23.3.16

RUNNING OUT OF HOUSEHOLDS TO TAX?

Strong Towns have been asking questions this week about economic growth, mostly to suggest that the weak suburban and exurban communities that seem to be blighting the landscape depended on the kind of growth that counted on an expanding population.  Think a simple balanced growth path in which savings finances investment proportionally to population growth, sf(k) = nk, where s is the savings rate, n the growth rate of the labor force, k the capital-labor ratio, and f(k) the factor-intensive aggregate production function.

But we have complications, including capital-augmenting technical change, and changes in the composition of the labor force, which affect both k and n.  And changes in the labor force participation rate of married women become part of the diffusion of blight, that is, just another growth imperative.
There is a tragic paradox to the women’s movements of the past century, specifically when it comes to women in the workplace. What started out as liberation – the choice of whether or not to work and to have that labor valued and respected in the same way as a man – has evolved into something else. Today most women do not have a choice as to whether or not they work. Work is an economic necessity.
Gosh, there are laws of conservation?  "Pie-slicing, and deckchair arranging. But that's a lot easier to grasp than as more hands are involved in baking and eating the pie, prices will adjust to reflect both the increased size of the pie and the increased buying power of the additional hands." Don't say I didn't warn you.  And thus does labor force participation by married women change from a signal of independence to an economic necessity.  And you cannot change the laws of conservation.
In a theoretical sense, women entering the workplace should have meant a number of positive things at the family level of finance. For a home that now had two breadwinners, it should have meant a higher standard of living. It should have provided the household with more capacity for leisure time. It should have given the other spouse the ability to work less or to choose a different job that perhaps was more fulfilling. In short, the sacrifice of extra labor should have provided the benefit of a better life for everyone.
That second income can produce a higher standard of living when there are relatively few two-income households. Make the two-income household the standard, and prices will adjust accordingly, and providers of child care might appropriate the gains. It might be that assortative mating might lead to the highest-earning two-income households being early rejecters of the traditional corporate job description.  The adjustment of house prices, automobile prices, day care prices, and the rest will follow, but slowly, and, like everything else, the adjustments will be uneven.

But the growth that the Strong Towns post addresses appears to be the old kind of growth.
It may have in the early years, but our insatiable lust for additional economic growth wore away those benefits. We've now reached a point where we have sucked all the productivity gains out of employing the other half of our workforce -- as economists like to call women -- and still we need more growth.
No, you're getting growth, but you're on a different path, where k reflects the increased labor force participation, and n is smaller because of the labor force participation, and those tax-starved suburbs and exurbs are confronting the realities of a different sort of balanced growth equilibrium path, if we can even think in those terms.

On the other hand, perhaps the post is asking readers to think about what being comfortable means.
Imagine how spartan and deprived your life was back in the 1990's (not). If you were to have sacrificed and simply maintained that standard of living -- house sizes, gadgets, automobiles, etc... -- today it would only take three days of your labor each week to sustain that quality of life. So, if we measured success in terms of....say....leisure time instead of growth, the path we've been on the last two decades has resulted in a vastly reduced standard of living.

We don't measure success in leisure time, however, which is actually an interesting observation when one stops to ponder it.
We used to measure success as being comfortable.  One of the sources of disagreement during the Gilded Age was precisely the rising industrialists obsession with accumulation.  That ran counter to the hopes of the yeomanry, for whom starting with a log cabin and passing a frame house to the children was success.

Social norms, though, are emergent, and perhaps in thinking about them do the new ones emerge.

2 comments:

David Foster said...

"Imagine how spartan and deprived your life was back in the 1990's (not). If you were to have sacrificed and simply maintained that standard of living -- house sizes, gadgets, automobiles, etc... -- today it would only take three days of your labor each week to sustain that quality of life. So, if we measured success in terms of....say....leisure time instead of growth, the path we've been on the last two decades has resulted in a vastly reduced standard of living."

Is that really true? Don't statistics show that the median inflation-adjusted income hasn't increased since...can't remember exactly when, but it was earlier than the 1990s.

Stephen Karlson said...

Those cost-of-living baskets used to reckon real wages are darned hard to adjust for performance, particularly as new items emerge. Thus, if the median income might make it possible to buy a washing machine in eighty hours back in the American High, and it's less than a day today, where does that show up in real wages? If a car takes half a year's work to buy today, and it has bigger seats and better gas mileage and more safety appliances let alone that pull-down video screen for the kids in back, and built in navigation and Bluetooth capabilities, is that losing ground relative to the car of the American High that could be earned in five months? (I'm improvising with the numbers, feel free to check for the accurate figures, which probably don't do much damage to my question.) Houses are bigger.

That, I suspect, is the comparison the author is making, and by his reckoning, people might have been able to maintain a comparable living standard whilst working fewer hours. Over the long term, that's almost certainly true, we are all of us underemployed relative to our ancestors of the Gilded Age, who put in many more hours in quest of much less stuff.