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Wednesday, March 29, 2023
Nostalgia economics is totally wrong
The best thing about the past is that things changed more rapidly
"Life has changed a lot over the last 60 years, and not every single
change has been for the better. This periodically results in some
version of this meme going viral:
The argument is essentially that the material living standards of the typical American family have gotten worse since the post-WWII era. This is completely wrong.
A
contemporary American family not only has access to all kinds of
technology that would have delighted and amazed people from 60 years ago
(luggage with wheels, microwaves, surround sound, ciabatta), but we
also consume much more housing, cars, and college education.
It’s
bad to lie to people about this, both on general principle and because
it obscures some plausible accounts of the ways in which some things
have gotten worse. Most of all, though, the nostalgic orientation sows
confusion about something fundamental: the pace of economic growth
really was much faster in the 1950s and 1960s. Americans are richer
today than they were two generations ago, but we are growing richer at a
slower pace. That’s not ideal.
There is something to the fact
that this poorer-but-faster-growing period is remembered fondly, but the
right takeaway isn’t nostalgia for the past — it’s impatience with the
current slow pace of growth.
People were poor in 1960
In
1960, there were roughly 400 vehicles per 1,000 Americans, about half
of today’s car ownership rate. In other words, a family in 1960 could
afford a car on one income, but today they would have two cars.
The average new house built in 1960 was about 25% smaller than a contemporary house, and much worse provisioned in terms of amenities like dishwashers, clothes dryers, and fireplaces.
Of course those were new houses. Many people in 1960 lived in older buildings that often lacked amenities that are now ubiquitous — you can read about cold water flats in New York that had no hot water.
And lots of people were living in rural poverty in extremely old structures.
Overall,
running water was about as common in 1950 as home air conditioning is
today. Dishwashers and washing machines were rare luxuries.
Broadly
speaking, if you think about how American life has changed, the
striking thing isn’t how much people used to be able to afford on one
income, it’s how much easier it is today to get by with just one adult
in a household. If you hear about a single mom who owns a car, your
first thought isn’t “wow, she must have won the lottery.” Doing laundry
and folding clothing with modern appliances is annoying, but objectively
much less time-consuming than it was in the poorer past.
Americans have become better-educated
The college point is more subtle because college really was cheaper in the past.
And there were two aspects to this.
One
is that colleges themselves spent less money per student. The
administrative staffs were smaller. There was no IT team maintaining the
campus-wide WiFi network. I think reasonable people can disagree about
the merits of some of the “extras” that are included in a contemporary
college education bundle, but there clearly is more stuff. Not all of it
has obvious educational value. All the IT expenditures, for example,
almost certainly have very little impact in terms of improving students’
education, but it’s also inconceivable that a college campus would just
refuse to create and maintain on-campus internet access. Nobody would
want to attend or teach at a school like that.
The other is that
college has become less subsidized over time. Medicaid didn’t exist
until the mid-1960s and it covered very few people in the early days.
Over time, it has become a bigger and bigger item on state budgets, and
they’ve compensated in part by reducing higher education subsidies. The
federal government has stepped in to fill part of the gap with the
student loan program, but that’s a less generous subsidy.
This
is relevant for two reasons. One is that the social calculus that
student loans were a “good enough” form of subsidy to continue expanding
access to higher education was correct. You don’t need to love the
student loan system, but it is true that qualified students are
generally able to attend college in the United States regardless of
ability to pay and that for those who graduate from reputable
institutions, it’s worth their while.
But the other thing
is that it’s much cheaper to subsidize college education when you don’t
have so many people going to college! Back in 1960, only 45% of high school completers attended college versus about 60% today. That itself understates the change because the high school completion rate has risen by about 10 percentage points since then.
If you eliminated one-third of the college students, that would free up
lots of extra subsidies for the remainder. But I’m not sure that would
be a change for the better.
At any rate, it’s definitely
not the case that the typical family 60 years ago was sending their kids
to college on one income, because most kids didn’t go to college.
We
also have a certain amount of what I think we should probably see as
problems of affluence. I read a funny study recently that looked at Swedish lottery winners.
