For the last fifteen years or so, economic populism has become increasingly popular among both the political left and right. This rise has gone hand in hand with the proliferation of a narrative which says that the economic gains in this country have gone exclusively to elites since the 1970s while the incomes of regular people have stagnated as the cost of living necessities has increased making the current generation poorer than past ones. Previously, I’ve argued that modern societal progress seemingly hasn’t improved people’s psychological well being (Last, 2020). Some suggested that this unequal distribution of economic growth explains why. In this post, I will argue that, for the most part, this narrative is not true. Because COVID has obviously caused economic conditions to temporarily worsen, the data I’ll be looking at in this post will end prior to the pandemic.
Incomes Have Not Stagnated
In the early 2000’s research was published which claimed that the median American’s income hadn’t changed much since the 1970s. This research was heavily flawed, it failed to account for changes in household size, taxes, in-kind transfers from employers, and government transfers, and made no effort to measure income often not reported to the government. Today, we have far better research which accounts for each of these flaws and finds that the median American’s income increased by quite a lot over the last few decades.
Looking at a longer time span, the differences that these methodological adjustments make is made especially clear in this chart taken from Elwell et al. (2019), which shows that adjusting for things like household size and transfer payments makes the difference between thinking the median income has only increased by around 5% since 1959 and seeing that it has actually more than doubled in that time.
Contemporary estimates of how the incomes of people at the bottom of the income distribution have changed since 1970 also display a growth of 44%.
Even this research is misleading though, because we’ve introduced new people into the American population over that time period. This fact can lead to counter-intuitive scenarios. For instance, if immigrants come here and increase their income relative to what it was prior to immigrating, but still have incomes below the median American, then, all else being equal, this will lead to a “decline” in the median American’s income even though no one experienced a decrease in income.
We can account for this flaw by looking at research which follows the same people over time. Such data shows that the median income of Americans in every class increased greatly between 1980 and 2012. Moreover, the greatest proportional gains went to those in the bottom quintile of the income distribution. Their incomes more than doubled over this period.
Other research has found that nearly all households in the bottom 20% of income in 1975 were no longer in the bottom 20% by 1991.
Income mobility was lesser between 1996 an 2005 (a shorter time span), but most households in the bottom 20% still managed to escape that quintile over that just 9 year period.
It’s also worth noting that poverty statistics often give a misleading impression about how common poverty is in America. The problem is this: often times people will report incomes below the poverty rate because they had a sudden, temporary, drop in income (for instance, due to regular, non-long term, unemployment) and as a result their income won’t reflect their life style. If we look at how many people were continually poor between the years 2009 and 2012, we find that only 2.7% of households meet this criteria of chronic poverty (Henderson, 2016).
We should also note that poor people’s lives have been materially improved with time. For instance,, unlike in 1984, by 2005 most poor households had a clothes dryer, a microwave, and air conditioning and by 2013 most had a home computer (Horwitz, 2015; Wagner, 2015). So even if the number of poor people remained the same, which it has not, and their incomes had stayed the same, which they have not, their material conditions would have still improved.
On the whole then, the material standards of living have risen over the last few decades for the median American and for poor Americans as well.
Unemployment is Slightly More Common and Lasts Longer
Turning to unemployment, we can see that, prior to COVID, the unemployment rate was similar to what it was 40 years ago. But over the long run there is clearly a trend towards fewer people working.
This is significantly due to college and retirement. If we look at the labor participation rates of people in prime working age, 25 to 54, we see that there’s been a large increase in the proportion of women working and a slight fall in the proportion of men working from roughly 98% down to roughly 88%. This does represent an increase in unemployment for men, but it also means that nearly all men still manage to find work.
It is also worth mentioning that the average duration of unemployment is now around 20 weeks while it used to be below 15.
Importantly, neither the change in unemployment nor the change in unemployment duration of the last twenty years can be blamed on a lack of job openings. As can be seen, prior to COVID there were actually more job openings than unemployed people and this was the best ratio of openings to unemployment seen since the statistic began to be recorded around 2000.
