Elizabeth Warren is making the mistake of assuming that the price of goods and services is driven by production costs, rather than the cost being imputed by the demand for the goods (this is, by far, the most common error I see economic writers making). She also assumes that the quality of goods, such as healthcare, have remained the same, when even a casual look will reveal that quality has improved substantially. And finally, she assumes, as does the second link, that real per capita wages have declined, but the last is understandable because if one normalizes wages by reported CPI measures, then real wages will have declined. If we make adjustments in the CPI to account for its upward bias then real wages have gone up nearly every year.
Scholars, policymakers, and critics of all stripes have debated the social implications of these changes, but few have looked at their economic impact….Why are so many moms in the workforce? Surely, some are lured by a great job, but millions more need a paycheck, plain and simple.
She hasn’t searched jstor if she believes this is uncharted territory; one of the very first topics discussed in my first macro class was the impact of working women on the economy. The data presented in that class showed a linear increase in the percentage of women working from just after WWII well into the late 1970’s (at which point the percentage stabilized) and for much of that period the cost of goods and services remained relatively stable. It was abundantly clear that women were not being driven into the workforce by costs, but rather choosing to work – implying that if a causal relationship exists it is the more economically sound one of costs being driven by the choices of individuals combined with supply constraints of one type or another.
So where did their money go? It went to the basics. The real increases in family spending are for the items that make a family middle class and keep them safe (housing, health insurance), that educate their children (pre-school and college), and that let them earn a living (transportation, childcare, and taxes).
She is being highly selective in her definition of what constitutes the “basics,” but it really doesn’t matter, those basic costs are in areas of slow productivity growth and hence those costs are being driven by wealth gains. She needs to read "William J. Baumol ... 'Macroeconomics of Unbalanced Growth: The anatomy of urban crisis', 1967, AER.", or just google "Baumol's Cost Disease."
Message 21966901
Message 21969072
One last note, Elizibeth Warren seems to define wealth as that nominal amount of money left over after consuming a "basic" household basket of essential goods. That is a very poor definition. Wealth is the degree to which wants and needs are satisfied, and that is dependent upon how well pure resources are turned into goods and services, which itself is dependent upon the depth and breadth of capital goods, which in turn is dependent upon our level of knowledge. And thus, ultimately Warren's thesis rests on the assumption that knowledge gains have been zero in the last several generations. Warren's thesis contradicts itself, but I doubt any of her readers have the capacity or the desire to discover this for themselves. |
