Jared Bernstein raises an important question: when judging our economic wellbeing, what reference point do we use? 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.
 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.