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INFORMATION America's Sinking Middle Class? Evidence from the Market for the Time Machine READ HERE

I have broken my 3rd toe on my right foot and this is causing me pain and making it hard for me to walk. Despite this short term setback, I would like to talk about progress.  The NY Times' Eduardo Porter serves up some doom and gloom in a piece he posts today.  He makes the crowd pleasing point that median household income has been stagnant for 25 years.  To his credit, he does devote four paragraphs to acknowledging some significant  progress.

"To be sure, we have made progress over the last 25 years. The nation’s gross domestic product per person has increased 40 percent since 1988. We’ve gained four years’ worth of life expectancy at birth. The infant mortality rate has plummeted by 50 percent. More women and more men are entering and graduating from college.

We also have access to far more sophisticated consumer goods, from the iPhone to cars packed with digital devices. And the cost of many basic staples, notably food, has fallen significantly.

Carl Shapiro, an economist at the University of California, Berkeley and an expert on technology and innovation who stepped down from President Obama’s Council on Economic Advisors last year, calls the progress in information technology and biotechnology over the last 25 years “breathtaking.”

“Most Americans partake in the benefits offered by these new technologies, from smartphones to better dental care,” Professor Shapiro said. Still, he acknowledged, “somehow this impressive progress has not translated into greater economic security for the American middle class.”

Note that Mr. Porter does not mention the improvements in air and water quality that the nation's urbanites have enjoyed nor the reduction in the nation's urban murder rate nor the reduction in traffic and airplane fatalities.  Instead, these paragraphs are meant to "balance" his piece to show that he is not simply calling for a war on the rich.

The thought experiment that is missing in his piece relates to the "time machine". At UCLA, I give a 15 minute lecture on progress and I ask my students to ponder;  "how much would you be willing to pay in $ to live your entire life in the past?"   If students announce a positive willingness to pay, then our society is not making progress because they would prefer to live back then rather than now. If students announce a negative willingness to pay (i.e $-50,000) then our society is making progress.  So, Mr. Porter --- would you prefer to live now or be your same age 25 years ago?

In economics in the first year graduate class, we define the expenditure function as the minimum amount of income you would need to achieve a given level of well being facing today's prices for market goods. I conjecture that over time that this minimum income is decreasing as real price fall.  The fundamental issue here is a mis-measurement of the consumer price index.  When product quality and variety are taken into account, the CPI is negative.   Think about what Amazon and Walmart have done for the purchasing power of middle class people.  

 Now, Mr. Porter will counter that he wants lifetime jobs to return as the age of "Mad Men" and General Motors hiring your dad for 35 years makes a comeback.  He wants workers to have guaranteed employer provided health insurance.   Perhaps he wants a guaranteed job at the NY Times?  Was 1957 really such a better year than 2013 for the U.S?   We seem to have very mixed feelings about competition. We want competition for products we seek to buy (so we face low prices) but we don't want competition for products we sell!  

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