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August 31, 2006

So You're Saying Technology...Is Good?

I find all the hubbub over "Don Boudreaux's time machine" to be rather baffling. Boudreaux is a libertarian economics professor who, tired of hearing that middle class wages are stagnating, came up with a clever thought experiment to silence the ungrateful curs. "Would you rather live in 1967 on $46,000 a year (the 2004 median), or in 2004 on $35,000 (the 1967 median)?" (all figures in 2005 dollars) Seems rather pedestrian to me -- technology good! But the right's gushing over it in the sort of lavish tone better suited to movie posters. "By far the best thought experiment of the Summer!" "If you engage in only one obtuse hypothetical this year, make it Boudreaux's!"

As it turns out, when progressives worry about wage stagnation, we're not really ready to sacrifice 40 years of technological advance to gain a couple thousand bucks. Hopefully, we'll just slink back to our 21st century habitation pods, enter our automatic garages, get in our fuel-efficient automobiles, roll up our electric windows, turn on our microchip-aided ignition, and realize it's tough to kill ourselves in a low-emission car. That'll show us.

Only...something about Boudreaux's experiment seems, I don't know, odd. It's not entirely clear why technological advance enters this picture. Indeed, it would seem that if the American worker had made more money, they'd even be able to buy more cool technology, allowing them to further enjoy 2006's fruits. So here's a counter-thought experiment. Call it Klein's Anti-Stagnation Device. Let's imagine two worlds, one in which you live in 2004 on the median salary of $46,000 a year, and the other in which you live in 2006, but median wages had kept pace with productivity post-1973 (as they did between 1947 and 1973) and you make this world's median salary: $60,000.

Which would you prefer?

That's the point. Boudreaux's argument that technology has improved our lives is indisputably true (I would rather make my lowly salary in the age of the internet than cash it in in the age of the telegram), but it's really neither here nor there so far as concerns over middle class wage stagnation go. The question isn't now or then, but now or better now.

August 31, 2006 | Permalink


Even better - if you could survive on $15,000 a year you could probably have a jetpack.

Posted by: Sara | Aug 31, 2006 5:04:20 PM

If the cost of gas hasn't gone too high, maybe we could fill up the tank on the time machine and go back to 10,000 BC. Then the median wage is like, a few handfuls of edible plants a day, plus the occasional chunk of meat and maybe a couple animal skins. If I choose my sub-$20K per year in fellowship checks over that, I hope it's not some great betrayal of liberalism.

Posted by: Neil the Ethical Werewolf | Aug 31, 2006 5:04:27 PM

I hear Don Boudreaux's time machine thought experiment is pretty interesting too.

Posted by: Adrienne | Aug 31, 2006 5:05:04 PM

Thanks Adrienne ;-)

Posted by: Ezra | Aug 31, 2006 5:08:42 PM

In 1967, I was 16 yrs old. I am not one who pines for the olden days and thinks things were better back then. That being said, given the Professor's choices, I'd go back in a heartbeat. I'd be much better off and my future would be better as well. I'd have money to save to send my kids to college and I'd be able to own a home (neither of which someone earning $35K today can afford to do). Remember, we're talking median family income here.

But can't I go back to an earlier time? I mean, in 1967, I'm only one year away from Nixon being president. Watch what you wish for.

Posted by: Steven Donegal | Aug 31, 2006 5:35:02 PM

In my TIME Machine we have the payroll tax and caps on today's higher income the same as it was in 1967.

Heck, in 1967 LBJ was saying Medicare was only going to cost a few billion dollars.

In 2006 we owe $65 Trillion in Unfunded Social Security and Medicare liabilities. LBJ never said that in 1967.

Numbers can get so large they don't have names.

Posted by: Ron Greiner | Aug 31, 2006 5:53:33 PM

Numbers can get so large they don't have names.
But Capital Letters Are Always Good?

Posted by: TJ | Aug 31, 2006 5:59:07 PM

Dude, I fear you TOTALLY didn't get it. The only way we know how much money we have relative to 1967 is by using a deflator. The entire point of the thought experiment is that because of the awesome awesomeness of technological change (among many other things) insufficiently acknowledged by the CPI, the govt radically overestimates price inflation, radically underestimating real wage growth. The argument is that we are in fact WAY MORE than 31% wealthier than in 1967, but that the numbers don't catch it, because the CPI can't adequately handle qualitative improvement, and new tech. Not that we are in fact ONLY 31% wealthier, but that's OK because technology is great. The American worker DID make more money!

