TGIF: The Income Stagnation Myth

Many people, including some free-market advocates, think Americans are materially worse off today than they were in the 1970s. Some subscribers to that view blame globalization, that is, free trade in goods, which means in labor services.

By any reasonable measure, those people are wrong. Stagnation is a myth. Living standards have never been higher. That goes for an increasing portion of the rest of the world too. After thousands of years, extreme poverty has plummeted to under 10 percent in just a few decades.

This is all well documented. Trade specialist Daniel Griswold writes,

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. Increased globalization is one of the main reasons why Americans today have higher living standards than they did in the over-idealized past.

Griswold, whose work at the Cato Institute and George Mason University's Mercatus Center has focused on this demonstrable human progress, lays out the case in his 2023 paper "The Misplaced Nostalgia for a Less Globalized Past." (Chelsea Follett interviewed him recently at HumanProgress.org, a Cato project.)

America and the world differ dramatically from the world of a half-century ago. That in itself is not saying much. Since the Industrial Revolution, which was more gradual than we think, change has been the rule. It takes a state to stifle change, and its efforts usually fail, although it can wreak havoc in the attempt. To favor liberty is to favor change, and even though change disrupts patterns and requires adjustments, most people benefit, especially the next generations. Griswold writes:

Along with technological and scientific advancements, the U.S. economy has become far more deeply integrated with the rest of the world. This integration has been driven both by new technologies that have facilitated the movement of goods, services, and people around the world—such as containerization and the internet—and by major trading nations’ concerted efforts to reduce tariffs and other legal restrictions on those same movements.

Unfortunately, trade restrictions are often popular because many people blame the global division of labor for so many ills. Innovation and changing consumer tastes, however, have been more powerful reasons for change. If people are serious about controlling change, they'd have to call on the government to do much more than impose tariffs. Who wants politicians and bureaucrats to regulate science, technology, and consumer choice? Anyone?

Contrary to popular belief, globalization did not "hollow out" the U.S. economy. U.S. manufacturing output has continued to grow. It's not true that "America makes nothing anymore." But as Griswold writes, technology enables producers to create more and better goods with fewer people. Robots now perform the drudgery that human beings used to endure. That trend began in the 1950s, not the 1970s. New jobs have replaced the old jobs because consumer wants are unlimited and businesses profit by satisfying them. That governments have often led the way in opening global markets is not an argument against globalization. It's an argument against government intervention. Politics should steer clear of economics.

What about the alleged wage stagnation? Griswold writes:

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.

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.

But hasn't the middle class been shrinking? Actually, it has—but not to worry:

[T]he share of U.S. households earning a middle-class annual income of $35,000 to $100,000 (in 2021 dollars) did indeed shrink since 1979, from 49.1 percent to 39 percent, but so did the share of households earning below $35,000 (from 30.3 percent to 25.2 percent). By contrast, the share of households annually earning more than $100,000 increased from 20.6 percent to 35.8 percent. Thus, the American middle class has shrunk in recent decades—but only due to households getting richer. 

Griswold gives us another way to look at this story.

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. [Emphasis added.]

That's a huge increase in real wages.

It doesn't sound like stagnation, does it? And we haven't even talked about the quality improvements of products. Americans who aren't typically thought of as wealthy are richer than the middle and upper classes were in the 1970s. "American workers are better off than in decades past," Griswold writes, "not only because familiar goods have become more affordable but also because new types of products have come on the market and spread rapidly." In the 1970s the chairman of General Motors did not have a powerful computer-cum-phone in his pocket. Griswold:

Those who are nostalgic about life in the 1970s would likely have lived without microwaves, personal computers, and the internet. Those looking back to the 1950s forget or ignore the fact that most homes not only lacked air conditioning and color TV but also lacked dishwashers and clothes washers and dryers.

More could be said, but that ought to be enough to dispel the myth of stagnation. (For more, see Griswold's data-rich paper.) The myth may be oddly appealing to certain free-market advocates because it seems to allow them to say to America's rulers, "Statism harms the middle class and poor while benefitting the rich!" But whether or not stagnation has occurred is an empirical, not an ideological matter. If market advocates ignore the facts, they sacrifice their credibility.

The fact is that despite government interference and favoritism (such as central banking, regulation, taxes, subsidies, tariffs, etc.), profit-driven, consumer-serving market forces will increase, within limits, general well-being. Sure, we would have been richer without the intervention, but markets, like Timex watches, can "take a licking and keep on ticking." Acknowledging that we'd have been even better off is not equivalent to saying that incomes have stagnated for the last half-century. That's nonsense. So is the claim that wages have not kept pace with productivity growth or that labor's "share of national output" has shrunk. (See Gene Epstein's lecture at the Mises Institute on these points.)

It's self-defeating to deny what's right before our eyes.

