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We Ordinary Americans Are Fabulously Rich And Getting Richer. We Take It For Granted (And Sometimes Complain).

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Because its denial is incessantly repeated, the following truth must be incessantly restated: we ordinary Americans are fabulously rich and getting richer. The irony is that we are so very materially prosperous – with a prosperity that is shared by nearly all Americans – that we take our happy condition for granted.

Most of us don’t see this prosperity, at least not for what it is. Our material prosperity, although historically unprecedented, is now so commonplace that, for us Americans in 2020, this prosperity appears to be the natural state of the world. It appears simply to exist – to happen like rainfall happens in the tropics. But of course, widespread material prosperity doesn’t just happen. It didn’t happen for 99.9 percent – literally 99.9 percent – of human existence. The prosperity that we all today enjoy must be not only created but, also, continually recreated.

Entrepreneurs must be inspired to innovate. Investors must be motivated to take risks. Countless individuals must have incentives to save, to work hard, to daily cooperate productively with people whom they do not know, and to avoid using scarce resources wastefully. Yet it is only in the past two or three centuries that most of us have been led most of the time to mostly act in these ways that generate the tremendous shared material bounty that most of us take for granted.

Be More Amazed…

The ‘Wow!’ factor of a tiny fraction of this bounty becomes obvious immediately when pointed out. In 2020 it’s not difficult to inspire someone to marvel at relatively recent innovations such as smart-speakers, GPS, streaming music, and hip-replacement surgery. But these new marvels are hardly the whole story.

The real measure of our prosperity is in what, for us, is mundane: running drinkable water over a wide range of temperatures, hard roofs and floors, refrigeration, artificial lighting, inexpensive garments and bedding made with machine-woven cloth that withstands being cleaned with powerful inexpensive detergents in powerful affordable machines, widespread literacy, mastery at using the electromagnetic spectrum, liability insurance for drivers and for homeowners, well-stocked supermarkets, fresh blueberries in New York in January, ice cream in New Orleans in July, air travel, automobiles, air-conditioning, aspirin, antibiotics…. You, Mr. or Ms. Reader, will have no trouble extending this list for pages.

Each and every one of these seemingly humdrum features of our everyday lives will inspire you to exclaim “Wow!” if you ponder the almost incredible amount of human effort and undesigned coordination that takes place regularly to make these almost-miraculous goods and services so routine that they seem humdrum.

Accustomed to constant access to an abundance of such marvels, we fail to recognize them for the marvels that they are. Instead, we focus only on the failure of this marvelous reality of ours to be even more marvelous. With our glass 99 percent full – and with this fullness seemingly produced and guaranteed by some mysterious laws of nature – many of us are apoplectic both that the “distribution” of this bounty isn’t as ideal as we can imagine, and that our glass has yet to be filled even further.

Such complaints would be more tolerable if those who issue them were to reveal some appreciation for just how minor are today’s economic problems relative to the enormous good that economic growth has already brought about and continues to bring about. But no such appreciation is apparent.

Just once, I want to hear someone who worries about climate change acknowledge that we today are fortunate to be able to worry about climate change. Just once, I’d love to encounter a politician or professor who wags his finger angrily at the “uneven distribution” of income or wealth note that any randomly chosen ordinary person in the United States today is likely to be materially far richer – in very many ways – than was the richest American of a mere century ago.

And just once, I long to be surprised by a “social-justice warrior” conceding that at least some of today’s alleged problems might actually be mirages conjured by the market economy’s successes.

… But Don’t Be Shocked

Consider, for example, the much-noted reduction over recent decades in Americans’ geographic mobility. This reduced mobility is said to be a major reason why increased trade with China inflicted on Americans what is now known as the “China shock” – namely, a slower than expected adjustment of American workers to increased imports of goods from China. (There is, by the way, some confusion about exactly what the “China shock” finding is. Some people interpret this finding in the manner in which I describe it in the previous sentence. Yet other people interpret it to be a finding that increased trade with China caused a permanent reduction in net American employment. The “China shock” researchers themselves are unclear on this matter. For purposes of my essay here, however, nothing much turns on which interpretation is correct.)

While Americans’ reduced geographic mobility might reflect real problems – such as housing costs in booming cities made artificially high by land-use restrictions – it might also, at least in part, reflect increased prosperity.

Most people prefer to live in some locations over other locations, but to satisfy such ‘locational preferences’ is costly. And so just as when we become richer we are more likely to satisfy our preferences for nicer automobiles and larger homes, as we become richer we also are more likely to satisfy our preferences for living in our favorite locations.

