[lbo-talk] US consumption

Doug Henwood dhenwood at panix.com
Tue Mar 6 09:45:39 PST 2007


On Mar 6, 2007, at 11:38 AM, James Heartfield wrote:


> Doug, fsometimes you surprise me.
>
> It is hardly a revelation that productivity increases in services
> are less
> easy to come by than in goods. But how can you honestly say that
> cheaper
> goods do not increase the basket of consumer goods people can buy.
> You say
> Cox and Alm's research is shoddy (which would appear to be a
> euphemism for
> Texan if I read you right). But you do not say it is wrong. If it
> is wrong,
> perhaps you could explain why. Perhaps you could show that there
> have been
> no productivity increases in telegraphy, agriculture, and so on?
> That would
> be interesting indeed.

Let me try once more: the real hourly wage is the nominal wage of average worker deflated by the consumer price index. The CPI is an index designed to reflect the market basket of average households, 40% goods, 60% services. In other words, the index does the work of assembling the market basket. It's not perfect, but it's good enough. And it shows a decline in purchasing power of the average wage since the 1973 peak.

Cox and Alm made no effort to pick representative goods; they picked the goods that would make their case. Yes, the cost of making a phone call has dropped like a rock, but telecoms are about 2% of total consumer spending. The costs of education (3% of spending) and medical care (6%) have been increasing rapidly. Those don't appear in the table.

I've written at some length (in LBO #84) on the deviousness of C&A's mobility work. Here's an excerpt:


> Inventing bootstraps. The right’s sacred text on mobility is W.
> Michael Cox and Richard Alm's essay "By Our Own Bootstraps,"
> published in the Federal Reserve Bank of Dallas' 1995 annual
> report. While the class position of Fed research may not be to
> everyone's liking, it's usually rigorous and informative. Cox and
> Alm's stuff isn't. It was a study designed to make a point, and it
> stacked all the numbers its way.
>
> Mobility studies are very sensitive to definitions, time scales,
> and data quality. Honest researchers slice the data several ways to
> see how robust the findings are; not Cox and Alm. They used all the
> sensitivities to their own advantage. They're out to prove that
> America is "the land of opportunity," the incomplete sentence that
> serves as their opening line. "Opportunity pervades our folklore,"
> and folklore pervades their economics. They say that of the bottom
> quintile (fifth) of income earners in 1975, just 5% were still
> there in 1991; 60% were in the top two quintiles They stack their
> results in several ways. By making individuals, not households, the
> focus of their analysis — which they say is standard practice,
> though it isn't — subjects as young as 16 qualified. So the lower
> ranks were swelled by teenagers who contributed vastly to mobility
> just by growing up. To compare incomes over time, they used changes
> in real (inflation-adjusted) incomes over time, rather than
> comparing them to prevailing averages of each moment — that is,
> they measured changes in absolute rather than relative incomes.
> While absolute changes matter some, most people judge their status
> and well-being against the rest of society, not against an ancient
> base fixed by a statistician. Peter Gottschalk's reworking of the
> numbers massively deflates their claims. Cox and Alm found that
> just 2% of those in 1975's bottom quintile remained there in 1991;
> by Gottschalk's calculation, 36% were. And instead of 39% ending up
> in the richest quintile, just 20% did. With relative measures —
> which Cox and Alm don't use, of course — 43% of 1975's bottom
> quintile would have remained there in 1991, and just 11% would have
> hit the top.
>



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