Posted by: Will Wilkinson | Aug 31, 2006 6:41:17 PM

Geez, if Ezra's response is the best possible, I'd say Boudreaux wins the argument hands down.

Why not just fess up to the fact that generally speaking, we are way better off than we were in 1967, that the CPI does in fact overestimate price inflation and overestimate real wage growth when qualitative improvement is taken into account?

Democrats were wiser when they took credit for these changes (though Gore did so a little ham-handedly by taking credit for the Internet), rather than pleading poverty for the masses. The vast middle classes are too busy enjoying the fruits of new technology through purchases at WalMart to pay attention to Dems telling them how poor they are.

Posted by: JohnFH | Aug 31, 2006 6:54:08 PM

It's not entirely clear why technological advance enters this picture.

Will Wilkinson answers this, above. Improved technology adds value that is hidden from the usual inflation index.

Posted by: Grumpy | Aug 31, 2006 6:56:31 PM

Life is harder today on the same wage (adjusted for inflation) even with the better technology. Simply. It costs more of that income to meet the basic needs, especially housing. And you can forget owning a home now on that income, but not in 1967....

Posted by: George | Aug 31, 2006 7:13:31 PM

Wil -- the only way that matters is if you argue that between 1947 and 1974 we had radically less in the way of technological advance than we did between 1973 amd 2004. Now, granted, I'm not an expert on tech from that period, but it seems to me that the movement from trinitron to flat screen was less than the difference between black and white and color.

In any case, this has literally nothing to do with income stagnation unless you believe that the missing money from middle class incomes went to making WEGAs. I don't, and I don't see Don making that argument, so all of this is a way to distract from what is a real problem by pointing to the ipod. There's no reason we can't have an ipod AND wages that keep pace with productivity.

Again -- I'm not arguing that the CPI counts stereo deflation, or that the better technology isn't crucial. But it isn't clear, in any way, why this should be a rejoinder to those concerned by wage stagnation.

Posted by: Ezra | Aug 31, 2006 7:26:15 PM

Kinda off-topic, but do check out Boudreaux's learned opinion on global warming. Key graf:

So given this fact along with the hysterical language used by the likes of Al Gore -- who, after all, is not on society's fringes -- it's a perfectly legitimate stance for truly reasonable people to conclude that the best policy regarding global warming is to neglect it -- and let capitalism continue to make us healthier and wealthier.

Feel the analytical magic, my friends.

Posted by: Joey | Aug 31, 2006 7:43:11 PM

Wrong economic analysis. First, it's ironic to me that a Libertarian would talk about technology being the reason for why we should taut today over the past considering most of the reasons why he would consider today better is because of technology that grew out of governmental action. Name one area- including these Internet- where this isn'true.

But, that argument is besides the point. The real problem is that you are meassuring limited factors, that even if he were 100 percent correct, would not answer the question. What about QoL issues such as environment, nature of the work week (which now bleeds into the private life) and multiple other factors. That same technology which helps us also hurts us (cell phones, PDAs, blackberries etc all make us more likely to be at work all the time even when we are on vacation). How does he meassure the job security factor- ie, that is the anxiety of having to work in a work force that is no longer stable is just one way in which we are worse off despite greater productivity. These are all just thoughts off top my head. There are a lot more.

On NPR- I can't remember the name- but they had this great discussion last year about rather than just having the GDP one should have an index for QoL among other factors- such as how well one's environment is, how many friends do you have, how healthy are you, what is your debt level, do you suffer greater anxiety over things, what are you worries, how does your boss treat you, do you feel okay taking a vacation, what are you kids expectation for what you should provide them? I can go on with this list- the point is that these simplististic questions as y'all have defined them are bullshit- they don't reflect a rather complicated questions. I don't have an answer for you. I just am insulted that anyone on the left or right think they do.

Posted by: akaison | Aug 31, 2006 7:52:34 PM

I'm feeling the magic, Joey. I'm also feeling the munchies. This time machine thought experiment stuff is so far out, dudes!

Am I wrong, or can we sum up Boudreaux's post along the lines of, "sure, wages aren't improving the way they have historically, but when you look at it from my special perspective, you can almost feel good about it."

I think I remember Boudreaux had a post on how to get rich with coupons, but I can't find it on his site. Anyone got a link for that?

Posted by: Chuck | Aug 31, 2006 8:07:37 PM

Do you think Boudreaux got a special grant from the Club For Growth to find a way to lower the bar for median wage expectations?

