Economist Boudreaux is at Odds With Obama’s Income Inequality as Political Fodder

January 28, 2014

John Tillman, CEO of The Illinois Policy Institute, welcomed economist Don Boudreaux to Chicago on Thursday, January 23, as the first speaker of its Liberty Speakers Series scheduled for the first half of 2014. Visit illinoispolicy.org/events to see the full lineup of speakers and how to RSVP.

Tillman heard Boudreaux speak 10 years ago at an event in Canada, at which time Boudreaux made a powerful impression on Tillman when speaking about liberty. It was this encounter after 10 years had elapsed that prompted Tillman to invite Don Boudreaux to speak on this topic: “What’s in a wage? Why income doesn’t tell the whole story.”

Introduced by John Tillman, Boudreaux is a senior fellow at the Mercatus Center and a professor of economics and former economics department chairman at George Mason University. He holds the Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus. His specialization is globalization and trade, law and economics and antitrust economics.

Mr. Boudreaux writes the blog Cafe Hayek (cafehayek.com) with Russell Roberts and pens a regular column on economics for the Pittsburgh Tribune-Review. Out of Boudreaux’s blog posts at Cafe Havek evolved his 2012 book: Hypocrits & Half-Wits: A Daily Dose of Sanity from Café Hayek. Boudreaux has appeared numerous times on John Stossel’s Fox show to discuss a range of economic issues.

Don Boudreaux in public has criticized Noble Laureate Economist Paul Krugman, stating that Krugman frequently ‘commits elementary errors’ when discussing economics. Boudreaux is recognized as a libertarian.

Following the impressive introductory remarks by John Tillman, Mr. Boudreaux discussed how the quantities and qualities of what ordinary Americans consume are closer to rich Americans than they were in past decades, further explaining what that phenomena means for real inequality in America today. Boudreaux’s premise: America’s middle class has not stagnated economically since the 1970’s.

Mr. Boudreaux disagrees with President Obama’s intent to make income inequality into a political issue, believing as the president does that income inequality has declined in America with the rich benefiting the most. But given that an item’s performance is far superior to the 70’s product and at a lesser cost, quality of life has improved for the poor and middle class since the ’70’s.

Four years ago Robert Reich, Clinton’s Labor Secretary, made this not uncommon statement that dovetails with President Obama’s embrace of income inequality that calls for wealth redistribution.

After three decades of flat wages during which almost all the gains of growth have gone to the very top, the middle class no longer has the buying power to keep the economy going.

Using a Chicago connection, Don Boudreaux through a slide presentation displayed pages randomly chosen from a 1975 Sears catalog showing an item relative to cost and the number of hours needed to purchase that item in terms of 1975 work hours, followed by a comparable item and its cost to purchase relative to work hours needed in 2014. (Note: Mr. Boudreaux purchased the 1975 Sears catalog off Amazon for $.05 cents, but bemoaned how overnight shipping of the catalog set him back $40 plus dollars.)

Items chosen randomly by Boudreaux for comparing work hours needed to purchase an item in 1975 in contrast to a similar item purchased in 2013:

Exercise Machine: 15.8 work hours to buy in 1975 at $74.95. 5.4 work hours to purchase a finer and more streamlined exercise machine in 2013.

Four drawer metal filing cabinet: 44 work hours to buy in 1975 at $207.95. Only one fourth of the time (11 hours) needed in 2013.

Microwave Oven: 93 work hours to buy in 1975 at $440. A similar size would require 4 hours of work time in 2013.

Color TV: 158.6 hours or nearly a month of work hours in 1975 at $749.95 for the best TV available, but with no remote and only 4 channels. 17.1 hours of work time in 2013, remotes are now standard and there are an array of channels and other perks built into the set.

Notable is that no item was more expensive today to purchase than it was in 1975, even adjusted for inflation.

Not only do the middle class live better today, but the poor — using the criteria of whether a household has a dishwasher, central air conditioner, colored TV, a stove, and a refrigeration to assess judgment — likewise do. Mr. Boudreaux found that in comparing All households in 1971, Poor Households in 1984, and Poor households in 2005, that poor households in 2005 had more of the 6 criteria items than all households did in 1971.

Mr. Boudreaux did admit that the Consumer Price Index average wage when adjusted for inflation has remained about the same for non-supervisory wages since at least 1964, the first year the BLS started its record keeping.

Boudreaux then proceeded to present three reasons why measurement of wages doesn’t necessarily support a narrative of middle-class stagnation or a lone basis on which to judge the living standards of the American people.

1. Consider the improvement in product quality and variety available today at less cost.

2. Consider the rise over the past few decades in the portion of worker pay taken as (nontaxable) fringe benefits.

3. Consider how over the past three decades the average wage has been held down but the great increase of women and immigrants into the workforce. While lesser-skilled workers entering the workforce in any given year were paid wages lower than the average, the measured statistic of “average hourly wage” has remained unchanged or stagnant over the years, even though real wages of actual flesh-and-blood workers employed in any given year rose. In the same article, The Myth of a Stagnant Middle Class, published in the Wall Street Journal on January 23, 2013, Don Boudreaux wrote:

According to the Bureau of Economic Analysis, spending by households on many of life’s “basics” — food at home, automobiles, clothing and footwear, household furnishing and equipment, and housing and utilities — fell from 53% of disposable income in 1950 to 44% in 1970 to 32% today.

Why do people perceive themselves to be worse off, when what ordinary Americans consume is closer to that of rich Americans (consider the same electronic products used by both), and that it’s unlikely that an average American would trade his wages and benefits in 2013 for the same real wages with lower fringe benefits, higher prices, a limited selection, and inferior products to those available in the 19450s or 1970’s?

According to Don Boudreaux: Many of the improvement made in products are so small that they are masked in the largeness of numbers. Consider the bag of celery which in 70’s didn’t have a top that could be resealed for freshness. Then too, what we hear influences thinking. Being told that stagnation is present by our politicians and through the media, people just accept and believe. It matters not that facts to counter such thinking are staring them in the face.

In closing Mr. Boudreaux noted his second Chicago connection, the just announced decision to shutter the Sears store in the Loop, after which John Tillman presented Don Boudreaux with a pen to honor his participation in the Illinois Policy Institute Liberty Speaker Series for 2014. Tillman joked how Boudreaux would have to present three lectures to earn the pen.

John Tillman, as CEO of the Illinois Policy Institute, expressed excitement about 2014, (illinoispolicy.org/about-us/) calling it a pivotal year. Believing as Tillman does that free enterprise is the greatest force for good, this force can work to help lift up the poor and the disadvantaged.

Tillman described his positive outlook for Illinois in terms of the fall of the Berlin Wall in September, 1988. It was the general consensus that the wall would never come down; however, things were already in motion to make it happen prior to the fall of the wall.

To paraphrase Tillman, there are similar undercurrents present in Illinois. Even Speaker Mike Madigan is sensing that change. Republicans must seize the moral high ground in making the argument about the far reaching tentacles of liberty. Tillman asked for our help to possibly make Illinois the biggest story in this November’s election.

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