A blue-collar resident 50 years ago of Allentown, PA, might have had a strong attachment to that locale but, having lost his job, couldn’t afford to keep living there. His best economic option was to move. But suppose that today we see a blue-collar worker remain in Allentown despite being unemployed. What should we conclude? The conclusion leapt to by many pundits is that today’s unemployed worker is so much less likely than was the typical worker in the past of finding a new job elsewhere that today’s unemployed worker sees no point in moving. Out of despair, today’s unemployed worker simply stays put.

Perhaps. But given that there’s been no long-term uptick in the national rate of unemployment, this pessimistic conclusion is likely mistaken. A more plausible conclusion is that unemployed Americans today can better afford to stay put in their preferred locales and wait for new jobs to come to them rather than them move to different locales in search of new jobs.

This increased affordability of staying put might come in the form of greater purchasing power of workers’ savings, or in the form of more generous family, private, and public assistance for unemployed workers. Regardless of the source of this increased affordability of locational preferences, such increased satisfaction of locational preferences is evidence that ordinary Americans are today richer than were ordinary Americans in the past.

No sensible observer argues that the American economy is free of problems and flaws, or that ordinary Americans face no real economic challenges, some of which are daunting. But the incessant drumbeat of negativity about the U.S. economy and about globalization – and the blinkered focus on problems (real and only apparent) divorced from the larger context of the economy’s successes and of Americans’ stupendous prosperity – gives us a dangerously inaccurate sense of the state of the economy and of ordinary men’s and women’s relationship to it. And this inaccurate sense, in turn, will fuel policies that destroy rather than promote our ability to continue to prosper.

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University.

American Living Standards Have Never Been Better.

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Gallup released a series of polls in the last few weeks that contradict the narrative that the US economy is performing poorly and that Capitalism isn’t working for everyone. This is a narrative that I have been trying to convince people of for much of the last 5 years. I’ve called this period of US economic growth the Era of Irrational Apathy because living standards have continued to increase, but the Financial Crisis and a handful of misconstrued media narratives have created the illusion that Americans are somehow worse off.

Now, in fairness, there’s no doubt that things could be better and that we still confront many problems. I believe that one of the greatest mistakes of the financial crisis was allowing ourselves to get scared into beliefs about high inflation thereby foregoing larger fiscal stimulus at a time when we really needed it coming out of the crisis. So yes, things could definitely be better. But that doesn’t mean the US economy and living standards more broadly, are not better. Here’s what the Gallup poll showed:

6 in 10 Americans say they’re better off financially than they were a year ago. This is an all-time high in the poll and at levels we last saw in 1999 during the tech boom.

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Worries about the economy are also at all-time lows.

Gallup Poll Image

Perceptions of the labor market have never been better.

Gallup Poll Image

And speaking more broadly, 90% of Americans say they are satisfied with their personal lives.

Gallup Poll Image

There are always problems in the world and I think there are good arguments for reducing inequality and passing bigger social programs, but the broader narrative that Capitalism is failing us is blown out of proportion.

The Poorest 20% of Americans Are Richer on Average Than Most European Nations (Despite What The New York Times Says).

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A groundbreaking study by Just Facts has discovered that after accounting for all income, charity, and non-cash welfare benefits like subsidized housing and food stamps, the poorest 20 percent of Americans consume more goods and services than the national averages for all people in most affluent countries. This includes the majority of countries in the prestigious Organization for Economic Cooperation and Development (OECD), including its European members. In other words, if the US “poor” were a nation, it would be one of the world’s richest.

Notably, this study was reviewed by Dr. Henrique Schneider, professor of economics at Nordakademie University in Germany and the chief economist of the Swiss Federation of Small and Medium-Sized Enterprises. After examining the source data and Just Facts’ methodology, he concluded: “This study is sound and conforms with academic standards. I personally think it provides valuable insight into poverty measures and adds considerably to this field of research.”

In a July 1 New York Times video op-ed that decries “fake news” and calls for “a more truthful approach” to “the myth of America as the greatest nation on earth,” Times producers Taige Jensen and Nayeema Raza claim the US has “fallen well behind Europe” in many respects and has “more in common with ‘developing countries’ than we’d like to admit.”

“One good test” of this, they say, is how the US ranks in the OECD, a group of “36 countries, predominantly wealthy, Western, and Democratic.” While examining these rankings, they corrupt the truth in ways that violate the Times’ op-ed standards, which declare that “you can have any opinion you would like,” but “the facts in a piece must be supported and validated,” and “you can’t say that a certain battle began on a certain day if it did not.”

