Scott Winship argued recently that the ‘cost of thriving’ has fallen, pushing back once again against Oren Cass and his rather arbitrarily calculated ‘Cost of Thriving Index (COTI).’ Alex Tabarrok posted today on Marginal Revolution that Winship and coauthor Horpedahl were right, but that they face an uphill battle because people feel they are wrong, and suggested that our newly high time-value warps our perceptions. He points to Linder’s Theorem, which I hadn’t seen before, which states (correctly): “rising productivity decreases the demand for commodities whose consumption is expensive in time.”
Your last paragraph is dispositive. Measures of well-being are always going to be part absolute and part relative. And the relative part is not only vs. others but vs. our memories, accurate or flawed, of previous times. A huge factor in :"thriving" is whether today's two parent families perceive they can thrive on a single income with childcare provided by the non employed spouse. That's the nostalgic "gold standard."
This all seems like an exercise in confirmation bias. Should we start claiming the average American is much poorer than the average African because they demand more? The Venezuelan may be happy they are able to get a loaf in the breadlines. The American isn't happy with SUVs and Sushi buffets so the Venezuelan is thriving and the American isn't.
The media loves to excite outrage by telling people they are poor. It gets them the clicks.
I also disagree about not being able to get 1985 quality goods. You can buy a used car that will probably last longer at cheaper prices than new cars in 1985. For education, you can do 2 years of community college then transfer to university for likely the same or better learning than 1985. For healthcare we have heavy ACA subsidies or if you're low enough income you can get Medicaid for nearly free care, all probably better than healthcare in 1985. Housing in major metros may be more expensive today because we have so many more people today but prices haven't changed that much in less populated areas.
"Linder’s Theorem, which I hadn’t seen before, which states (correctly): “rising productivity decreases the demand for commodities whose consumption is expensive in time.”"
Isn't that the Baumol effect? I don't see the difference
> The whole idea is to ask what it takes for a typical man to support a typical family
The typical family today is vastly more likely to have two incomes than the typical family in 1985. So if you are setting your standard of living by comparison to a two-income household, but asking how much income a single provider needs in order to meet that standard, then *of course* that amount of income has gone up.
> If I am consuming 53% more goods, but comparing myself to a 75% higher standard, am I better off?
If not, then your misery is self-inflicted due to your choice of comparison. If your standard of consumption is relative (e.g., the median household), then your standard of income should be likewise (the median *household*).
> You can in theory tap the new home equity while not moving, but you have to finance that and people are wisely loathe to do this.
I don't agree with the term "wisely" here. A home equity loan (or some other similar form of collateralization) is one of the most powerful financial tools available to the average middle-class homeowner. It's much easier to buy your second house than your first one, and so on.
Perhaps the idea is that the average or marginal person under consideration here is not financially responsible or savvy enough to pull this off? Maybe so, but I think that's a different argument.
Two of your final three questions (which I agree are all good ones) hinge on social comparisons. Certainly it seems like a lot of the problem would go away if we could just... do a lot less of that. Of course, the major technological revolution that has occurred since 1985 has resulted in us doing... a lot more of that. Not sure how you put a number on this, but it seems highly relevant to assessing the difference between then and now.
> What good does it do us to have better goods, if we do not have felt economic permission to start families?
https://twitter.com/theHauer/status/1222514313723875332 - if this data is correct, it seems like we'll need to get everyone's household income above $250k to get the total fertility rate above 2 children per woman. Seems a bit unrealistic to me, even if we implement a full YIMBY utopia, abolish regulations on childcare and privatize every school in the nation.
On the question of transportation, "consuming safety" seems like a conceptual error every bit as much as treating transportation consumption generally as a benefit rather than a cost. In both cases, better to get things into a single unit either by converting the time lost to money, or converting money into a share of one's time budget (which would better allow budget comparisons across income levels). Examples follow.
If someone makes $100/hr, and has an hourlong commute, on top of whatever the direct financial costs are of the commute, we should count the time spent as an additional (untaxed) $100 worth of work they're doing - or some fraction of it if you think people recover some time by talking on the phone or listening to audiobooks.
