Yes, Americans Probably Are About 46 (or Maybe 65) Times Richer Than in 1776

By Jeremy Horpedahl.

"My post and chart from last week showed the phenomenal growth of average income in the US since the Founding. Using GDP per capita historical estimates and adjusting for inflation, this figure is about 46 times greater today than right around the time we declared independence.

It will probably not surprise you that some folks were skeptical. Could this really be true? Two major objections were raised to using GDP per capita. First, wouldn’t it be better to use a median income value rather than a mean (simple average)? Second, wouldn’t a measure of wages be better than GDP per capita?

I really would like to show you an annual series of median income data back to 1776, but unfortunately it just doesn’t exist. Good median income data are hard to find much before the 1950s, much less the 1770s. However, while median values are often better for showing levels, the growth rates of median wages and mean wages aren’t that different for periods when we have comparable data. Consider the following chart, which compares median wages (as calculated by EPI using CPS data) and mean wages (from BLS’s series for non-supervisory workers) since 1973. I have stated these in nominal terms, so don’t take this as real growth rates, but rather it is a raw comparison of two series (we could apply the same inflation adjustment to both, but that won’t change the picture, only the numbers).

 

Median wages increased by 667% and mean wages increased by 657%, almost identical. Again, these aren’t inflation adjusted, but that’s not the point of this exercise. The point is that whether you use mean or median wages, at least since 1973, the growth rates are the same. Was this true if we went back another 200 years? We can’t say for sure. But many people have this same skepticism about mean wages in recent decades. I think it is better to use median values when you have them, but we shouldn’t throw up our hands and claim we know nothing if all we have is mean wages.

Next, consider the following chart. It begins in 1790, but instead of using GDP per capita, as I did last week, it uses a measure of average wages from economic historian Lawrence Officer. This measure is for “production workers in manufacturing,” and it is a total compensation measure, meaning that it will include the value of fringe benefits as well — though these aren’t noticeable in the data until the 1930s. This is still an average value, but because it is for manufacturing laborers, it won’t be distorted by the wages of managers and owners in that industry, and it won’t be affected by the growth of new industries that might require more years of education (indeed, manufacturing wages are lowering than overall average wages today, so this is taking the hard case). I have also included a second line, which only includes manufacturing wages (not benefits) that I have blended with Officer’s compensation series starting in the 1930s, in case you think including benefits is somehow “cheating.” (Note the log scale again, as in last week’s chart.)

 

The trends here are very much in the ballpark from the GDP per capita chart I created last week. Using total compensation, wages are 65 times higher than in 1790. Using only wages, they are 49 times higher. Notice that these are both better than the 46 times multiplier using GDP per capita. How is that possible, since I am using the same price deflator in both cases? First, average hours of work have fallen significantly since the 18th century, so incomes haven’t risen quite as much as wages. Second, there was a bit of a decline in GDP per capita during the Revolutionary War, and if we use 1790 as the baseline for GDP per capita, the multiplier is 63. But again, these numbers are all in the ballpark: whether the true figure for a typical American is 46x, 49x, 63x, or 65x, this is a tremendous amount of economic growth.

If you want to look at that chart pessimistically, you will see that there is some reduction in growth rates in the past few decades. That’s true whether we use wages or compensation. This is a well known issue, and has been discussed endlessly in academic papers and on social media. I don’t want to glaze over it here, but I mostly will: the long-run trend of growth in the US is amazing. That’s true whether you use GDP per capita, or wages or compensation for production workers.

So once again, Happy 250th Birthday to the USA and all of you living in the wake of that amazing 250 years of economic growth!"

Decriminalization versus Legalization

By Jeffrey Miron.

"A new study argues that recent drug de-criminalizations in Oregon and Washington caused substantial increases in drug overdoses.

Is this plausible? And does it imply that prohibition is better than legalization?

Yes, and no.

Decriminalization means elimination of criminal penalties for drug possession. Legalization means elimination of criminal penalties for production and sale.

Standard economics suggests that decriminalization, by reducing the full price of purchasing drugs, shifts demand outward, implying greater use.

This causes, since production and sale are still illegal, a larger underground market and therefore more of the associated negatives. These include increased violence, because black market participants cannot resolve disputes with courts and lawyers; and additional overdoses, because quality control is difficult in black markets.

Thus the study’s result makes sense. But rather than supporting prohibition, it shows that full legalization – rather than decrim – is the right path. Indeed, if policy legalizes only one side of the market, it should be supply rather than demand. A related point is that legalization must not include too much regulation and taxation; that just re-creates the black market.

A possible qualification is that some decrims seem to have avoided increased violence or overdoses. The likely explanation is that in these instances, policy de-escalated supply side enforcement along with decriminalizing."

The China dish industry claimed it was a militarily strategic good in 1951

Tweet from Daniel J. Smith.

