Kinsley doesn’t touch on any of this. He mentions two reasons for this “feeling,” one of which is soaring income inequality, which is indeed a big factor. The other is not:
Among them, the relation between making or having money and feeling prosperous is far from linear. America’s GDP in 1985 dollars back in 1985 itself was $6.8 trillion — barely half what it is today. Yet 1985 was the apogee of President Ronald Reagan’s “morning in America” boom, when you were far more likely to find stories in the media about chicken-dinner sellers who became nursing-home executives than the other way around. In judging our own prosperity, we don’t compare it with long ago — or even 20 years ago. We compare it with how other people are doing and how we ourselves have been doing recently. It’s no comfort to be told that you’re a thousand times richer than a caveman. If a caveman killed a wildebeest, he felt rich and actually was rich by the standards of his time.
A more important reason that $13 trillion doesn’t feel as rich this time as the last time we passed through it is the increasing inequality of wealth and income. In 1984, a family income of $81,365 (2009 dollars this time) put you in the top fifth of all American families. In 2009, it took 23 percent more, an even $100,000. To make the top 5 percent required income of $180,000 in 2009, compared with $68,500 (in 2009 dollars) back in 1984.
Why would you use 1985 dollars to talk about 1985 GDP, and 2010 dollars to talk about 2010 GDP, but use 2009 dollars to talk about 1984 median income a paragraph later? There’s no good reason. And sure enough, using uniform numbers seriously undermines Kinsley’s case.
If 1985 GDP was “barely half what it is today,” as Kinsley says, what’s a dollar worth in 2009 compared to 1985? Fifty cents. Comparing these two numbers without adjusting for inflation is totally misleading.
If 1985 GDP was $6.8 trillion in ‘85 dollars, then 2010 GDP (as of the third quarter, which I think is Kinsley’s measure) was $7.3 trillion in ‘85 dollars. That’s a real increase of just 7.3 percent over a quarter century. To put it another way, 1985 GDP was “barely” 93 percent of what it is today.
But that’s not all the mess Kinsley makes of the numbers. Check out his second paragraph:
I ask because after the most severe recession since the Great Depression, and with a slow recovery, the U.S. economy, nevertheless, is back to producing about as many goods and services as it did in the third quarter of 2007. Adjusting for inflation and using 2005 dollars, our seasonally adjusted gross domestic product was $13.268 trillion in the third quarter of 2007. Three years later, it was $13.277 trillion. If you want to account for population growth, push the time machine back to the fourth quarter of 2006, when Jack Abramoff copped a plea and the real seasonally adjusted GDP was $13.060 trillion.
Say what? Why would you adjust for inflation to 2005 dollars? And how does this account for population growth?
More to the point: Why would you write this column?