Robert Samuelson Says That He Is Very Closed-Minded and Won't Accept Wage Stagnation

Sorry, I misread that one. This is what he quoted my friend Steve Rose saying about the people who disagree with him on income stagnation. Yes, it's Monday and Robert Samuelson is once again trying to insist that everyone's income is rising just fine.

The bizarre part of the story is that no one is really disagreeing on the facts, just how we talk about them. Before-tax income has been largely stagnant over the last four decades. For families at the middle and bottom, there has been some rise, but this has largely been because there are more earners per family, not rising hourly wages.

This is primarily the story of women entering the labor force. That was mostly a 1979–2000 story, since women's employment rates have actually slipped somewhat in the last two decades. It's great that barriers to women working are lower today than four decades ago (although discrimination is still huge), but saying that a two-earner family typically has higher income than a one-earner family doesn't really contradict the stagnation story.

The way Samuelson shows larger gains for families at the middle and bottom is by including government transfers, most importantly health care programs like Medicaid and SCHIP, in the story. As I pointed out in the past, the value of these transfers increases every time the pay of a heart surgeon or the cost of drugs increase, so people can be excused for not seeing this as a rise in their income.

It is also important to note that most people are healthy and have few health expenses. This means they don't directly benefit to any great extent from having these forms of insurance, although they are clearly valuable if their health deteriorates.

Samuelson is also intent on picking the price index that shows the lowest rate of inflation and therefore the most income growth. While he is in tune with most economists in this respect, it is worth making a couple of points on these inflation measures.

First, while many are fond of citing ways in which the quality of goods and services have improved over the last four decades, and may not be fully picked up in the price indices, there are also ways in which there have been areas of deterioration that don't get measured, as anyone who has flown recently can tell you. Also, those of us who use their smartphones for e-mail and Internet access, may not place a high value on all the wonderful quality improvements over the last decade that allow Apple to monitor your heart rate and everything else. 

The other point is that these indexes do not take account of the costs associated with new items that might now be necessities. The cost of monthly Internet service does not show up as an increase in the cost of living, nor does the cost of cell phone service. These items can be substantial and necessary expenses, but they don't figure into standard measures of inflation.

Constructing a true measure of the cost of living would be a difficult, if not impossible, task. But it is more than a bit annoying seeing Samuelson in the Post every week telling us that we are actually doing great and we are just too stupid to realize it — because he can do some calculations that show a rising standard of living. But apparently, there is a market for this stuff at the WaPo.


Reposted from CEPR