Median-itis and The Great Stagnation
Here is my NYT column from today, on themes relevant to The Great Stagnation. I won't rehash this entire discussion, but I would like to focus on this one column excerpt:
From 1947 to 1973 — a period of just 26 years — inflation-adjusted median income in the United States more than doubled. But in the 31 years from 1973 to 2004, it rose only 22 percent. And, over the last decade, it actually declined.
I am noticing that some reviews or commentaries (and here) are citing per capita income growth as a response to my argument. It is true that per capita income grows at a slower rate post-1973, but my argument is about the slowing down of median income growth and that is a much stronger shift. The productivity data also tell a glum story.
CPI bias can change those numbers in absolute terms (see comments from Russ Roberts), but it also changes the pre-1973 median income growth numbers and arguably more so. The gap remains and TGS refers to the living standard for the average person or household in the United States, not the total amount of innovation, which remains quite high. They're just not innovations with the same trickle-down or broad-based effects as in an earlier era.
Kindle eBooks are themselves a good example. It's a real improvement for a lot of us -- especially travelers -- but even the median reader, much less the median American, doesn't have a Kindle or buy eBooks. As I argued in The Age of the Infovore, the big gains of late have gone to the extreme information-processors.
I've seen in the MR comments (and elsewhere) a lot of anecdotal comparison of recent gains vs. earlier gains in technology. Don't we now have this, don't we now have that, and so on. Of course. Median incomes have risen somewhat. But, when it comes to the average household, the published numbers for median income are adding up and trying to measure those gains and it turns out their recent rate of growth really has declined. Most serious researchers who work in this area use and accept these numbers as the best available (though they do not in general advocate my causal interpretation; see for instance Mark Thoma or Jacob Hacker).
If the numbers for median income growth are low we ought to take that seriously, as does Scott Sumner. We are not cheerleaders per se (BC: "I'm baffled why Tyler would focus on slight declines in American growth when the world just had the best decade ever." Is it then wrong to focus on any other problems at all? I also was one of the first people to make the "best decade ever" argument, which I still accept.) Medians also matter for the political climate, even though the median earner is not exactly the median voter. Adam Smith's welfare economics was basically that of the median, a point which David Levy has made repeatedly.
I'm also being called a "pessimist" a lot. Yet in my view our current technological plateau won't last forever. That's probably more optimistic than the Hacker-Pierson approach, which requires a Progressive revolution in economic policy (unlikely), although it is not more optimistic than denying the relevance of the numbers.
I'll soon blog some remarks on changing household size as another attempt to avoid confronting the facts about slow median income growth.