latest posts:
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The fiduciary class
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The $200,000 standard deduction
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Where am I?
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Constant real wages can hide a lot of pain
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When is the economy good or bad?

# The fiduciary class

I want to riff a bit on this exchange between Kevin Elliot and Samantha Hancox-Li. (I hope they'll forgive that I've played around with formatting and added punctuation.)

> Elliot: ...What's changed are norms surrounding representation & aspiration. Being an educated, cultivated person has become widely politicized in a wider environment of transgressive populist contempt for conventional respectability.

> Hancox-Li: i think not unrelated to this is that the dems are steadily becoming the party of the professional-managerial class and are incredibly embarrassed about this. this of course mirrors the pmc itself, which instead of achieving class consciousness has achieved "class neuroticism", by which i mean: in practical terms members of the pmc devote much of their life's effort to becoming pmc while also remaining in deep denial that this is in fact their aspiration. i dunno tho i think being well-educated, decent, and prosperous is not a bad thing to aspire to. it might even be good actually. makes u think... i basically blame marx for this. the pmc is convinced that salvation needs to arise from the working class--hence the paradoxes discussed in "ultraliberalism," AND the essay's own prescription "go organize a shop floor".

I'm a person very much of the educated professional class. I encourage people to become educated and cultivated. Education and cultivation should embarrass no one.

(Cultivation, of course, includes moral sensibilities like, "it is cretinous to embarrass people solely for their purported lack of education or cultivation." When the United States was good, much of what made it good was a social oxymoron, promoting cultivation along with ostentatious disdain for putting on airs.)

Nevertheless, I do think that "we" — by which I mean the professional class — fucked up. And we are smart enough to kind of know it. Hancox-Li is right. We are embarrassed about something. But we are not so clear about what, so it comes through as neurosis. I'll suggest what I think we should, in fact, be embarrassed about, not in order to prescribe hairshirts, but so that we can just not do that anymore and then stand proud again.

In 2019, I offered the following tweet. I am unduly fond of it.

> alignments and outcomes:

> working class + professional class ⇒ social democracy

> professional class + plutocrats ⇒ liberal plutocracy (“neoliberalism”)

> working class + plutocrats ⇒ fascism

I think that during the period from the middle 1970s through the 2008 financial crisis, we, the professional class made a rather catastrophic error in judgment.

(Obviously I am overgeneralizing — we have always been a heterogeneous and fractious crew — but, you know. In general.)

The consensus among our class — which I shared! — was that our society was imperfectly but sufficiently a meritocracy, and that the basic frame of what came to be called "neoliberalism" was correct. A heavily marketized society was a society we-the-merited could succeed within, and it was also the form of society that would maximize all of our prosperity. The fact that our successes might be generously remunerated was not just a matter of private enjoyment, but reflected genuine social virtue. We had achieved a society in which one did well by doing good.

This was never accurate. But journalists, think-tankers, and academic social scientists who were willing to advance this perspective in their work could count on career success. Which contributed to a consensus (not least but not only within the discipline of economics) that this suspiciously self-flattering perspective was in fact true. It was "science". The people at the top of many fields embraced it. Dissidence became hard to distinguish from sour-grapes conspiracism.

"Liberal professionals" had been recruited into what John Kenneth Galbraith describes as the role of the modern conservative. They were "engaged...in one of man’s oldest, best financed, most applauded, and, on the whole, least successful exercises in moral philosophy. That is the search for a superior moral justification for selfishness."

They had, in other words — we had — become paid mouthpieces for the rich, who always want to be flattered that their wealth is merely a marker of their virtue, and who, more importantly, want their inferiors to believe that. Otherwise reformists, or, God forbid, revolutionaries, might emerge, and confuse among the public their causes for justice.

Some of us did pretty well, for a while. Academics could be surprisingly well paid. Software developers bought ranches. Finance became a philosopher's stone by which one could convert research and a love of mathematics into exorbitant prosperity.