TGIF: Hurrah for Real Globalization!

Globalization, like the free market and classical liberalism generally, isn't wildly popular these days, is it? People blame globalization for all sorts of bad things, and the raps are usually bum. In truth, to the extent that governments keep out so-called foreign people, goods, and money, they make nearly everyone poorer. Even the few immediate beneficiaries pay a price in the long run.

So who speaks up for real globalization? I have to add the adjective real because counterfeit globalization has been circulating for a while. That's politically managed commerce where governments, most prominently the U.S. government, manage cross-border private trade and migration. When that happens, we -- especially the poorest people in the world -- not only miss out on the full wealth-creating benefits of worldwide freedom, but we also suffer all kinds of consequences that follow from bumbling politicians and bureaucrats making decisions for the rest. Let's have no more of that, if you please.

One of the top voices favoring real globalization is Deirdre N. McCloskey, the Cato Institute Distinguished Scholar and specialist in classical liberal history. McCloskey has been writing big and important books on how it was the growing acceptance of bourgeois virtues and culture over hundreds of years that lifted the world materially. McCloskey calls it the "Great Enrichment." Most people don't appreciate how rich we are in the West and how rich the world's absolute poorest could be in fairly short order. Freeing individuals and the market is the key

A new essay by McCloskey, "Globalization Creates a Global Neighborhood, Benefiting All," is featured in a 12-part Cato series called "Globalization: Then and Now." It's an apt title for what McCloskey sets out to do.

It begins:

The word “globalization” delights some and terrifies others. But it’s merely the gradual emergence [in] our world of a single economy.

It’s a natural and beneficial result of humans doing what humans have done since the beginning, making their families better off by working hard, inventing new stuff, keeping alert, looking around, making little deals, etc. The result of all this human liberty of choice has been globalization. At various scales of time, it’s been happening from the caves to the modern world, or from 1350 to 1800, or from 1776 to 2024.

That's right. The international movement of people and wealth is not new, although it was never embraced wholeheartedly and uninterruptedly. Governments and other barriers, such as self-defeating cultural biases against foreigners and markets, got and still get in the way. But when those barriers are lowered or, better, are removed and governments loosen their grips, a single unified market emerges, with its tendencies toward one price through arbitrage (buy low, sell high), increased specialization and division of labor, higher productivity, more and cheaper known goods, and more innovation -- that is, new things. Hence, people are enriched across the board, no matter where they began.

Prosperity has even spread to communist China and India, thanks to economic liberalization. (Political liberalization, on the other hand, was not embraced by China's rulers, and the future of economic liberalization is by no means certain.) The same wealth-enhancing process would spread to other poor areas if rulers and bad values were repudiated by the people longing for better lives. It's already happening, and McCloskey has the data. (The West can help by not insisting that the poor countries pretend that fossil fuels are destroying the planet -- they aren't. The poorest people need them badly, as do we all.)

"It’s all about liberty," McCloskey writes.

In light of all this, why is "Buy American" so popular? It's because people never learned to think economically or overcome self-defeating biases. That goes for politicians too. Spending more than necessary to buy so-called American-made goods (Really? No foreign parts whatsoever?) leaves buyers less money with which to buy other things (also hurting the makers of those things) and leaving foreign producers less money with which to buy American goods that can compete without government help. Don't worry about the "balance of trade," which Adam Smith knew was "absurd" in 1776. (Have you checked your trade deficit with your Amazon lately? Probably not.)

And if the nation should "protect" itself from other nations' exports, shouldn't each U.S. state protect itself from the other states' exports? How about each city and town? Or each neighborhood? Heck, let's go all the way down to household self-sufficiency. That would create maximum employment. It would also create maximum poverty. Specialization and the division of labor saves and enhances lives, and as Adam Smith noted, "The division of labor is limited by the extent of the market."

This is not to say that no one loses in the short run from the market's dynamism. But should the automobile and personal-computer industries, which have benefited everyone a million ways beyond description, have been throttled to protect (in the short run) the relative few in the buggy and typewriter industries? Such thinking would have sentenced us to cave-dwelling. It's absurd to think change can be stopped anyway. People won't permit it. What we should do is safeguard all freedom so the few immediate losers can adjust speedily, smoothly, and comfortably. The richer the society, the easier that is.

As McCloskey points out, U.S. manufacturing employment, which has fallen since 1945, is not the same thing as manufacturing output, which has diminished less than employment as world production has grown. American workers have gotten more productive, so fewer are needed to make a given array of products than previously. But that frees up those workers to make things or, importantly, to provide services we couldn't afford yesterday. Human wants are infinite. It's labor that is finite. We'll always need stuff, and we're waiting to see what new things innovators will offer us to make life better.

For all these reasons, McCloskey tells Americans, "Quit being fearful about globalization.... Globalization is part of liberty."

