The Conscience of a Liberal

China–allied North Vietnamese. Nixon, it became clear, hated many things, but he did not share the conservative movement’s hatred for government intervention and the welfare state. In any case the times weren’t yet right.

By the mid-1970s movement conservatism was, in a sense, in a position similar to that of the movement that eventually became the New Deal in the late 1920s. The ideas were there; the organization was there; the intellectual cadres were in place. To achieve power, however, the movement needed a crisis.

What it got was a double crisis, both foreign and domestic.

In foreign affairs the fall of Vietnam was followed by what looked at the time like a wave of Communist victories in Southeast Asia and in Africa, then by the Soviet invasion of Afghanistan and—unrelated, but feeding the sense of anxiety—the Islamic revolution in Iran and the humiliation of the hostage crisis. On the domestic front a combination of bad policy and the energy crisis created the nightmare of stagflation, of high unemployment combined with double-digit inflation.

In retrospect the hand-wringing over Communist advances looks ludicrous; the Soviet invasion of Afghanistan, in particular, turned out to be the beginning of communism’s collapse. The Islamic revolution in Iran was a real setback, but it’s hard to see how an aggressive foreign policy could have done anything except worsen the situation. As for the economic crisis, it was caused by a combination of bad luck and bad monetary policy, neither of which had anything to do with liberalism.

Nonetheless the dire mood of the 1970s made it possible for movement conservatives to claim that liberal policies had been discredited. And the newly empowered movement soon achieved a remarkable reversal of the New Deal’s achievements.

7 THE GREAT DIVERGENCE

Medieval theologians debated how many angels could fit on the head of a pin. Modern economists debate whether American median income has risen or fallen since the early 1970s. What’s really telling is the fact that we’re even having this debate. America is a far more productive and hence far richer country than it was a generation ago. The value of the output an average worker produces in an hour, even after you adjust for inflation, has risen almost 50 percent since 1973. Yet the growing concentration of income in the hands of a small minority has proceeded so rapidly that we’re not sure whether the typical American has gained anything from rising productivity.

The great postwar boom, a boom whose benefits were shared by almost everyone in America, came to an end with the economic crisis of the 1970s—a crisis brought on by rising oil prices, out-of-control inflation, and sagging productivity. The crisis abated in the 1980s, but the sense of broadly shared economic gains never returned. It’s true that there have been periods of optimism—Reagan’s “Morning in America,” as the economy recovered from the severe slump of the early eighties, the feverish get-rich-quick era of the late nineties. Since the end of the postwar boom, however, economic progress has always felt tentative and temporary.

Yet average income—the total income of the nation, divided by the number of people—has gone up substantially since 1973, the last year of the great boom. We are, after all, a much more productive nation than we were when the boom ended, and hence a richer nation as well. Think of all the technological advances in our lives since 1973: personal computers and fax machines, cell phones and bar-code scanners. Other major productivity-enhancing technologies, like freight containers that can be lifted directly from ship decks onto trucks and trains, existed in 1973 but weren’t yet in widespread use. All these changes have greatly increased the amount the average worker produces in a normal working day, and correspondingly raised U.S. average income substantially.

Average income, however, doesn’t necessarily tell you how most people are doing. If Bill Gates walks into a bar, the average wealth of the bar’s clientele soars, but the men already there when he walked in are no wealthier than before. That’s why economists trying to describe the fortunes of the typical member of a group, not the few people doing extremely well or extremely badly, usually talk not about average income but about median income—the income of a person richer than half the population but poorer than the other half. The median income in the bar, unlike the average income, doesn’t soar when Bill Gates walks in.

As it turns out, Bill Gates walking into a bar is a pretty good metaphor for what has actually happened in the United States over the past generation: Average income has risen substantially, but that’s mainly because a few people have gotten much, much richer. Median income, depending on which definition you use, has either risen modestly or actually declined.

About the complications: You might think that median income would be a straightforward thing to calculate: find the American richer than half the population but poorer than the other half, and calculate his or her income. In fact, however, there are two areas of dispute, not easily resolved: how to define the relevant population, and how to measure changes in the cost of living. Before we get to the complications, however, let me repeat the punch line: The fact that we’re even arguing about whether the typical American has gotten ahead tells you most of what you need to know. In 1973 there wasn’t a debate about whether typical Americans were better or worse off than they had been in the 1940s. Every measure showed that living standards had more or less doubled since the end of World War II. Nobody was nostalgic for the jobs and wages of a generation earlier. Today the American economy as a whole is clearly much richer than it was in 1973, the year generally taken to mark the end of the postwar boom, but economists are arguing about whether typical Americans have benefited at all from the gains of the nation as a whole.

Now for the complications: It turns out that we can’t just line up all 300 million people in America in order of income and calculate the income of American number 150,000,000. After all, children don’t belong in the lineup, because they only have income to the extent that the households they live in do. So perhaps we should be looking at households rather than individuals. If we do that we find that median household income, adjusted for inflation, grew modestly from 1973 to 2005, the most recent year for which we have data: The total gain was about 16 percent.

Even this modest gain may, however, overstate how well American families were doing, because it was achieved in part through longer working hours. In 1973 many wives still didn’t work outside the home, and many who did worked only part-time. I don’t mean to imply that there’s something wrong with more women working, but a gain in family income that occurs because a spouse goes to work isn’t the same thing as a wage increase. In particular it may carry hidden costs that offset some of the gains in money income, such as reduced time to spend on housework, greater dependence on prepared food, day-care expenses, and so on.

We get a considerably more pessimistic take on the data if we ask how easy it is for American families today to live the way many of them did a generation ago, with a single male breadwinner. According to the available data, it has gotten harder: The median inflation-adjusted earnings of men working full-time in 2005 were slightly lower than they had been in 1973. And even that statistic is deceptively favorable. Thanks to the maturing of the baby boomers today’s work force is older and more experienced than the work force of 1973—and more experienced workers should, other things being equal, command higher wages. If we look at the earnings of men aged thirty-five to forty-four—men who would, a generation ago, often have been supporting stay-at-home wives —we find that inflation-adjusted wages were 12 percent higher in 1973 than they are now.

Controversies over defining the relevant population are only part of the reason economists manage to argue about whether typical Americans have gotten ahead since 1973. There is also a different set of questions, involving the measurement of prices. I keep referring to “inflation-adjusted” income—which means that income a generation ago is converted into today’s dollars by adjusting for changes in the consumer price index. Now some economists argue that the CPI overstates true inflation, because it doesn’t fully take account of new products and services that have improved our lives. As a result, they say, the standard of living has risen more than the official numbers suggest. Call it the “but they didn’t have Netflix” argument. Seriously, there are many goods and services available today that either hadn’t been invented or weren’t on the market in 1973, from cell phones to the Internet. Most important, surely, are drugs and medical techniques that not only save lives but improve the quality of life for tens of millions of people. On the other hand, in some ways life has gotten harder for working families in ways the official numbers don’t capture: there’s more intense competition to live in a good school district, traffic congestion is