July 3, 2005
Were the Good Old Days That Good?
By LOUIS UCHITELLE
... [C]an it be that living standards are actually slipping in America?
No economist, demographer or historian would make that case. Living standards, after all, almost never go backward, at least not in a material sense. Indeed, the economy today is growing, consumer spending is plentiful and new technologies - from the Internet to laparoscopic surgery - make life better than ever, as they do in every generation.
But for ... [Baby Boomers] the trajectory is no longer the steadily upward line that ... [Americans in the first three decades after World War II] enjoyed. Instead, the line appears to be climbing erratically. That is certainly true of the traditional measures of standard of living. After 20 years of very small gains, the rate of improvement surged from 1995 to 2000 - only to fall back toward zero over the last four years, a reversal that puzzles analysts.
"When you talk about living standards, you have to focus on people in the middle," said Robert Gordon, an economist at Northwestern University. "A lot of the goodies that we think of as raising living standards have gone to the people at the top at the expense of the broad mass of Americans in the middle." ...
While income and consumption are the chief measures of a nation's standard of living, other, more subtle indicators also play an important role - and several of them are not doing so well. Life expectancy in the United States, while still rising, has fallen behind that in France, Germany and Japan. Home ownership is at a record high for the population as a whole, but it has dropped since the 1970's for some groups - working families with children, for example, according to the Center for Housing Policy. In overwhelming numbers, Americans say they are satisfied with their standard of living, a Gallup poll reports. But 25 percent of the nation's families also worry all or most of time that they won't be able to pay their bills. That is up from 21 percent in the late 1990's.
And in many cases, public services are not holding their own. ...
The good news for the nation is that productivity ... is rising. ... Not since World War II [however]have productivity and income diverged so sharply, yet that phenomenon barely registers in public opinion surveys. Nearly 9 in 10 people surveyed by Gallup say they are satisfied with their standard of living, a higher proportion than in the 1960's. In answering that question, however, those surveyed make no comparisons with the past, said Lydia Saad, a senior editor at Gallup, "so they don't know whether they are falling behind on some treadmill of life."
Richard A. Easterlin, an economic historian at the University of Southern California, has a different take. Satisfaction is always relative, he says. If a family's debt rises, that is not a negative as long as other people's debt is increasing at roughly the same pace.
The parity helps to explain why consumption has risen 40 percent faster than income since 2001, and why people are able to focus on the amenities they acquire - the cellphones, the bigger homes, the cars and the digital cameras - without feeling weighed down by rising debt or by income that is rising more slowly.
... "We had much less income inequality in the first couple of decades after World War II because of strong unions, restricted trade and a decline in immigration," Mr. Gordon said. "Then all three reversed, which means that the income from productivity falls to the bottom line and for the time being stays there."
To him and others, living standards cannot be truly rising if the improvement is so unevenly distributed; in addition, they say, earning a living has become increasingly stressful.
Job security, which ... [postwar Americans] took for granted, has deteriorated. "People talk of the new economy and of reinventing themselves in the workplace, and in that sense most of us are less secure," said Daniel Kahneman, a Princeton University economist who shared a Nobel in economics for his contributions to behavioral economics.
People approaching the age of 65 face a different uncertainty: smaller retirement incomes than their parents enjoyed. That is happening as the nation shifts from a system of fixed monthly pensions to 401(k)-type accounts, in which people save what they can for their own retirement. In the process, retirement income is falling from 93 percent of preretirement pay for today's retirees to 80 percent, on average, for the next generation, according to an Urban Institute projection.
Some retirees cannot afford the pension hit, and they continue to work. The portion of the 65-and-over population that is employed has risen to 14 percent from less than 12 percent in 1995, the Bureau of Labor Statistics reports. The option to retire is slipping away, and that damages living standards. ...
HEALTH problems also undermine living standards. Life expectancy at birth is one symptom. At 69.7 years in the late 1950's, life expectancy in the United States was slightly ahead of that of Germany and France, and well ahead of Japan's. Now Japan is far ahead at 80.5 years, compared with 78.5 in France, 77.5 in Germany and 76.5 in the United States.
Infant mortality, at more than six deaths per thousand live births, similarly trails the rates in France, Germany and Japan, according to the Organization for Economic Cooperation and Development. Height, too, is no longer an American hallmark. Average height has been stuck at less than 6 feet for a decade or more while Europeans have grown passed that mark, suggesting that they are somehow healthier.
Obesity is now a distinguishing feature. The percentage of obese American adults has doubled in the last 15 years, to 30 percent, said Kenneth E. Thorpe, chairman of the department of health policy management at Emory University's School of Public Health.
The way we live makes that happen, he argues: the lack of exercise, the marketing of foods high in sugar and fat, the over-large portions. As a result, weight-related illnesses - diabetes, heart disease, hypertension, asthma - have risen sharply.
"Once you are sick, we are doing a better job in treatment," Dr. Thorpe said. "The pace of technological development has probably accelerated since 1980 more than in previous generations. That's the good news. The bad news is that we have larger shares of the population who are sick."
For Dr. Thorpe, the much better treatment is clearly a big improvement in standard of living - offset, however, by the big increase in the incidence of illness. He estimated that the additional health care cost resulting from the decline in healthiness would total $70 billion this year.
"You can't have a rising standard of living," he said, "if you have people getting less healthy." ...
<http://www.nytimes.com/2005/07/03/business/yourmoney/03standard.html?>
Carl