Posted by: Chuck | Aug 31, 2006 8:09:03 PM

Does anyone think modern cars give that much added value than a 67 Jaguar XKE? Cost:IIRC $5000

Will Wilkinson himself just recently noted that the marginal pleasure from our new toys cannot measure up to the pleasure from travel.

Yes, I would miss the net. And yes, I would worry about health care. But 46k was a ton of money in 1967.

Figure ten wooded lakefront acres with a 3000 sq ft cottage, speedboat, my jag, a couple trips abroad every year. Life was not quite chopping wood and handwashing clothes in 1967.

Posted by: bob mcmanus | Aug 31, 2006 8:23:22 PM

In 1967, didn't the median household also include a live-in maid and childcare provider willing to work for room, board, and a wedding ring?

Posted by: Jackmormon | Aug 31, 2006 9:03:41 PM

I think for folks of a couple generations beyond me, the trade is more imaginable. I'd rather make my paltry salary in the age of the internet than be a millionaire before. That, however, doesn't explain or rebut the wage stagnation of the middle class or its redirection to the upper class. Again, no one knows better than a quasi-professional blogger how awesome tech is, but I simply don't understand why it's being used as a rebuttal. No one, to my knowledge, has argued anything but that the middle class should be making far more than they are.

On the other hand, if I'm simply reading Don wrong and everyone is getting this excited because he's "proved" the CPI is somewhat flawed, that's fine too.

Posted by: Ezra | Aug 31, 2006 9:14:12 PM

Apparently, nobody has heard of hedonics. The CPI takes into account quality improvements which has the effect of driving down the CPI (and driving up real wages).

"The idea behind hedonic price index calculation is to incorporate quality changes into prices. This way, a product may be on the market at a higher price, but when the product qualities have augmented more than the price in the eyes of the BLS, it will calculate that the price of this product has actually fallen"


Posted by: sig | Aug 31, 2006 9:31:07 PM

What a simple minded post. he takes one statistic and says, "Hey guys this doesn't reflect reality. That statistic and this one other statistic do!"

Am I wrong, or is the whole post a good example of rationalization.

What's happened to consumer debt since 1967? What's happened to the number of people who had to work in a household to achieve that median income?

The real issue is that regular people aren't benefiting from productivity gains in the economy because the very very rich are becoming very very very rich.

Here's my time machine experiment. Let's go back in time and tell the younger versions of the very very very rich of today that in the future they'll only be half as rich as they'll actually become. Let's see if they just throw in the towel and walk away because they've been disincentivized.

Bill Gates: "What! I'll only make $13 billion dollars from all the stuggle and stife of starting Microsoft? Forget it, I'll just go on welfare!"

Paris Hilton: "What! I'll pay 25% tax on my inherited dividends instead of 15%! I'm just going to give it all back!"

You know, for a guy who basically used to be a Libertarian, you'd think I had more patience for them.

Posted by: Chuck | Aug 31, 2006 9:32:39 PM

The key here is to realize that the existence of technology does not, in itself, make things better for everyone.

The internet is a good thing. But telephones had already reached saturation by 1967, with even the very poor having one. The same is not true of a broadband connection - or even a cell phone.

Plasma TVs don't do anything for me because I can't afford to buy one. Therefore, the existence of plasma TVs should not be factored into the value of my wages.

We should not judge the relative level of wages based upon a person's ability to buy a Jaguar in 1967 or a Lear Jet in 2006, but in people's ability to own a home, buy groceries and clothes, go to the doctor and send their kids to college. In all of these areas, the average wage earner of today is substantially worse off than that of 1967, solid-gold bathrooms in Taiwan notwithstanding.

Posted by: Stephen | Aug 31, 2006 9:37:09 PM

As long as I'm raving, there's this barb that's fun to use on mathematicians: "A mathematician was asked to calculate how many cows would be necessary to make enough hotdogs for 1000 people. He replied, 'First, assume a spherical cow.'"

Libertarians are the political equivalent of mathematicians. "First, assume a rational frictionless marketplace."

Posted by: Chuck | Aug 31, 2006 9:41:08 PM

Rejoinder to Chuck:
Liberals are the political equivalent of guillotines: they absurdly believe that after cutting the cow up into equal pieces to redistribute to a bunch of layabouts, that it will continue to produce the same amount of milk...

To anyone else who still doesn't understand Beaudraux' point, I hereby condemn you to read Ray Kurzweil's last three books....

Posted by: Mike Lorrey | Aug 31, 2006 10:01:11 PM


if someone has to read three books to get your point about whether there life is better or not- well let's just say you are taking spin to a new level.

Posted by: akaison | Aug 31, 2006 10:32:43 PM

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