After rising rapidly in the 30 years following World War II, living standards for most people in the United States stagnated. The typical family has seen very modest gains in income since 1980. The data show that part of this slowdown stems from a slower rate of productivity growth and part of it stems from an upward redistribution of income.
The upward redistribution of income can be directly traced to a number of policies that were designed to have this effect. For example, we have a trade policy that subjects U.S. manufacturing workers to competition with low-paid workers in the developing world, while largely protecting doctors and lawyers and other highly paid professions.
We have had a Federal Reserve Board policy that explicitly puts downward pressure on the wages of these same workers in order to ensure that inflation stays low. The government has also repeatedly propped up the financial industry, allowing the top executives at major banks to earn vast fortunes. And, it has directed vast amounts of income to drug companies and the entertainment industry through patent and copyright monopolies.
All of these facts are evident to anyone who cares to look. But David Brooks tells us that the reason that we have seen fewer gains in living standards for the bulk of the population is that the rich want to work less than they used to. There is not one iota of data given to support this position, which seems to fly in the face of the evidence that average hours worked for most of the workforce fell rapidly in the first half of the 20th century. It largely stagnated for full-time male workers in the last three decades. (It rose for women.)
In other words, Brooks has absolutely zero evidence for this little story of the stagnation of living standards. But, hey why would anyone expect an evidenced-based column in the New York Times?
Btw, I forgot to beat up on Brooks for another major mistake in his article. He makes a point of telling us that:
"Facebook employs about 2,000, Twitter 300 and eBay about 17,000. It takes only 14,000 employees to make and sell iPods, but that device also eliminates jobs for those people who make and distribute CDs, potentially leading to net job losses.
In other words, as Cowen makes clear, many of this era’s technological breakthroughs produce enormous happiness gains, but surprisingly little additional economic activity."
No, this is 180 degrees wrong. In fact, if new devices, software, or ways of doing business are creating great gains in living standards, as Brooks claims, but require very few workers, then this suggests that they are leading to an enormous amount of economic activity. It is possible that our measures of GDP are not picking up these gains, but if these new innovations are really as important to people as Brooks' seems to believe then the issue is simply one of measurement, not a lack of economic activity.
As a practical matter, economists always know how to create jobs -- we can just have workers put in fewer hours, as one obvious route -- it is only incompetent and/or corrupt politicians who stand in the way of a full employment economy.
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