax rates in basically every Western economy were absurdly high, so that that $100,000 would really be somewhere from $10,000-30,000. George Harrison wasn’t exaggerating; how would you like to live in a country where your best artists and creators were forced into (or simply chose) tax exile?
But let’s leave that aside for now. In 1964 a $100,000 salary would make you an elite, but your real income would actually be much smaller than that because of all of the 2014 goods you could not purchase at any price. Sumner runs many of them down, but the point is that $100,000 is still enough to live quite well in this country — even in the expensive cities — but the range of choice has exploded, and many of the modern choices now come at very low cost.
Let’s not forget that politics was quite different in 1964 as well: segregation persisted, the Cold War was raging, and even in the U.S. the “elite” were defined as much by their pedigree as income. We weren’t far removed from McCarthy, and were in the midst of a succession of assassinations of American political leaders and overt revolutionary threats in many Western societies. No birth control, no abortion, few rights for women and homosexuals in general. Being an elite in that world would likely feel very uncomfortable, and of course this blog (and essentially all media I consume) wouldn’t exist. So for me 2014 is the obvious choice.
Tyler Cowen has a more interesting question:
But here’s the catch: would you rather have net nominal 20k today or in 1964? I would opt for 1964, where you would be quite prosperous and could track the career of Miles Davis and hear the Horowitz comeback concert at Carnegie Hall. (To push along the scale a bit, $5 nominal in 1964 is clearly worth much more than $5 today nominal. Back then you might eat the world’s best piece of fish for that much.)
I’m still not sure. $20k/year back then wouldn’t be enough to make you very well off, and the marginal cost of culture consumption today has sunk almost to zero. Was Miles Davis really so much better than anyone working today? For everyone in the world who does not live in NYC, is it better to be able to watch his concerts on YouTube now, and on demand, than not to have seen them at all? Lenny Bruce was still active in 1964 but almost no one ever saw him (for both technological and political reasons). I might still take the $20k today, and I’ve lived on less than that for my entire adult life until last year, so this is an informed choice. But I agree that it’s a much more difficult decision.
It is an interesting question, mostly because it reveals what people value most. It’s a mutation of the “veil of ignorance”. So what would you choose?