Alternatively, if someone works a 40-hour week and makes $100,000 annually, then the marginal $36.54 post-tax expense would require an additional $50 of pretax income to pay for, or one hour. This comes out of their time budget, which is less of an abstraction than the money budget of someone who may be deciding how much to work or what sort of job to work. For someone else working the same hours making $50,000, a marginal post-tax expense of only $18.75 costs an hour.
For either of those two people, an hour of commuting also costs an hour (or less, again if you think they recover some value via audiobooks or something).
Now let's consider safety. Driving mortality rates in the US are about 1 per 100 million miles traveled. So if in a year someone drives about 10,000 miles, then they have a 1 in 10,000 chance of dying. In other words, if driving were the only cause of death, for 9,999 people to thrive that year, 10,000 have to pay a year's costs. So, simply divide ALL costs by .9999 to account for the danger of driving - and by a higher or lower number if the car is safer or less safe than average. Obviously we shouldn't limit this to driving, but should divide by the all-in expected annual survival rate - in which case it becomes more obvious how comparatively trivial a time savings automobile safety is vs variation in commute times, and how important a cure for aging would be! For a 95 year old the expected cost of thriving another year is quite high.
I see the argument that it's unfair to adjust for quality if the cheap stuff you got 40 years ago is no longer for sale, at least if you assume that change in the market is just an exogenous change, but why should we assume that? If we're stipulating that the typical man wants the same market basket as before and would be happier if everything was 15% cheaper and 50% worse, why aren't those things ever available?
Of course you can just appeal to regulation or incompetence sometimes but I think a simpler answer is Cass is imagining everything from the POV of someone who doesn't value quality improvements for anything in the first place except for the purposes of status seeking.
“He points to Linder’s Theorem, which I hadn’t seen before, which states (correctly): “rising productivity decreases the demand for commodities whose consumption is expensive in time.”
What happened to the great stagnation? If productivity isn’t rising very much relative to the sentiment that people aren’t thriving so easily anymore, then this story doesn’t seem to make sense. Unless the effect is exclusively being driven by women in the workforce which I suppose it could be.
Great analysis.
Your last paragraph is dispositive. Measures of well-being are always going to be part absolute and part relative. And the relative part is not only vs. others but vs. our memories, accurate or flawed, of previous times. A huge factor in :"thriving" is whether today's two parent families perceive they can thrive on a single income with childcare provided by the non employed spouse. That's the nostalgic "gold standard."
This all seems like an exercise in confirmation bias. Should we start claiming the average American is much poorer than the average African because they demand more? The Venezuelan may be happy they are able to get a loaf in the breadlines. The American isn't happy with SUVs and Sushi buffets so the Venezuelan is thriving and the American isn't.
The media loves to excite outrage by telling people they are poor. It gets them the clicks.
I also disagree about not being able to get 1985 quality goods. You can buy a used car that will probably last longer at cheaper prices than new cars in 1985. For education, you can do 2 years of community college then transfer to university for likely the same or better learning than 1985. For healthcare we have heavy ACA subsidies or if you're low enough income you can get Medicaid for nearly free care, all probably better than healthcare in 1985. Housing in major metros may be more expensive today because we have so many more people today but prices haven't changed that much in less populated areas.
Interesting subject
I don't know enough to have strong opinions
"Linder’s Theorem, which I hadn’t seen before, which states (correctly): “rising productivity decreases the demand for commodities whose consumption is expensive in time.”"
Isn't that the Baumol effect? I don't see the difference
> The whole idea is to ask what it takes for a typical man to support a typical family
The typical family today is vastly more likely to have two incomes than the typical family in 1985. So if you are setting your standard of living by comparison to a two-income household, but asking how much income a single provider needs in order to meet that standard, then *of course* that amount of income has gone up.
> If I am consuming 53% more goods, but comparing myself to a 75% higher standard, am I better off?
If not, then your misery is self-inflicted due to your choice of comparison. If your standard of consumption is relative (e.g., the median household), then your standard of income should be likewise (the median *household*).
> You can in theory tap the new home equity while not moving, but you have to finance that and people are wisely loathe to do this.
