Stagnation in the Middle

Jared Bernstein raises an important question: when judging our economic wellbeing, what reference point do we use?[1] Jared gives two alternatives – how others in the past did, and how others in the present are doing – and then argues that comparisons to the latter benchmark count for more in most people’s minds. For example, he writes: “Those living in substandard housing by today’s standards likely take little comfort in the fact that they live in a mansion compared to a century ago.”

I agree with Jared that most people don’t get a lot of joy from the fact that they are much better off than people of generations past. It’s a pallid abstraction to most of us. But there’s another axis of comparison that Jared ignores, one that is highly salient for most people: their own past experiences. People regularly derive great satisfaction from advancing in their careers, or from enjoying a standard of living higher than what they experienced as kids. And when incomes generally are rising smartly, people notice and approve heartily.

At the individual level, the relative salience of comparisons to one’s past or to others’ present varies from person to person. Some people can’t stop thinking about the Joneses no matter how good they have it, while others will figure out a way to count their blessings even in the direst situation.

But as the economist Benjamin Friedman has argued persuasively in The Moral Consequences of Economic Growth, there is a clear pattern to which reference point dominates in society generally. When growth is robust and prosperity widely shared, people tend to focus on the fact that they are doing better than in the past. They feel well off even if others are doing better. And, according to Friedman, society is more open and tolerant and generous as a result.

When growth slows down and incomes fail to rise, however, the only way to feel better off is by comparing ourselves to less fortunate others. And so the zero-sum jockeying for relative income and status intensifies, and social conflicts tend to grow nastier and more rancorous.

How does Friedman’s hypothesis fit with what’s been going on in the United States? Pretty well, I’d say. Growth in real incomes has slowed or stopped for most people in America, the status of less-skilled work (i.e., the kind of work most Americans do) is falling, and the future prospects for getting ahead with relatively modest skills are dimming. So even if, as Megan and I argue, strictly material wellbeing has continued to improve for most people, it’s understandable that more and more people feel like they are at best treading water. And, just as Friedman might predict, we’re spending a lot more time these days talking and worrying about how the top one percent are doing.

What’s the takeaway message from this? For me, it’s one more reason to conclude that stagnation in the middle is a much bigger issue than rapid gains at the top. Most of the concern about the latter really boils down to displaced concern about the former.

 
Note
  


[1] Jared also talks about reference points for progress against injustice. I agree with him that, while advances over the past should be recognized and appreciated, the ultimate benchmark is a just state of affairs.

Also from This Issue

Lead Essay

  • It’s Complicated. But Hopeful. by Megan McArdle

    Megan McArdle makes the complicated case for optimism: Present-day Americans generally enjoy lives that at a comparable age their grandparents could only dream about. Technology has turned many onerous chores into trivial ones. It entertains us and supplies us with a wide variety of consumer goods. We spend more on health care, but it’s better care, and it’s also an accomplishment that we can spend so much on it at all. Yet many problems remain: Life is good for college graduates, but for others it can be increasingly hard. Mass incarceration raises questions about how good prisoners’ lives can possibly be. And family and community breakdown seems by many measures all too great a problem. As a result, McArdle’s optimism is decidedly guarded.

Response Essays

  • Tangible Gains, Intangible Losses by Brink Lindsey

    Brink Lindsey argues that improvements to our standard of living have been real and easily measured. But there have been significant areas of decline as well, and these, while real, are often harder to measure: We can measure increased life expectancies, or declines in the crime rate, but it’s harder to measure the alienation that comes from lost social status, or the long-term effects of pervasive single parenthood, or the fact that fewer and fewer men of working age are staying in the workforce. These negative trends are mutually reinforcing, he warns, and they may represent a growing threat to future generations, no matter how much life may improve by some metrics.

  • Let’s Compare Our Standards in the Present by Jared Bernstein

    Jared Bernstein argues that the less privileged take no comfort from improving living standards. The privileged of today are the relevant comparison cohort, and until the less privileged are comparable in wealth, liberty, and dignity, they have every right to complain. People should - and indeed do - think about inequality in relative terms, and in present-day ones. They are rightly uninterested in historical comparisons. And they are correct to complain when the wealthy get still further ahead than they have. Absolute progress over time is real, but it’s also irrelevant in any conversation that values equality.

  • The Pain of Progress by Richard V. Reeves

    Richard V. Reeves finds it “offensive” to read that poverty has been eradicated in advanced countries. Poverty is always relative, he writes; it otherwise has no meaning at all. And relative poverty we still certainly have. The relative poverty of Americans – even those who are affluent by historical standards – has had real and indeed devastating effects on their lives. The gap continues to grow between rich and poor, and although our economic development is not to be regretted, its ill effects are certainly to be mitigated through policies that directly benefit those who are paying its greatest price.

The Conversation