It showed that when single men win the lottery, they are more likely to
get married. But when married women win the lottery, their odds of a
short-term (but not long-term) divorce rise. Somewhat along these lines,
I think because people in general are richer and because women in
particular have dramatically higher earnings potential than they did 60
years ago, you see more single parents than we used to. This is
downstream of material prosperity — mothers are less economically
dependent than they used to be — but I think it’s probably not ideal for
kids’ social and emotional development.
We have less malnutrition and a lower incidence of people being underweight than we used to, which is good, but we now have a large and growing obesity problem
that I think is mostly a consequence of more food availability. People
sometimes argue that healthy eating is more expensive, but this really doesn’t check out. Material abundance in the realm of food just turns out to have downsides.
There
are also some specific areas where public policy has made things worse.
The average home size has gotten larger because we’re richer. But we’ve
also taken a lot of regulatory steps to ban what used to be the lowest end of the housing market.
As a result, people who in 1960 might have lived in a rooming house or
an SRO now tend to end up in a homeless shelter or on the street. This
doesn’t directly impact the average person, but it has the indirect
consequence of creating the temptation to use mass transit systems and
other public facilities as de facto shelters, which thereby degrades the
experience for everyone.
But mostly I think it’s important
to be clear that if what you’re regretting is the demise of 1950s
family dynamics, you are regretting the consequences of prosperity. If
you want to have a two-parent, one-income family in a 1950s-sized house
with one car and not send your kids to college, you can almost certainly
afford that. Indeed, the stay-at-home mom will spare you the costs of
childcare, summer camp, and other things that genuinely have gotten more
expensive as a result of rising wages. And you’d even be able to take
advantage of modern advances like Netflix, out-of-season fruit, and
affordable domestic airfare. That’s just not the life most people
choose.
The future ain’t what it used to be
As
I mentioned at the top, where I think there’s some legitimate grounds
for nostalgia is that while Americans in the 1950s and 1960s were much
poorer than in the 2010s or 2020s, the rate of economic growth was
faster. Fast growth meant a broad sense of social mobility—not just a
shuffling of people in the class hierarchy but a very large share of the
population growing up to be dramatically richer than their parents.
But
American growth took a big blow during the energy crises of the 1970s,
which was probably unavoidable. What happened after that, though, was a
series of self-inflicted wounds.
The rapid growth of “the good
old days” meant that, in a literal sense, things were changing a lot
with tons of new stuff getting built — because that’s what happens when a
society experiences rapid economic growth. New technology is deployed,
physically, in space. The built environment alters as physical capital
is accumulated. And if a bunch of people build a bunch of stuff in a
bunch of different places over an extended period of time, there are
basically two options:
All the planning and execution can
be done by flawless superheroes who never make an error of judgment,
never experience blind spots, and are impervious to corruption.
Some of the stuff that gets built turns out to be a bad idea.
Since
the United States of America is populated by human beings, we got (2)
rather than (1). But the social reaction to this wasn’t just
to write laws like the Clean Air Act that require people to take
pollution externalities into account when they burn stuff. We also
implemented things like NEPA review, where the premise is basically that
any deviation from the status quo is inherently suspect and therefore
something like a congestion pricing plan for Manhattan should require a
three-year, 4000-page environmental review.
But this is very much not unique to NEPA. The premise of historic preservation policies in the United States is that old stuff is per se better.
The land use regime in essentially every jurisdiction puts a thumb on
the scales against adding more buildings on the premise that building
more stuff is bad.
Living standards still inch forward
under this regime, but it’s concentrated in computer and media, things
that can be achieved almost entirely through the diffusion of
information. There was a time a few years back when we had an explosive
diffusion of ramen shops, and you can now get a pretty good bowl of
tonkatsu in all kinds of places. Right now something similar is
happening with Nashville hot chicken and Detroit-style pizza. But we
could have much more rapid change if we wanted to, and that would let us
recapture some of what was legitimately great about this earlier era in
our history. But that requires letting go of nostalgia and embracing
dynamism.
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