I don't agree with the term "wisely" here. A home equity loan (or some other similar form of collateralization) is one of the most powerful financial tools available to the average middle-class homeowner. It's much easier to buy your second house than your first one, and so on.
Perhaps the idea is that the average or marginal person under consideration here is not financially responsible or savvy enough to pull this off? Maybe so, but I think that's a different argument.
Two of your final three questions (which I agree are all good ones) hinge on social comparisons. Certainly it seems like a lot of the problem would go away if we could just... do a lot less of that. Of course, the major technological revolution that has occurred since 1985 has resulted in us doing... a lot more of that. Not sure how you put a number on this, but it seems highly relevant to assessing the difference between then and now.
> What good does it do us to have better goods, if we do not have felt economic permission to start families?
https://twitter.com/theHauer/status/1222514313723875332 - if this data is correct, it seems like we'll need to get everyone's household income above $250k to get the total fertility rate above 2 children per woman. Seems a bit unrealistic to me, even if we implement a full YIMBY utopia, abolish regulations on childcare and privatize every school in the nation.
On the question of transportation, "consuming safety" seems like a conceptual error every bit as much as treating transportation consumption generally as a benefit rather than a cost. In both cases, better to get things into a single unit either by converting the time lost to money, or converting money into a share of one's time budget (which would better allow budget comparisons across income levels). Examples follow.
If someone makes $100/hr, and has an hourlong commute, on top of whatever the direct financial costs are of the commute, we should count the time spent as an additional (untaxed) $100 worth of work they're doing - or some fraction of it if you think people recover some time by talking on the phone or listening to audiobooks.
Alternatively, if someone works a 40-hour week and makes $100,000 annually, then the marginal $36.54 post-tax expense would require an additional $50 of pretax income to pay for, or one hour. This comes out of their time budget, which is less of an abstraction than the money budget of someone who may be deciding how much to work or what sort of job to work. For someone else working the same hours making $50,000, a marginal post-tax expense of only $18.75 costs an hour.
For either of those two people, an hour of commuting also costs an hour (or less, again if you think they recover some value via audiobooks or something).
Now let's consider safety. Driving mortality rates in the US are about 1 per 100 million miles traveled. So if in a year someone drives about 10,000 miles, then they have a 1 in 10,000 chance of dying. In other words, if driving were the only cause of death, for 9,999 people to thrive that year, 10,000 have to pay a year's costs. So, simply divide ALL costs by .9999 to account for the danger of driving - and by a higher or lower number if the car is safer or less safe than average. Obviously we shouldn't limit this to driving, but should divide by the all-in expected annual survival rate - in which case it becomes more obvious how comparatively trivial a time savings automobile safety is vs variation in commute times, and how important a cure for aging would be! For a 95 year old the expected cost of thriving another year is quite high.
I see the argument that it's unfair to adjust for quality if the cheap stuff you got 40 years ago is no longer for sale, at least if you assume that change in the market is just an exogenous change, but why should we assume that? If we're stipulating that the typical man wants the same market basket as before and would be happier if everything was 15% cheaper and 50% worse, why aren't those things ever available?
Of course you can just appeal to regulation or incompetence sometimes but I think a simpler answer is Cass is imagining everything from the POV of someone who doesn't value quality improvements for anything in the first place except for the purposes of status seeking.
“He points to Linder’s Theorem, which I hadn’t seen before, which states (correctly): “rising productivity decreases the demand for commodities whose consumption is expensive in time.”
What happened to the great stagnation? If productivity isn’t rising very much relative to the sentiment that people aren’t thriving so easily anymore, then this story doesn’t seem to make sense. Unless the effect is exclusively being driven by women in the workforce which I suppose it could be.
The health insurance premium thing was off for sure. Still, it’s a huge increase burden either way.
We could just as easily drag in state and local taxes to offset the federal.
There is also the matter of retirement. People used the have pensions (for free). Now they have 401ks, which they have to contribute to.
The housing discussion was confusing. The real question ought it be:
Is it easier for a man in his 20s starting a family to buy a house in a safe neighborhood with a decent school near good jobs.
That’s a negatory.