"A representative from the fine China dish industry lobbying for protectionism as a militarily strategic good during congressional testimony in 1951"

  

After decades of warnings, new data suggest the Atlantic’s vital circulation may withstand climate warming better than feared

See Shifting currents by Paul Voosen in Science. Excerpts:

"Climate models have long warned that global warming could weaken “deep-water formation”—the density-driven sinking that is the engine of the AMOC. The logic is straightforward: As Greenland’s ice sheets melt and sea ice formation declines, North Atlantic waters will freshen. Combined with warmer sea temperatures, the freshening makes surface waters more buoyant. The AMOC was thought to have shut down abruptly during past climate warmings, and a handful of researchers now argue such a tipping point could occur this century. A sputtering AMOC could trigger a sharp cooldown in northwestern Europe, rising seas along the U.S. east coast, and shifts in tropical rainfall."

"most climate researchers think the AMOC is more resilient than these worst case scenarios make it seem. Emerging evidence suggests the AMOC may not have actually collapsed in the warm climates following ice ages. More detailed climate models suggest it could weaken but not collapse in the current surge of warming. And studies of the AMOC’s present behavior do not yet show any clear signs of trouble. They’re also exposing new facets of the circulation that could buffer any eventual weakening."

"That stately flow actually swings wildly year to year, masking any long-term trend, the first RAPID measurements showed. Swings between apparent decline and recovery have since become a hallmark of AMOC monitoring, and a recurring source of alarm and reassessment."

"Gerard McCarthy remembers well the first time he saw an AMOC decline. It was 2011, and McCarthy, now a climate scientist at Maynooth University, had just joined the RAPID team. His first task was calculating AMOC’s strength. Beginning in 2009, it plunged. “Everyone was like, ‘The new guy made a mistake,’” he recalls. Others checked the numbers. The drop held. “We all realized that something dramatic had happened.”

What happened was not caused by climate change, but rather the weather. That winter, unusual swings in air pressure weakened the jet stream and shifted wind patterns, disrupting the AMOC’s flow. The decline likely contributed to a frigid European winter in 2009 and, by leaving more heat in tropical basins, also led to an active Atlantic hurricane season the following summer."

 "It seems the AMOC is not a single conveyor belt, but a belt of belts, each part operating semiautonomously."

"OSNAP has changed the picture in other ways, including by showing that overturning occurs not so much in the Labrador Sea, as models suggested, as it does farther north, in the Irminger and Iceland basins. Additional data suggest deep-water formation is migrating even farther north, into the Arctic Ocean, following the retreat of sea ice, Årthun says. “You’re expanding the reach of this cooling machine.” The northward migration could make the AMOC more resilient to warming"

"New climate model runs that capture more realistic melt from the Greenland Ice Sheet are less dire. In two preprints posted online in the past year—one led by Chuncheng Guo, a climate scientist at the Danish Meteorological Institute (DMI), the other led by Oliver Mehling, an ocean modeler at UU—researchers created multiple simulations where carbon emissions continued until 2250 and temperatures rose by up to 7°C. In both studies the AMOC weakened, losing about 40% of its strength. But it never collapsed. Both studies also suggest the weakening is reversible"

"that resilience persisted even in the face of catastrophic warming."

 "even if atmospheric carbon dioxide levels quadrupled, driving extreme warming, the AMOC would decline by 40% after 20 or so years—but once again, it would rebound."

"Evidence from past ice ages seemed to suggest the AMOC switched off entirely when massive pulses of freshwater from the melting of the North American ice sheet poured into the Atlantic. But new work, also presented at Ocean Sciences, suggests the AMOC may not have collapsed at all during these periods." 

New York’s Data Center Self-Sabotage Gov. Kathy Hochul finds another way to hurt economic development in the state.

WSJ editorial.

The article discusses how it is regulation and not data centers that are driving up costs. 

Medicaid Spending Keeps Soaring So much for Democratic claims of onerous cuts. It’s up 10% so far this fiscal year.

WSJ editorial.

China’s Economy Is in Worse Shape Than You Think

The estimate of 4.3% GDP growth is below Beijing’s lowest projection—and it’s probably far too high

By Joseph C. Sternberg. Excerpts:

"Beijing’s statisticians on Wednesday said the gross domestic product grew 4.3% year-on-year in inflation-adjusted terms in the April through June quarter. China’s economic data are notoriously prone to fiddling for political purposes. And only this March, the Communist Party set a GDP growth target range of 4.5% to 5% for the year, its most pessimistic since the 1990s."

"Meanwhile there’s accumulating evidence that the country’s true GDP growth rate may be zero, or that the economy is in outright recession. Retail sales were a bright spot in the latest data, increasing 1% year-on-year in June, but looking across recent months this measure of domestic household consumption may be stuck in neutral. Measures of investment are in free fall: Fixed-asset investment has declined 5.7% year-to-date and real-estate investment is down 18%."

"Crude imports in July hit their lowest level in roughly a decade."

"refinery output also is declining"

"demand for energy within China . . . is dropping rapidly."

"it’s hard to find anyone who thinks any of this (more economic “stimulus”) would launch a durable economic recovery. One reason domestic consumption is dipping is that previous iterations of the consumption subsidy (a trade-in scheme, akin to the Obama-era “cash for clunkers” in the U.S., that rewards replacement of old items) pulled forward in time purchases that households would have made anyway, without setting in motion a Keynesian virtuous circle of new corporate investment to meet higher demand. As for public works, China has enough and Beijing’s more important fiscal priority remains bailing out heavily indebted local governments." 

"Domestic consumption is unlikely to revive until the real-estate market has found its bottom."