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Comment by dreww | Hacker News Reader

living standards have improved despite the rich getting richer.

Citation needed. Please explain how the living standard in the US can have improved if real wages have fallen. Oh wait, the answer is an incredible increase in consumer debt. That seems to be working out.

Keep calm and carry on.

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Please explain how the living standard in the US can have improved if real wages have fallen.

If by "real wages", you mean "wages adjusted for chained CPI" (this is what most people mean), the answer is because the basket of goods used to compute CPI has become larger.

I.e., consider the following scenario. In year 0, there is one good - food. A basket of food costs $100. In year 1, medicine is invented, and the cost of food goes up to $101. Inflation is 1%.

The basket of goods is modified to reflect the invention of medicine, and is now comprised of 50% food, 50% medicine. In year 2, the cost of medicine increases 10%, and food decreases by 2%. Chained CPI now reports an inflation rate of 3.45%. Is life worse in year 2 than in year 0? (This is a combined 2-year inflation rate of 4.5%.)

Of course not. In year 2, you are paying $99 for a basket of food. In year 0, you are paying $100 for food and Medicine doesn't exist.

I have yet to see anyone construct an inflation measurement based on a fixed basket of goods (which is held constant over the years) that shows real wages have gone down.

thanks for your response - do you have a link to any data that shows the outcome of holding the basket of goods fixed? i will try to find some as well, just thought you might have some data handy.

> "Citation needed"

I'm a big fan of the American Housing Survey (from the Census Bureau): http://www.census.gov/hhes/www/housing/ahs/nationaldata.html

Data from 1970 - 2009, detailing living conditions for Americans as a whole. In recent years, many data tables have a column for Americans below the poverty line. Compare the data for living standards for the poor in 2009 to the overall population in 1973. By any reasonable measure of "living standards" I've been able to come up with, the data shows the poor in 2009 are doing well in comparison to the overall population in 1973.

"Please explain how the living standard in the US can have improved if real wages have fallen."

I cannot believe the ignorance of Ycombinator at times.

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&#...

Keep calm. Carry on.

I can't believe it either. Some even believe in the economists' equivalent of a cosmological constant: PPP, which when employed miraculously turns Louisiana into a richer place than Switzerland.

What? Louisiana has a GDP per capita (PPP) of $37K. Switzerland has a GDP per capita (PPP) of $41.6K.

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_...

http://en.wikipedia.org/wiki/Comparison_between_U.S._states_...

In regards to GDP by PPP:

"Comparisons of national wealth are also frequently made on the basis of nominal GDP, which does not reflect differences in the cost of living in different countries (See List of countries by GDP (nominal) per capita). Using a PPP basis is arguably more useful when comparing generalized differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of the countries, rather than using just exchange rates which may distort the real differences in income."

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_...

That's interesting. From my subjective observations while traveling in Louisiana and in Switzerland I'd say people in Switzerland are living much better. Where does all that GDP go?

I think that just goes to show how silly making comparisons based on a few isolated numbers can be.

The problem with Economics is that, in trying to get a handle on the enormous complexity of its field, they constantly over-simplify. GDP, for example, is in itself a poor indicator of wealth. If I sell you something for $10, you sell it back to me for $20, and I sell it back to you for $30, GDP is up $60.

But in all of Stupidtown, PPP is the village idiot. First, which basket of goods do you choose? Whatever you select will favor some cultures over others. Second, what about the quality of goods? Butter might be cost the same in terms of hours worked, but for that same amount, the Swiss get pure, mountain-made butter, whereas in LA they get corn-oil margarine. Then there's the flattened world. It used to be that you would earn more in Switzerland, but a couch, for example, would cost more. But now, both go to IKEA and the costs are nearly identical. A tablet computer? Flat-screen TV? Car? Those things essentially cost the same everywhere. When the Swiss go on vacation, their better income means they get a lot more and they go to much nicer places. Then there's taxes. The Swiss pay about the same percentage as in LA, but for that they get amazing things: free university, guaranteed health care, etc.

Finally, there's the wet-finger test. If the weather models show that it should be sunny and you step outside and it's wet, please consider that despite what you read: it's raining. I'm American but I've lived in Switzerland, and I must humbly admit that there's nowhere in America that comes close to being as wealthy as Switzerland.

Visit Baton Rouge and then visit Zurich. You will laugh your ass off at the notion that LA is 10% off of Switzerland's wealth. You will then laugh at economists themselves as the poorest of weather scientists who simply don't know how to walk outside.

i don't think you can really make an argument that the GDP graph given in the google link is applicable to what i said. but if you can, i'd be interested to hear it.

Look at the amount of time the average American has to work in order to by food. It's much less than it used to be. The only reason it feels like we have less money is because we have more stuff to spend it on.

Look at how long the average American has to work to pay for the housing that is considered socially acceptable.

That just proves my point. Once again, we feel poor because we have so much more stuff to spend money on. Houses in America today are HUGE compared to what was acceptable in the past. A nice house today would have been considered outrageously opulent 40 years ago.

This was also primarily caused by a housing bubble. A bubble that was created in part because of government intervention causing increased demand for houses (mortgage interest deduction, low interest rates).

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