The Times is not merely wrong about this issue but is also reporting the polar opposite of reality.

A prime example is their claim that “America is the richest country” in the OECD, “but we’re also the poorest, with a whopping 18% poverty rate—closer to Mexico than Western Europe.” That assertion prompted Just Facts to conduct a rigorous, original study of this issue with data from the OECD, the World Bank, and the US government’s Bureau of Economic Analysis. It found that the Times is not merely wrong about this issue but is also reporting the polar opposite of reality.

The most glaring evidence against the Times’ rhetoric is a note located just above the OECD’s data for poverty rates. It explains that these rates measure relative poverty within nations, not between nations. As the note states, the figures represent portions of people with less than “half the median household income” in their own nations and thus “two countries with the same poverty rates may differ in terms of the relative income-level of the poor.”

The OECD’s poverty rates say nothing about which nation is “the poorest.” Nonetheless, this is exactly how the Times misrepresented them.

The upshot is laid bare by the fact that this OECD measure assigns a higher poverty rate to the US (17.8 percent) than to Mexico (16.6 percent). Yet World Bank data show that 35 percent of Mexico’s population lives on less than $5.50 per day, compared to only 2 percent of people in the United States.

Hence, the OECD’s poverty rates say nothing about which nation is “the poorest.” Nonetheless, this is exactly how the Times misrepresented them.

The same point applies to broader discussions about poverty, which can be measured in two very different ways: (1) relative poverty or (2) absolute poverty. Relative measures of poverty, like the one cited by the Times, can be misleading if the presenter does not answer the question: Poor compared to who? Absolute measures, like the number of people with income below a certain level, are more straightforward and enlightening.

To accurately compare living standards across or within nations, it is necessary to account for all major aspects of material welfare. None of the data above does this.

The OECD data is particularly flawed because it is based on “income,” which excludes a host of non-cash government benefits and private charity that are abundant in the United States. Examples include but are not limited to:

  • Health care provided by Medicaid, free clinics, and the Children’s Health Insurance Program
  • Nourishment provided by food stamps, school lunches, school breakfasts, soup kitchens, food pantries, and the Women’s, Infants’ & Children’s program
  • Housing and amenities provided through rent subsidies, utility assistance, and homeless shelters

The World Bank data includes those items but is still incomplete because it is based on government “household surveys,” and US low-income households greatly underreport both their income and non-cash benefits in such surveys. As documented in a 2015 paper in the Journal of Economic Perspectives entitled“Household Surveys in Crisis”:

  • “In recent years, more than half of welfare dollars and nearly half of food stamp dollars have been missed in several major” government surveys.
  • There has been “a sharp rise” in the underreporting of government benefits received by low-income households in the United States.
  • This “understatement of incomes” masks “the poverty-reducing effects of government programs” and leads to “an overstatement of poverty and inequality.”

Likewise, the US Bureau of Economic Analysis explains that such surveys “have issues with recalling income and expenditures and are subject to deliberate underreporting of certain items.” The US Census Bureau says much the same, writing that “for many different reasons there is a tendency in household surveys for respondents to underreport their income.”

There is also a wider lesson here. When politicians and the media talk about income inequality, they often use statistics that fail to account for large amounts of income and benefits received by low- and middle-income households. This greatly overstates inequality and feeds deceptive narratives.

The World Bank’s “preferred” indicator of material well-being is “consumption” of goods and services. This is due to “practical reasons of reliability and because consumption is thought to better capture long-run welfare levels than current income.” Likewise, as a 2003 paper in the Journal of Human Resources explains:

  • “[R]esearch on poor households in the U.S. suggests that consumption is better reported than income” and is “a more direct measure of material well-being.”
  • “[C]onsumption standards were behind the original setting of the poverty line,” but governments now use income because of its “ease of reporting.”

The World Bank publishes a comprehensive dataset on consumption that isn’t dependent on the accuracy of household surveys and includes all goods and services, but it only provides the average consumption per person in each nation—not the poorest people in each nation.

However, the US Bureau of Economic Analysis published a study that provides exactly that for 2010. Combined with World Bank data for the same year, these datasets show that the poorest 20 percent of US households have higher average consumption per person than the averages for all people in most nations of the OECD and Europe:

The high consumption of America’s “poor” doesn’t mean they live better than average people in the nations they outpace, like Spain, Denmark, Japan, Greece, and New Zealand. This is because people’s quality of life also depends on their communities and personal choices, like the local politicians they elect, the violent crimes they commit, and the spending decisions they make.

