The Misplaced Nostalgia for a Less Globalized Past

The “Great Again” Economy Wasn’t so Great 

Americans have traditionally been optimistic about the future, but a strain of thinking across the political spectrum today seeks to recapture a time when life was supposedly better for most Americans.

By Daniel Griswold of Cato via Cafe Hayek. Excerpts:

"This “nostalgianomics” is misplaced. The American economy is certainly more globalized today than it was decades ago, and just as certainly, most Americans are better off today by any real measure of economic well‐​being than their counterparts were a half century ago. In fact, increased globalization is one of the main reasons why Americans today have higher living standards than they did in the over‐​idealized past.

…..
Nostalgianomics’ depiction of American “wage stagnation” since the 1970s is fundamentally flawed in several key ways. First, the most typical indicator of such stagnation—U.S. production and nonsupervisory workers’ average inflation‐​adjusted hourly earnings—relies on an overstated measure of U.S. inflation that makes Americans’ real‐​wage gains seem smaller over time. As authors Phil Gramm, Robert Ekelund, and John Early explain in The Myth of American Inequality, properly accounting for inflation turns American wage “stagnation” into significant gains:

If the inflation adjustment for real average hourly earnings for production and nonsupervisory employees were to incorporate both the Chained [Consumer Price Index for All Urban Consumers] to remove the substitution bias and more accurate adjustments for new and improved products, real average hourly earnings would have risen 74.0 percent over the last fifty years rather than the official reported number of 8.7 percent. That is an additional $7.50 per hour.

Second, examining only wages excludes nonwage benefits—bonus pay, health insurance, paid leave, contributions to retirement savings, etc.—that have made up an increasing share of total compensation in recent decades. As Figure 3 shows, including these benefits and more, properly accounting for inflation shows substantial upward progress in workers’ total compensation since the 1950s or 1970s.

…..

Even these adjusted income data understate the gains enjoyed by American workers in our more globalized era. In Superabundance: The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet, Cato scholars Marian Tupy and Gale Pooley compare time prices (i.e., how many hours people must work on average to acquire various goods and services) across decades and find that American workers have experienced dramatic gains since the 1970s. In particular, they calculate that the number of hours an average U.S. blue‐​collar worker would have to work to afford a basket of 35 consumer goods fell by 72.3 percent between 1979 and 2019 (Tupy and Pooley, p. 171). For example, in 1979, a coffeemaker cost $14.79 while the average blue‐​collar worker earned $8.34 per hour, meaning he would have to work 1.77 hours to buy the coffeemaker. By 2019, a comparable coffeemaker sold for $19.99 while the average blue‐​collar worker earned $32.36 an hour, translating to a time price of 0.62 an hour—a 65 percent decline. Using the same methodology, the authors found similar improvements for other household goods: the time price of a dishwasher had fallen by 61.5 percent; for a washing machine, by 64.6 percent; for a dryer, 61.8 percent; for a child’s crib, 90 percent; for a women’s blazer, 69 percent; and for women’s pants, 44.6 percent (Tupy and Pooley, pp. 454–56).

…..

Populists on the left and right claim to champion the interests of blue‐​collar workers, yet they criticize the increased competition and lower barriers to trade since 1980 that have delivered a greater abundance of goods and services to those same people. A lower time price for popular goods means that American workers today need to work fewer hours to bring home a dishwasher, crib, TV set, or new outfit. That means more of their time and money can be devoted to acquiring other goods or services that further enhance their quality of life.

…..

The story of manufacturing in our more globalized era is not that “Americans don’t make things anymore” but that U.S. manufacturing workers have become so much more specialized and productive. In particular, fewer Americans are employed in manufacturing today compared to the 1970s, but inflation-adjusted U.S. manufacturing output has increased dramatically over that same period, and the United States remains the world’s second-largest manufacturing nation. From 2000 to 2021, real manufacturing value-added in the United States rose by 36 percent to a record $2.56 trillion. The U.S. economy has been able to create more manufacturing value-added with fewer workers because of dramatically rising worker productivity, driven by more sophisticated equipment, more efficient production methods, a more skilled workforce, and a shift to the production of more capital-intensive goods. Today, U.S. manufacturing productivity (value-added per worker) exceeds that of Germany, Japan, and South Korea and dwarfs that of China and Mexico."