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Living Standards

March 26, 1999

Euphoria about the economic boom is nearly universal. We are living through a record economic expansion, brought on by factors both real (technological improvements and the opening of new international markets) and unreal (the Fed's loose money policy and regulatory subsidies to the stock market). How long it will last, no one knows.

But it will need to last much longer if the American economy is going to catch up to its levels of prosperity enjoyed before the US went off the gold standard in 1973. It is not very well-known that due to the resulting inflation, median household income remained stagnant throughout the eighties and the early nineties, despite the economic boom, and has only recently begun to recover.

A remarkable pattern emerges when you break down the data by sexual demographics. Compared with 20 years ago, the median earnings of working men between the ages of 25 and 34 have fallen 17 percent. That means that these young men (of all races) are earning less than their fathers, as Dismal.com points out. The same pattern exists for men ages 35-44, while the older generation has experienced a 3 percent loss.

Figuring the increase of taxes into the data makes the picture look even worse. From 1957, taxes as a percentage of median family income have increased from 27 percent to 37 percent. Adjusting the data to take that into account, median male income in real terms sits only slightly above its level in 1957. The gains made by men from 1957 to 1977 have been almost entirely wiped out.

In contrast, the wages of women have increased proportionately. Does this mean that women's gains are coming at the expense of men's? Not necessarily. The crucial difference is found in dramatic demographic changes. Over the past forty years, female labor participation rates have increased from one third to two thirds, with the crucial 50 percent turning point coming in 1984. It is now more likely that women with young children are working than not—a complete reversal of a long-established pattern.

What fed the boom in women's employment was not feminism but the dramatic real decline in the income of men, particularly husbands. With the onset of double-digit inflation in the late 1970s, no longer could a family maintain its income with only the husband working. Married women elected to enter the labor force to supplement the family income. Hence, the much-touted job machine of the 1980s owed more to the Carter inflation than most people realized.

Alongside this has come dramatic cultural change. Women no longer expect to purchase financial security with marriage. Instead, they prepare for careers on the assumption that they must be a breadwinner, and the financial demands of child care mandate that they seek to maximize their earning power.

The feminist dream of career-minded women throwing themselves into work, bearing fewer children, and being less engaged in a rich domestic culture, has come true, thanks to economic insecurities created by bad economic policy. The question of whether this actually constitutes a gain for society is something else entirely.

Family income overall has not improved measurably. And contrary to the propaganda, women today feel they have fewer choices than they once did, because the option to be a full-time mom is less available. Families that could once take advantage of the division of labor between husband and wife now find they have had to redouble their efforts—professional and domestic—just to keep up. The economic insecurities fed by this reality have been effectively exploited by statist politicians who seek further regulation of the workforce and ever more middle-class welfare.

If the current economic boom continues long enough, we could begin to see a reversal of the decline in men's wages that led to the imposed professionalization of women. The more economic security the family has, the more likely wives and mothers will elect to purchase more time to spend on domestic affairs. There are already signs of this happening, as prominent women lawyers and executives announce that it is impossible to have a high-flying career and raise a family.

In recent years, families have benefitted enormously from the relative decline in inflation. American consumers have even been rewarded with falling prices in a wide array of goods from gasoline to computers. The decline in steel prices, for example, has been reflected in cheaper cars and lower costs of production in the industrial sector.

Several factors threaten to reverse this. Oil prices are creeping up again, and so long as the Clinton administration keeps Iraqi oil off the market, Opec can be somewhat successful in holding down production. Car-hating liberals rejoice in this trend, but it is awful for the American consumer. Similarly, with the Congress's tariffs and the White House's bullying, the US government seems determined to bring about a trade war with Europe—a surefire fast track to recession.

The scariest piece of data has received virtually no attention from the press. The Federal Reserve is stepping on the monetary gas at levels not seen since the 1980s. As charted by M2 (a broad measure that encompasses not just cash and checking but also money markets and savings), the money supply is growing at a 9 percent pace. Neither is this a statistical aberration (the effects of financial deregulation having been factored in long ago). It is a direct consequence of the Fed's interest-rate interventions last year to keep the bull market from turning to bust.

The biggest enemy that prosperity has is war, and both political parties are determined to keep the US the bully boy of the world. Recall that the stock market plunged the moment that the Clinton administration announced its intention to aggress against Yugoslavia. War drains and destabilizes the economy.

The combination of protectionism, inflation, and war is a prescription for total economic wreckage. How tragic if this combination–all forms of government intrusion in the free market—were to thwart the recovery of American prosperity just when it is beginning to benefit the average American family.

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Llewellyn H. Rockwell, Jr., is president of the Ludwig von Mises Institute in Auburn, Alabama.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

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