Psycho-Facts Revisited
Just why Americans - prosperous and at peace - feel so grumpy is a puzzle of our time. One reason, I suggested in a recent column {May 4}, is that we're addicted to "psycho-facts": things (mainly bad) that we believe because we feel them even if they aren't true. For example, I said that people feel their incomes are stagnating, although median family income has risen a fifth in the past 25 years. Comes now a reader {letters, June 3} claiming that I've fibbed. Most income gains reflect wives' taking jobs, he says. Therefore, we are working harder just to stay in place.</br></br>His complaint is worth examining, precisely because it illustrates what I'm talking about. The objection sounds sensible and describes how many people feel. Yet, it's wrong. Sensation triumphs over evidence, and nothing can convince us differently. To see why - to see if we're becoming richer - we need to grasp some basic economic trends. Let's start with the following table. It shows the economy's output (gross domestic product), the number of workers and the output per worker since 1970. (Output figures are in "inflation-adjusted" 1987 dollars.)</br></br>Production per worker was 13 percent higher in 1990 than in 1970 ($41,600 is 13 percent more than $36,850). In fact, gains in productivity are higher, because recent workers (disproportionately women) average fewer annual hours than workers in the 1950s or 1960s. Thus, output per hour rose about 27 percent between 1970 and 1990. Higher productivity means higher incomes. What are we getting now that we weren't in 1970?</br></br>Well, more health care: In 1970 there were 14,000 heart bypass operations; by 1991 there were 407,000. More schooling: Sixty-three percent of high school graduates now go to college, up from half in 1980. Cleaner cars: In 1970 few cars had anti-pollution emissions controls; now all do. More gadgets and conveniences (VCRs, cable TV, home computers, car phones): between 1970 and 1992, the number of homes with cable TV rose from 5 million to 57 million. Bigger homes: The median size of new homes went from 1,385 square feet in 1970 to 1,905 square feet in 1990.</br></br>A list like this could be extended almost endlessly. The idea that material living standards for most Americans are stagnating - or even falling - is absurd. We take many things for granted now that barely existed in the 1960s. The main reason for higher living standards is higher productivity, but it's not the only reason. Another is the slow drop of military spending. Between the late 1960s and now, military spending declined from 8 percent to 4 percent of GDP. In today's dollars, the difference amounts to about $260 billion annually of extra civilian spending.