Tuesday, December 26, 2006

Measuring prosperity 

Victor Davis Hanson:

I live in one of the poorest sections of one of the poorer counties in California, but consider: there were near riots to get the latest PlayStation 3 video games nearby. I was looking at a 4-wheel drive truck recently, and passed up all the �extras� offered by the salesman�leather seats, GPS, DVD player, extra chrome, multiplayer CD�but that extravagant Toyota Tundra was snapped up by a family on welfare in the booth next to me. With a zero-interest loan package, and no money down, apparently almost anyone can walk into a showroom and drive out with a $40,000 monster-sized truck.

Then I drove into the local shopping center and walked through Office Max, Wal-Mart, and Food4Less where there were more signs of America's new encompassing wealth. There were new Camrys and Accords all over the parking lot, nearly everyone was on a cell phone. Nearly everyone was also speaking Spanish and no doubt a first generation immigrant (legal or not from Mexico). But in terms of traditional notions of poverty and the ability to acquire material goods, food, communications gear, transportation, etc. they were hardly poor.

Perhaps this new prosperity that encompasses almost all social classes in America is due to the miracle of science that now gives us such cheap appurtenances, or the addition of 1 billion Indian and Chinese fabricators to the world�s work force that results in endless consumer goods; or the ability of low interest and almost universal instant credit.

...This summer I bought on sale an old-style color television, 32-inch screen (the kind with the big tube in the back and curved front) for about $130. A decade ago it would have cost $500. The surprise was that the clerk laughed about what he thought was the idiocy of wanting one of these now obsolete, but perfectly fine, televisions. He probably made about $10 an hour, but would never have apparently stooped to such sacrifice. Again, any discussion about this surreal world is entirely lacking in the current political debate.
Menzie Chinn looks at a recent speech by San Francisco Federal Reserve president Janet Yellen discussing inequality and argues at the end that building a consensus for free trade might require "laissez-faire adherents to jettison objections to measures that minimize economic uncertainty." But the data Chinn and Yellen use do not reflect the reality of what Hanson sees in his neighborhood shops and parking lots.

Additional thought: While wages may not grow as much as we'd like, perhaps this spending is fueled by expectation of returns from skill investment. We too often treat labor in macro studies like an already-formed piece of equipment.