Postwar vs. New Gilded Age: How did the middle class do?

Here's another point in the ongoing debate over the fate of the American middle class in recent decades (installment 1 here, installment 2 here).

In his original post, Brad DeLong wrote:

Across most of the income distribution Americans today are little if any better off than their predecessors back in 1979...For 150 years before 1979 Americans had confidently expected that each generation would live roughly twice as well in a material sense as its predecessor, not find itself struggling against the current to stay in the same place.

In my previous posts, I pointed out that median household income had increased. But let's just look at median individual income. Was 1979-2000 really worse than the postwar period, for the average person?

Let's look at the relative performance of the period, not its absolute performance.

I found this cool graph from the Russell Sage Foundation. Using Census data, it shows inflation-adjusted median and mean household and individual income, starting in 1947:

Median individual income in constant 2012 dollars is the green time series. I drew three horizontal lines, corresponding to 1947, 1979, and 2000. 

From 1947 to 1979, real median individual income went from around $16,000 to around $21,000 - a total increase of about 32%. That is a compound annual growth rate of about 0.8%.

From 1979 to 2000, real median individual income went from around $21,000 to around $28,000 - a total increase of about 33%. That is a compound annual growth rate of about 1.38%.

Let's do a comparison that's a little more favorable to DeLong and Thomas' argument, and a little less favorable to mine. Let's use 1972 as the end of the "good" times and 1972-2012 as the "bad" times.

From 1947 to 1972,  real median individual income went from around $16,000 to around $23,000 - a total increase of about 48%. That is a compound annual growth rate of about 1.46%.

From 1972 to 2012,  real median individual income went from around $23,000 to around $27,000 - a total increase of about 17%. That is a compound annual growth rate of about 0.4%.

Finally, From 1979 to 2012,  real median individual income went from around $21,000 to around $27,000 - a total increase of about 28%. That is a compound annual growth rate of about 0.76%.

You can play around with these numbers more, but several conclusions emerge:

Conclusion 1: If you go by personal rather than household income, it is not true, as Brad asserts, that the average American saw his or her material standard of living double in the Postwar period.

Conclusion 2: The period from 1979-2000 - the Late 20th Century Boom - was about as good for the average American's income as the Postwar Boom period from 1947-1972. The Postwar Boom wins, but only slightly, since both booms have fairly high compound growth rates.

Conclusion 3: The Total Postwar period, from 1947 through 1979, is almost exactly the same as the Total New Gilded Age from 1979-2012, although both have fairly low compound growth rates.

Conclusion 4: The Late 20th Century Boom thoroughly thumps the Total Postwar Period (1947-1979) in terms of the growth in the material standard of living of the average American.

Conclusion 5: The 1970s was bad, but was over quickly. The Post-2000 period has also been bad, and is stretching out for longer than the 1970s.

In other words, Brad DeLong's contention that the average American saw a dramatic slowdown or reversal in the rate of growth of his or her material standard of living in 1979 is not supported by this evidence. And his contention that the Postwar rate of growth in material standard of living represented a generational doubling is not correct, if you exclude the effects of technological improvements. It was more like a 33%-50% increase.

And my contention that the period from 1979-2000 was a great time for the average American's material standard of living is correct, if you compare it to the period from 1947 -1979, and even looks pretty good if you compare it only to the best Postwar decades.

Again, this is not accounting for leisure and home production. But observe that the Postwar period, just like the period from 1980-2000, saw a steady increase in the percent of women in the labor force:

Therefore, hours spent on home production were decreasing at about the same rate in the Postwar period as in 1979-2000. In other words, although women's workforce entry contributed more to rising income in 1979-2000 (because women's wages had converged somewhat with men's by then), the rate at which household production hours were sacrificed - the rate at which women exited the home and went into the workforce - was roughly the same in both periods.

So as I see it, the entire case that 1979-2000 represented a dramatic slowdown in the growth of material living standards relative to the Postwar period rests on the fact that leisure increased during the Postwar but flatlined during 1979-2000:

If you want to make the case that the American economy did dramatically worse for the average American in 1979-2000 than in 1947-1979, this is the most convincing case I can think of. 

(Note: I still think the Postwar period represented a much bigger jump in the welfare of Americans, since marginal utility of consumption is concave. Getting food on the table, warm clothes, and a roof over your head is vastly more important than getting a bigger house, a second car, etc.)