For instance, a Department of Agriculture study found that US households receiving food stamps spend about 50 percent more on sweetened drinks, desserts, and candy than on fruits and vegetables. In comparison, households not receiving food stamps spend slightly more on fruits & vegetables than on sweets.

The fact remains that the privilege of living in the US affords poor people more material resources than the averages for most of the world’s richest nations.

Nonetheless, the fact remains that the privilege of living in the US affords poor people more material resources than the averages for most of the world’s richest nations.

Another important strength of this data is that it is adjusted for purchasing power to measure tangible realities like square feet of living area, foods, smartphones, etc. This removes the confounding effects of factors like inflation and exchange rates. Thus, an apple in one nation is counted the same as an apple in another.

To spot-check the results for accuracy, Just Facts compared the World Bank consumption figure for the entire US with the one from the Bureau of Economic Analysis. They were within 2 percent of each other. All of the data, documentation, and calculations are available in this spreadsheet.

In light of these facts, the Times’ claim that the US has “more in common with ‘developing countries’ than we’d like to admit” is especially far-fetched. In 2010, even the poorest 20 percent of Americans consumed three to 30 times more goods and services than the averages for all people in a wide array of developing nations around the world.

These immense gaps in standards of living are a major reason why people from developing nations immigrate to the US instead of vice versa.

Instead of maligning the United States, the Times could have covered this issue in a way that would help people around the world improve their material well-being by replicating what makes the US so successful. However, that would require conveying the following facts, many of which the Times haspreviously misreported:

  • High energy prices, like those caused by ambitious “green energy” programs in Europe, depress living standards, especially for the poor.
  • High tax rates reduce incentives to work, save, and invest, and these can have widespread harmful effects.
  • Abundant social programs can reduce market income through multiple mechanisms—and as explained by President Obama’s former chief economist Lawrence Summers, “government assistance programs” provide people with “an incentive, and the means, not to work.”
  • The overall productivity of each nation trickles down to the poor, and this is partly why McDonald’s workers in the US have more real purchasing power than in Europe and six times more than in Latin America, even though these workers perform the same jobs with the same technology.
  • Family disintegration driven by changing attitudes toward sex, marital fidelity, and familial responsibility has strong, negative impacts on household income.
  • In direct contradiction to the Times, a wealth of data suggests that aggressive government regulations harm economies.

Many other factors correlate with the economic conditions of nations and individuals, but the above are some key ones that give the US an advantage over many European and other OECD countries.

In reality, the US is so economically exceptional that the poorest 20 percent of Americans are richer than many of the world’s most affluent nations.

The Times closes its video by claiming that “America may once have been the greatest, but today America, we’re just okay.” In reality, the US is so economically exceptional that the poorest 20 percent of Americans are richer than many of the world’s most affluent nations.

Last year, the Times adopted a new slogan: “The truth is worth it.” Yet, in this case, and others, it has twisted the truth in ways that can genuinely hurt people. The Times makes other spurious claims about the US in this same video, which will be deflated in future articles.

James Agresti is a contributing writer at Intellectual Takeout.

Democracy’s Crony Capitalism Is Falling Behind Autocracies In Per Capita Income Growth And Wealth Creation For Citizens.

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As the 20th century drew to a close, democracy was on the march. The Soviet Union was gone, Nazism was a distant nightmare and every continent showed signs of moving toward free elections and the rule of law. All of humanity was finally coming to recognize the transcendent principles of democratic liberty and equality—or so many observers concluded.

Looking back, the reasons for democracy’s appeal in those heady days appear more complicated. A big part of it had to do not with noble ideals but with economic success. The world’s richest countries were democracies, and the rest of the world wanted to be rich too. Today, global wealth is shifting to more authoritarian parts of the world—and it isn’t clear how well democracy, without every material advantage on its side, will fare in the competition.

Since the 1890s, countries like the U.S., Great Britain and a small band of other democracies have dominated the global economy. As recently as 1995, 96% of all people who lived in a country with a per capita income over $20,000 (in today’s terms) were citizens of a liberal democracy. With the exception of a few oligarchs perched atop stagnant and repressive societies, only democrats got to enjoy real affluence.

Today’s reality is very different. Our analysis of International Monetary Fund projections shows that sometime in the next five years, the total GDP of countries rated “not free” by Freedom House will surpass that of Western democracies. The combined economies of democratic countries like the U.S., Germany, France and Japan will be smaller than those of autocracies like China, Russia, Turkey and Saudi Arabia.

