Russ Roberts: prediction

Transcript context

…You’ve argued in the past that the actual increase in living standards over, say, the last 50 years might be greater than what we’re measuring, or at least greater than what many people claim is the case. If that’s true, and growth is so strong, is there actually any case left for fiscal conservatism? Because if the growth rate of the economy is higher than the government’s borrowing rate — which is the case even under the pessimistic numbers — why do we need to worry about budget deficits? I wouldn’t say that’s the most important thing to worry about. You’re right, I do think that the worry du jour thing that I think is the sort of mainstream everyone-knows worry is that a rising tide no longer lifts all boats. I think that’s absolutely wrong. I think a rising tide has definitely lifted most boats widely across the income distribution and that the belief that it’s otherwise is the result of a selective use of certain kinds of data that are imperfect. Let me say two things, actually. One is that my optimism, my cheery view of growth in the past isn’t just that we’ve mismeasured inflation. It’s that we’ve mismeasured the gains to the average American because of changes in household structure, for example, which I think is probably the most important fact. Just take a simple example: Everyone’s married and all households have two people in them, whether they’re both earners or not, but that makes it easiest just to assume they’re both working. Now, all of the sudden, you increase the divorce rate or lower the marriage rate, two things that have actually happened in America, dramatically, over the last 40 years, especially among low-education individuals — people who didn’t finish high school, or finished high school but didn’t graduate college. You start adding additional households in the left-hand tail of the distribution. That alone is a disproportionate share because of that difference in the marriage and divorce rate. That’s going to pull the median down. The median has moved to the left. I think that failure to recognize that is an extraordinary failure on the part of our profession, that so many studies have been done on quintiles and medians. Now, you should use the median relative to the average because the median takes out outliers, the high right-hand tail — good idea. But then you still have this other problem that people don’t acknowledge or seem to pay attention to, which is that your analysis is now going to be distorted by changes in household structure. So my first claim is that the — Yeah, but say that’s all true. Can the government just spend a lot more money and borrow, and we’ll just grow out of the debt, not much crowding out?…

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