It thus seems that, to a significant degree, the slight increase in unemployment that we’ve observed is due to some combination of people not wanting the jobs that are available or not having the skills needed to perform said jobs. Given this, the data doesn’t allow us to tell to what degree unemployment among working age men has moderately increased due to a change in employment preferences as opposed to employment opportunity. Regardless, this moderate change falls well short of the picture often painted by populists.
People Spend Less on Necessities
Some people will say that even though certain luxury technologies have become cheaper, thus raising our total “material standard of living”, living essentials have greatly increased in price leaving normal people with nearly impossible bills to pay. Before looking at some of these living essentials in detail, I want to note that the proportion of income spent on housing, clothing, food, and utilities, has been declining for decades.
Of course, the two major items not included in this list are college and health insurance. But notice that these things were not thought of as necessities until very recently, and so it wouldn’t make since to put them on a chart going back to a time when almost no one had either of these things. I will look at education and health insurance individually, but in both cases it is important to remember that we aren’t just talking about a change in our material condition, we’re also talking about a change in our standards for what is considered necessary. But before turning to these items let’s look at housing since it is the other major cost that people commonly talk about increasing with time.
Homes Cost More Because They Are Larger
Adjusting for inflation, living spaces are more expensive than they used to be. For rent, prices increased by more than 60% between 1960 and 2014.
However, our homes are also much larger than they used to be.
If you adjust for dwelling size and look at price per square foot, we find that the median home price was basically the same in 2014 as it was in 1973.
Granted, it has increased slightly in the last five years, time will tell if this is another housing bubble, but even if it isn’t this represents a very small increase over a long period of time which saw many improvements to our housing standards (e.g. regulations concerning building materials like lead, clay, and asbestos) which could easily justify a small increase in price.
It’s also worth noting that despite our homes being larger and safer than in the past, the rate of homeownership has pretty much stayed constant, though it has shifted up in the age distribution. To some degree, this simply reflects the fact that more people go to college and marry late than used to be the case.
On the whole, housing prices leave little to complain about outside the fact that we as a society have shifted our standard for how large homes should be and so now it would be more difficult for an individual to purchase a home at the size that was typical 50 years ago.
Education Costs More But Is Manageable
Turning to education, the cost of college has more than doubled since the 1980s (NCES, 2018). The economic value of going to college, the degree to which each dollar spent on college predicts an increase in your future income, is higher than it used to be too and makes college a better investment than most plausible alternatives. But of course this is largely because so many employers now require a degree for jobs that used to lack such a requirement. So now college both costs more and is more necessary than in the past.
How much college costs varies greatly by college type. For public universities, the typical tuition and associated fees comes out to roughly 11k per year while that figure is roughly 38K for private universities. On top of tuition students must find a way to pay for normal living expenses not directly caused by school while attending classes.
In part, the solution society has set up for students is grant money. For the typical student at a public two year school, the grant money they receive will be greater than is the cost of their tuition so that it will cover all those expenses and a little of the cost of living.
For the typical student of a four year public school, grant money will account for around 65% of their tuition cost. Due to the remaining tuition cost and living expenses, they’ll still spend around 15K per year of their own money to get by.
For private schools, grant money typically covers only around a third of their tuition and these students spend another 27K of their own money on tuition and living expenses.
Students also often cover living expenses by living with their parents. This is true of roughly one in four students in general, and almost half of students from low income backgrounds.
Roughly 43% of students also work while in college (NCES, 2018). The median income of student works is $3,900 among full time students living with their parents and $13,880 among students not living with their parents (Urban Institute, 2019).
These figures suggest that, between grants and work, students can generally make enough to fund their life style and college classes before taking out any debt. It is therefore unclear exactly why the median college graduate takes out roughly $25,000 in debt.
Possibly, this is because many students prefer to not work while in college or to go to very expensive universities.
Regardless, the average starting salary of college graduates is $50,944 (NACE, 2019). The median may be a bit lower but reaches this level fairly quickly and rises far above it in people’s 30s and 40s.
So most people could pay off their college debt in a handful of years if they really wanted to. For the median college graduate, this would simply require living for a few years at the material standards of people who haven’t gone to college. Despite this, Hess (2019) says that “The Department of Education reports that the typical repayment period for borrowers with between $20,000 and $40,000 in federal student loans is 20 years, and a 2013 study of 61,000 respondents conducted by One Wisconsin Institute found that the average length of repayment for student debt borrowers is 21.1 years.” This obviously reflects a financial preference among college graduates and is not because the debt is so high that it necessitates decades to pay off.