TGIF: Fins Left, Right, and Center

Th[e] central question is not clarified, it is obscured, by our common political categories of left, right, and center.

--Carl Oglesby, Containment and Change

You got fins to the left, fins to the right
And you're the only bait in town.

--Jimmy Buffett, "Fins"

Champions of individual liberty and its prerequisites can't help but be disheartened by today's political landscape. For decades the Respectable Center has delivered perpetual war, domestic surveillance and secret police, a national vice squad on steroids, uncontrolled spending, soon-to-be-insolvent "entitlement" programs, sky's-the-limit borrowing, Fed monetization, alternating inflation and recession, at-best-sluggish economic growth, impediments to economic mobility, and other bad things.

That's what the "adults in the room" have given us, and that's what they will keep on giving us. The remarkable improvement in living standards that has reached virtually all levels of American society has occurred demonstrably in spite of, not because of, the government.

No wonder many people are looking for an alternative. So what about the most prominent alternatives? Those would be the nihilist identitarian left and the angry populist, or class-oriented, right and left. The outlook is no less good there.

We can dispatch the identitarians quickly. This is the group whose members think that what matters most about people is their membership in tribes defined by unchosen incidental characteristics. Actual liberals -- those who favor individualism and individual freedom  -- can muster no enthusiasm for a program that holds the pseudoscientific category of race, the reality-based categories of sex and sexual orientation, or the abused and worse-than-worthless category of gender as central both to personal identity and social status.

So let's turn to right and left populism. Class leftism may seem promising, but when class analysis comes from ignorant prejudice against commerce and contract, it's fraught with danger. Class populists (left and right) have never learned that the bogey "corporate power" requires the state's power and can't exist without it. I call it "the most dangerous derivative." (See my "Wall Street Couldn't Have Done It Alone." For an alternative, pro-market class analysis, see Social Class and State Power: Exploring an Alternative Radical Tradition.")

If populism simply meant the rejection of rule by elites, what sensible person could object to it? Over the last few years we've seen what elites with political power can do when they control public health.

Unfortunately, we cannot judge political movements only by what they oppose. What do they favor? Aye, there's the rub. The populists on both sides will say they favor freedom and democracy, but those two standards clash with each other. If the majority rules, what happens to the minority's rights and freedom? The populist might concede that some matters ought to be beyond the reach of the majority -- political expression, for example -- but what and how many matters? The committed democrat will want to keep those matters to the barest minimum -- in the name of freedom. It's a scam.

So again, what about the freedom of the minority, the smallest of which is the individual? Populists evade the question by resorting to what the classical liberal Benjamin Constant called the "liberty of the ancients." In his 1819 essay, "The Liberty of the Ancients Compared with that of the Liberty of the Moderns," Constant pointed out that our notion of liberty has changed since antiquity. For the ancients, liberty consisted exclusively of the freedom to participate directly in the political process. As Constant went on:

But if this was what the ancients called liberty, they admitted as compatible with this collective freedom the complete subjection of the individual to the authority of the community. You find among them almost none of the enjoyments which ... form part of the liberty of the moderns. All private actions were submitted to a severe surveillance. No importance was given to individual independence, neither in relation to opinions, nor to labor, nor, above all, to religion. The right to choose one's own religious affiliation, a right which we regard as one of the most precious, would have seemed to the ancients a crime and a sacrilege. In the domains which seem to us the most useful, the authority of the social body interposed itself and obstructed the will of individuals. Among the Spartans, Therpandrus could not add a string to his lyre without causing offense to the ephors. In the most domestic of relations the public authority again intervened. The young Lacedaemonian could not visit his new bride freely. In Rome, the censors cast a searching eye over family life. The laws regulated customs, and as customs touch on everything, there was hardly anything that the laws did not regulate.

The world of 1800s modernity, Constant continued, had a different notion: liberty consisted not only of the freedom to participate in governance but also of the right to live a private life, including the right to use one's property unmolested. As he put it:

First ask yourselves, Gentlemen, what an Englishman, a French-man, and a citizen of the United States of America understand today by the word "liberty". For each of them it is the right to be subjected only to the laws, and to be neither arrested, detained, put to death or maltreated in any way by the arbitrary will of one or more individuals. It is the right of everyone to express their opinion, choose a profession and practice it, to dispose of property, and even to abuse it; to come and go without permission, and without having to account for their motives or undertakings. It is everyone's right to associate with other individuals, either to discuss their interests, or to profess the religion which they and their associates prefer, or even simply to occupy their days or hours in a way which is most compatible with their inclinations or whims. 

Clearly, the populists subscribe to the ancient notion of liberty, and they may not take umbrage at that statement. Whether left or right, they prefer the coercive communitarian politics of antiquity to the individualism and voluntaryism of Enlightenment liberal modernism.