What was not to like? The educated could thrive via the fruits of applying their education. The best educated economists assured us that for all the wealth we appropriated, it was less than the value we contributed. However great our opulence, it was less than our effective generosity. Follow the science.

All of this was bullshit. Society was not well-arranged. Even within the ranks of the professional-managerial class, most of us did not do so well. Like the broader world we helped to justify, our own fates became stratified and increasingly structured as lotteries most of us would lose, but whose outcomes one could rig via certain kinds of institutional attachments and social connections. The information superhighway meant the world was flat. It became more important than ever to go to Harvard.

Most of us ended up pretty miserable along with everybody else.

As Hancox-Li suggests, there is nothing wrong with wanting to be prosperous. We should all want to be prosperous!

But what it means to be prosperous is contested. One definition of prosperity might be a stable income sufficient to ensure a comfortable middle-class lifestyle.

But there is also the fractal definition of prosperity implicit in the behavior of the very rich, under which no amount of wealth is sufficient. Wherever you rise to in the distribution, it looks to you the same as where you last were. You find yourself competing for positional goods, in tournaments whose outcomes become consequential to your actual welfare, not just to your vanity. There are always rivals who have more, or who at least are contesting for more. Either you continually accumulate, or you fall behind. "Prosperity" must always be pursued, but it can never be achieved.

During the neoliberal period, professionals increasingly adopted plutocrats' version of prosperity. First as aspiration, then as desperation. Eventually it became difficult not to join the race. Falling behind would have consequences for ones children. Failure might be forgivable, but opting out was irresponsible. Prestigious academics became consultants, expert witnesses, paid speakers, despite already commanding enviable salaries. Entrepreneurial means good, right? The version of prosperity we adopted was "more" rather than "enough".

To return to my little tweet, we professionals had effectively aligned ourselves with the plutocrats. The result was an economy that immiserated an ever growing share of the nonplutocrats, the less-educated, but also those in our own ranks who did opt out of the insatiable contest for more, or who simply failed at it.

That immiseration left the alignment democratically untenable. The less-educated, along with a so-called "downwardly mobile" fraction of the professional class, grew restive, hungered for some outsider to overthrow a game that made them losers and then insisted it was their own fault.

The wise decision would have been for professionals, as a class, to join the working class in a muscular play for social democracy. Unfortunately, the professional class was famously divided (cf the neverending 2016 Democratic primary), while plutocrats coopted a growing share of the working class via the person of Donald Trump. The result of a working class + plutocrat alignment has been and is fascism.

Hancox-Li is right to question paleo-Marxisms that presume the only way forward is the one conceived while the emerging form of work was tending steam-powered machines in labor-intensive factories. An objective alignment of workers' material interests against their bosses might still exist, but labor conditions under which that alignment would ever be likely to translate to effective organization have largely disappeared.

It is no answer, however, to imagine that Democrats should become the party of the professional-managerial class alone. Under a two-party system, the obvious problem is that people with advanced educations are unlikely to constitute a majority.

Plutocrats have long understood democracy is a system that inherently renders them naked and vulnerable, so they must somehow coopt sizable elements of other groups. In postwar, post-GI-bill, America, professionals do constitute a mass constituency, which can encourage a kind of hubris. A mass constituency we are, but still a minority. Our challenge should be more tractable than plutocrats': We are a greater fraction of the public, and we share a greater alignment of material interests with the rest of the public than plutocrats do. But plutocrats have outsize resources and a cohesiveness born both of commonality of interests and smallness of scale. Socialists proclaim solidarity. Plutocrats practice it, despite their personal rivalries and soap operas of mutual detestation.

Further, plutocrats will always be able to divide us. We are a class defined by pursuing unusual excellences on behalf of those willing and able to pay us. We are the people who perform the actual work of contesting politics on behalf of plutocrats, even where that politics is at variance with our own class interest. (Plutocrats pay handsomely to align our individual interests with their politics.)