In sum, despite rising prices there’s nothing in this data that makes education seem wildly or unmanageably expensive. There are irresponsible decisions someone could make about what schools to go to, whether to work while in school, and what kind of life style to have during and after school, that could land someone in a large amount of debt but this is by no means a necessity nor is the possibility of irresponsible decisions landing you in a bunch of debt particular to school. School is expensive, but it also has a large pay off for most people and the costs are typically very manageable.
Next let’s turn to healthcare. As is well known, spending per person on healthcare has increased dramatically over the last half century or so.
Of course, people also live longer than they did half a century ago, despite the increased prevalence of obesity, and that is in large part because health care has improved and more people have gotten access to it. So it’s not as if we are paying more now for the same set of services we got in 1970.
In fact, Dunn et al. (2020) found that health care costs actually declined between 2000 and 2017 if you adjust the cost of health care by its quality. In other words, its become cheaper in terms of the actual expected medial benefits but the range of quality you can pay for has improved so that the raw cost is still higher.
In large part, our response to the rising cost of healthcare has been to give everyone insurance. By the 1990’s we’d accomplished this for old people.
Among the total population, the rate of being uninsured fell by more than half between 1963 and 2014, leaving around 10% of people uninsured.
And this 10% is disproportionately made up of young adults.
So we need to look at how much people are paying for healthcare both directly and through insurance. Among non-elderly people who have health insurance through their employer, the median cost is pretty low and even the 90th percentile isn’t as high as you might think.
The cost for old people on Medicare is higher, but still not incredibly high even at the 90th percentile: “In 2017, the average beneficiary in traditional Medicare spent $5,801 on insurance premiums and medical services. One in ten people with Medicare spent at least $10,268.” – Miller (2020)
So, in the US, you can expect to pay a something like 3 – 6 grand a year on health care during your working years and a bit more when you’re old. Probably, you won’t need to spend much money at all when you are young. And if you’re poor the government will almost entirely cover your health care costs through Medicaid. But you should probably save some money for years down the line when you’ll have to spend more than average. All this is a significant expense, but, as with the other expenses I’ve looked at, it also seems obviously manageable for the vast majority of people.
Speculations and Conclusions
When it comes to income, education, housing, and healthcare, our system works reasonably well for the vast majority of people. So why has populist rhetoric to the contrary become so popular? Here are some speculative explanations:
First, in each case there are exceptions to “the system” generally working well. Some people are greatly hurt by these systems, sometimes through no fault of their own, and they are talked about an awful lot. By contrast, no one talks about how these things worked out fine for them. There are probably a few reasons for this. First, things being fine isn’t an interesting story. Second, if you’ve heard lots of people talk about how these systems have screwed them over then you might feel like it would be rude to talk about them treating you well as opposed to condemning them. Third, outing yourself as a non-victim might be socially unprofitable because victimhood is seen as a virtue in our society. And forth, everyone can convince themselves that these systems haven’t been good enough to them because no matter how good of a life you’ve had there will always be ways it could have gone better. So the stories people hear, both on the news and in person, tend to support populist rhetoric.
A second contributing factor is the fact that social scientists and politicians frequently tell people that the data shows the economy has screwed over all the regular people. For politicians, saying this is profitable because then you can say you will fight back against the elites for the people and thus try to capture votes. Social scientists are mostly left wingers who fail tests of basic statistical literacy, so their involvement in this is entirely unsurprising (Last, 2020).
These are the sorts of forces I’d guess are at play which explain how it is that economic populism has become so popular in a society where regular people’s economic position has been improving for decades and the economic system continues to work reasonably well for most people. Of course, we might still be concerned about the rare exceptions to the system working well, or we might argue that there are signs that the system will cease working well for most people in the future. But neither of these concerns could fuel an economically populist movement the way saying that most people are getting screwed over right now does.
To conclude, I’d like to reiterate that I’m not saying the modern system of politics and economics doesn’t have serious problems. I’m just saying that not producing enough material stuff for a sufficient number of people is not one of those problems.