The Question

Has ‘more economic freedom’ helped Americans since the mid-1970s? Or,asked only somewhat differently…

… was this man a menace to the middle-class?

• inflation-adjusted, before-tax, money income for the median American household has stagnated since the mid-70s. (Today only about 18% higher.)

• Inflation-adjusted hourly money wages for the median, non-supervisory worker has hardly budged.

Real Household Income

In 2012 dollars,average hourly earnings fornon-supervisory workers in1975 were $4.73. In 2012dollars that’s $19.70.

Today, they’re $20.42 – higherby a mere 3.6 percent

Great Stagnation?

“Median [family] income is the single best measure of how much we are producing new ideas that benefit most of the American population.  Yet the picture is depressing.”  - Tyler Cowen, The Great Stagnation (2011) p. 14

Almost all the benefits of economic growth since [the 1970s] have gone to a small number of people at the very top.

—Robert Reich, Financial Times, Jan. 29, 2008

So is this narrative correct?

Are the policies advocated by Milton Friedman really a menace to the middle-class?

We could talk about howonly a few of Friedman’spolicy suggestions havebeen put in place….

… or we could talk about how measures of inflation inadequately account for changes in product quality….

… or we could talk about how, since the mid-1970s, the per-person size of the median household has fallen by 11 percent…

… or about how much more compensation today is paid in the form of non-wage – or, “fringe” – benefits…

… or about how what happens to a statistical measure, such as an ‘average’ or a ‘median,’ does not necessarily tell us what happens to the individuals whose actions make up the data.

Average Household Size: Down 24% in 50 Years

1960 3.4 persons1970 3.21976 2.861980 2.81990 2.72000 2.72006 2.562010 2.57

Per-Household-Person Income

In 1976 the average household was2.86 persons, then it fell 10.5 percentby 2006 (to 2.56 persons).

Per-household-person income,therefore, rose not by18% but by 32%.

Different Respected Ways to Calculate Inflation

But let’s not.

Let’s look atliving standard fromanother angle…

Purchasing power.

7.7 hours

2012

40 minutes

6.3hours

2 hours

1.5 hours

1 hour

75 minutes

50 minutes

7 hours

4.4 hours

(So, 11.4hours total)

5.5 hoursAnd it’s gotwheels!

9 hours

4.9 hours

15.8 hours

5.4 hours

13 minutes

3.8 minutes

12.6hours

30minutes

57hrs.

52hrs.

73.4hours

1 hour, 52 minutes

44 hours

11 hours

8.6 hours

4.0 hours

40.2hours

13.1hours

93hours

4 hours

48.6 hours

12.2 hours

2.9 hours

1.5 minutes

26.4 hours

3.9 hours

12.7 hours

3.9 hours

158.6 hours

17.1 hours

One final set of data….

1975

2009

<$15K $15K-25K $25K-35K $35K-50K $50K-75K $75K-100K >$100K

15.8%

13.0% 11.9 11.1 14.1 18.1 11.5 20.1

13.0 12.3 17.3 22.3 11.0 8.4

-2.8 -1.1 -1.2 -3.2 -4.2 +0.5 +11.7

Percent of U.S. Households Earning Incomes inThese Ranges, Constant (2009) dollars