Economic Myths Part 2
Sunday, February 22, 2009 13:52Continued from Economic Myths Part 1
For example, twelve US economists calculated that the inflation rate had been overstated for the past twenty years or more, with revised rates ranging from 0.4 per cent a year to 1.8 per cent. W. Michael Cox and Richard Alm averaged the results out to 1.1 per cent a year with the result that the alleged fall in real wages is transformed into a 12 per cent rise from 1978 to 1995. This is not huge — but it’s not a fall either. Moreover, it needs to be acknowledged that a great deal of the increase in wage rates has been taken in the form of fringe benefits. If these benefits had been paid as money wages then the 12 per cent real wage increase would have been even higher. This can only mean that productivity has been greater than previously thought.
But, as we all know, these are just statistics, and statistics can be made to tell any story, which amounts to calling these economists liars. However, it should be obvious, except to the idiotic, that if real wages rates had been falling then Americans would have had to work longer hours to maintain their level of consumption. In fact, annual working hours have been steadily declining since 1870. They stood at 1,570 in 1996 compared with 1,743 in 1973 and 1,584 in 1990. The Bureau of Labor Statistics’ Current Population Survey (CPS) estimated that weekly working hours had dropped from an average of 40 hours in 1967 to 39.2 hours by 1998. (Confusion on this matter has occurred because proper account has not always been taken of the increased participation rate of woman which was accompanied by a rise in their working hours).
Anyway, to state, as did my deep thinking critic, that because Americans “work more than four hundred hours a year more than their German counterparts” is to misconstrue the so-called problem. What matters is not how many hours Americans work compared with Germans or any other nationality but how many hours are needed to purchase goods compared with previous periods. If American wages have been falling then hourly purchasing power should have also fallen.
Cox and Alm have done a number of calculations that demonstrate that hourly purchasing power has been increasing, not falling. In addition, this is fully supported by consumer statistics that show a significant increase in living standards since 1973. One will find these detailed in Myths of Rich and Poor by Cox and Alm.
Continued with Economic Myths Part 3