So no wonder they support restrictions on imports and exports, which interfere with our freedom to trade with whoever is willing to trade with us; immigrant restrictions, which interfere with non-Americans' freedom to improve their situation and Americans' freedom to associate with them in all kinds of fruitful ways; and antitrust prosecutions of private tech companies, which interfere with freedom of enterprise and private property.

In each case the populists reject the proven bountiful spontaneous order of markets in favor of collectivist answers both to real and imagined problems. That is, instead of opposing government policies that create and exacerbate problems that are mistakenly attributed to free trade, the free movement of people across arbitrary national borders, and Big Tech as such, they propose that "we" directly address those problems at the ballot box and in the halls of Congress and the offices of unaccountable regulatory agencies. It's social engineering plain and simple.

However, contrary to populist fantasies, there is no "we" that actually rules. For one thing, who is to be included in -- and excluded from -- the "we"? That's a political, not a metaphysical, decision. At best, it's an exercise in question-begging.

Moreover, the voters' diverse views and feelings are always filtered through politicians and bureaucrats, whose frame of reference is partly defined by well-connected special interests. Those are the people who will say what if any products we may buy from and sell to non-Americans; which non-Americans we may and may not socialize with, hire, sell to, and rent to; and what disfavored private companies may do with their own assets.

In other words, populism in the end resembles elitism -- except, as Bryan Caplan argues, at least elites tend to be more economically literate than the masses and so might be "the lesser poison." In public opinion polling, the more-educated respondents are more likely to be favorable to trade with foreigners and immigration. Caplan credits elites with watering down the masses' most extreme demands for protectionism and closed borders, if not quashing them entirely. As he once tweeted, "Elites' problem isn't being 'out of touch' with masses. Elites' problem is denying how irrational masses really are." For any card-carrying populist, this is heresy. (See Caplan's book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies. I review it here.)

To their credit, the populists of left and right support free political speech (although they erroneously apply the same standard to the government and to private firms) and oppose foreign military intervention. But this group -- which comprises such otherwise diverse people as Batya Ungar-Sargon of Newsweek, Glenn Greenwald of System Update, Brendan O'Neill of Spiked, and Tucker Carlson of Fox News -- would have the government spend the savings due to a noninterventionist foreign policy domestically rather than leaving it in the pockets of the taxpayers, who after all are the ones who earned it through the production of wealth for consumers.

Contrary to the populists, the alternative to democracy is not some flavor of authoritarian elitism. It's what's F. A. Hayek called the market order, which is rooted in individual freedom -- in a word, libertarianism.

We Need Markets Now More than Ever

Jeff Tucker's "In a Disease Panic, the Free Market Is Your Friend" ought to be atop everyone's reading list. As libertarians well know, people who are under the delusion that government is a creative element in society, rather than a predator, will never let a good crisis go to waste. (Barack Obama's first chief of staff, Rahm Emanuel, put it just that way.) The historian and economist Robert Higgs has documented the history of exploitation of crises to expand power and consume liberty in America in his classic, Crisis and Leviathan. We can see this process on vivid display with the outbreak of the coronavirus, or COVID-19.

What propels the expansion-through-crisis process is the belief that only government can respond effectively to the crisis. Most people, busy with their lives, don't know enough about economics and politics to see the flaw in the statist's case. By and large, and through no real fault of their own, they operate at a primitive level intellectually. Plus they take for granted what they've enjoyed all their lives: the increasingly accessible abundance of necessities and luxuries, which even a couple of generations ago would have made people green with envy. That is all the result of the fact that, despite all the obstacles, government has not managed to abolish markets, the price system, and entrepreneurship.

Enter Jeff Tucker's article:

The truth is that the market loves you right now, more in the midst of a disease panic than ever before. It would love you even more if companies were not being browbeat by government into curbing sales of essential items. Let the prices of sanitizer and masks rise and you draw more into production and distribution. Throttle the market and you reduce supply. 

The market would have loved you more had the Centers for Disease Control not failed to authorize private companies to test for the virus. It was only after the aggressive protests of the governor of New York that the CDC gave in and let people do what they wanted to do....

In a disease panic, we are learning, people lose their minds and stop thinking clearly about things that matter. They also reach out to authority to save them. All of this is expected. And it’s very sad. Even sadder is how the unscrupulous power mongers among us use such times to enhance the power of the state over our lives and claim it is for our own good. 

Libertarians need to speak up -- now more than ever.

Latest Op-Ed: Labor Outsourcing Is Not the Problem

Read it here.

Yo-Yo Ma on Globalization

"[N]othing great was ever produced in isolation. Even something as basic as our Western major and minor keys may have originally come from the amazingly complex modes of classical Persian music."

The great cellist went to point out that the cultures of East and West have been cross-fertilizing from Alexander the Great's time, if not earlier.