If the West is to navigate this new world successfully, it will need to understand how the scales tipped so rapidly from democratic dominance to authoritarian resurgence. One part of the explanation is democratic reversals in large economies, thanks to the efforts of strongmen such as Russia’s Vladimir Putin and Turkey’s Recep Tayyip Erdogan. If democracies like Brazil, India and South Africa experience similar erosion in the years ahead, the relative power of autocratic rulers will keep growing.

The Growing Economic Power Of Autocracies

The Growing Economic Power of AutocraciesPercentage of global gross domestic product, at purchasing-power paritySources: Statistics on World Population, GDP and Per Capita GDP, 1-2008 AD (1946–1989); International Monetary Fund(1990–2023); Polity (autocratic/democratic status, 1946–1971); Freedom House (1972–2018). Note: 2018–23 are projections

But an even more important factor has been the rise of authoritarian capitalism. Before the 21st century, autocratic regimes that reached a relatively high level of per capita income tended either to stop growing, like the Soviet Union, or to become democratic, like military regimes in Asia, Latin America and southern Europe. Countries such as Singapore, which kept growing without becoming a true democracy, were explained away as small exceptions that proved the rule.

This limitation still applies to autocratic regimes like North Korea and Venezuela, which have clung to strict state control of the economy. But a growing number of countries have learned to combine autocratic rule with market-friendly institutions, and they have continued growing economically well beyond the point at which democratic transitions used to occur.

At the famous “Kitchen Debate” in Moscow in 1959, Soviet Premier Nikita Khrushchev and U.S. Vice President Richard Nixon debated their countries’ economic systems.
At the famous “Kitchen Debate” in Moscow in 1959, Soviet Premier Nikita Khrushchev and U.S. Vice President Richard Nixon debated their countries’ economic systems. PHOTO: ASSOCIATED PRESS

Today, 376 million people live in deeply unfree countries—including Russia, Kazakhstan and the Gulf states—that have per capita incomes above $20,000 in terms of purchasing-power parity. In China’s coastal region, average incomes have already risen above this level, and the major cities have surpassed $35,000. When China as a whole crosses above $20,000 in per capita income, which the IMF estimates will happen next year, 1.8 billion people around the world will live in upper-income authoritarian regimes.

This development carries enormous implications for the future of democracy. The last time the democratic world faced a serious challenge to its economic and technological primacy was after the Soviet Union’s launch of Sputnik, the world’s first artificial satellite, in 1957. Buoyed by postwar reconstruction and the addition of seven new vassal states in Eastern Europe, the Soviet bloc had seen its GDP increase from one-fifth of the U.S. level in 1945 to over half that level by 1958. A few years later, Paul Samuelson, the Nobel Prize-winning economist, predicted in his widely used introductory textbook that the GDP of the Soviet Union would surpass that of the U.S. by 1984.

Hopes for the U.S. to grow its way out of the current predicament are no more than fantasies.

It never happened, of course. By 1969, an American flag was fluttering on the moon and economic growth in the U.S. once again outpaced that of the Soviet bloc. Living standards under communism never reached those of the West. Subsequent editions of Samuelson’s textbook kept pushing the point at which he projected the Soviet economy would overtake that of the U.S. into the ever more distant future.

Today, however, there is less reason for confidence in the eventual economic triumph of democracy. In 1957, the U.S. and its democratic allies in Europe and Japan accounted for almost two-thirds of the global economy—three times more than the Eastern bloc plus China. Sputnik may have made Americans nervous, but the West was still economically dominant. The real question was whether it had the political resolve to translate its material power into geopolitical hegemony.

In 2019, by contrast, no amount of political resolve will reverse the fact that Western democracies account for little more than a third of the world economy. Given the radical shift in world-wide population and productivity that we have witnessed in the recent decades, it would be naive to expect North America and Western Europe to reign supreme again anytime soon. Hopes for the U.S. to grow its way out of the current predicament are no more than fantasies.

Whether democracy or autocracy rules the world in the 21st century is thus likely to depend on a number of pivotal countries that could end up as part of either camp. If countries such as India, Nigeria and Indonesia manage to build stable and affluent democracies, the principles of liberty and equality have a chance to maintain and extend their influence in the coming decades. But if these crucial “swing states” turn autocratic while becoming rich, democrats will have a harder time making their case.

As the history of the 20th century shows, freedom tastes much sweeter when it seems to be the gateway to prosperity.

Mr. Foa is a lecturer in political science at the University of Melbourne. Mr. Mounk is an associate professor of political science at Johns Hopkins and the author of “The People Versus Democracy: Why Our Freedom Is in Danger and How to Save It.”

PHOTO: GILLES SABRIE/BLOOMBERG NEWS

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