We do have a weapon, though. What is it that Trumpists seek to undermine more than any other thing? What is their kryptonite? It the capacity for any form of authority to emerge whose pronouncements resist being bought. The standards and ethics of our professions, imperfect and compromised though they are, remain a constant threat. They are a threat not because we are numerous, but because despite the firehose of shit they flood the zone with, the liberal professions are institutions whose core purpose is to distinguish virtues from falsehoods in each of their many domains, and when we do that well, a broader mass public might find our views persuasive.

During the neoliberal era, we really did let our standards lapse. Yes, the anti-vaccine movement is catastrophic bullshit. But the medical profession really did allow itself to go along with the pretense that oxycontin was a not-so-addictive miracle drug, and that was never a supportable claim. Our vulnerability to the former is not unrelated to the latter. In a variety of ways, over the past few decades, we allowed ourselves to be seduced into a kind of betrayal of the bargain that must bind a democratic society to its experts and professionals:

We, the broad public, generally defer to your authority. You, the professionals, exercise that authority competently, in the interests of the public, in a manner structured to maximize rather than override the scope for individual and democratic choice under the actual objective constraints.

I think that if we want to recover the trust of the broader public, we need to acknowledge that we did succumb to the corruptions inherent in the increasingly unequal society whose emergence we helped to justify. We need to enact institutional changes that would make such failures less likely going forward. (I have ideas.)

Moreover, I think we need to overtly reconceive of ourselves. The connotations of the word "professional" contain a contradiction we must definitively resolve. Do we define ourselves as inheritors of great bodies of knowledge, bound by and stewards of ethical and epistemological standards which have been developed and refined over generations? Or do we define ourselves as people who do stuff for money, careerists essentially?

During the neoliberal era we pretended there was little contradiction in those two roles. That's about as clever an idea as the safety of oxycontin.

I'll end all this a bit pathetically, by proposing the lamest remedy imaginable, a rebranding. But maybe there is some mitigation in a rebranding whose intent is not to persuade customers, but the rebranded providers themselves, that they now are, or ought to be, different. I propose that the class formerly known as professional adopt the word "fiduciary" as its defining characteristic.

We are not in the business of selling our capacity to apply expert skills, to whomever is willing to pay us most, in our own interest. We are in the business of applying expert skills in the public interest, which we have an obligation to put before our own. Professionals, as a class, must be fiduciaries, not (just) to our own clients, but to the democratic public writ large.

That must go beyond mere aspiration. We must reshape our professions so it becomes plausible that our obligations to the public interest override our own interests. That means altering the structure, and ultimately compressing the potential scale, of compensation. Excellent professionals should prosper. There should be a degree of incentive to encourage activity and capability. But when extrinsic incentives become too strong, too "high-powered", they undermine virtue. We need a flatter structure of outcomes, one that does not so heavily penalize pursuit of excellences that are not so rare or novel, like teaching, care work, or the tedious, meticulous aspects of science. Among the most important thing professionals do is help adjudicate complicated tradeoffs. At best, outside incentive providers misunderstand these tradeoffs, and risk accidentally skewing outcomes. More often, incentive providers have parochial stakes in outcomes, and so the skewing is not accidental. We need to dramatically reduce the role of outside incentive providers in shaping how professionals behave.

# The $200,000 standard deduction

I favor it!

But as part of a broader package.

A bunch of Democratic politicians have called for big exemptions from the income tax at the low to middle to even upper-middle end of the income spectrum. Chris Van Hollen and Cory Booker have offered proposals at the Federal level, accompanied by Katie Porter at the state level. The plans are accompanied by promises to make up lost revenue by increasing taxes at high incomes or on the very wealthy.

There has been a so-called "wonk revolt" against these proposals. As the always wonderful pseudonymous James Medlock puts it, Democratic tax cutters "ced[e] the right-wing frame that taxes are a problem to be solved, rather than a way we collectively solve problems.” The proposals have been colorfully derided as "slopulism", suggesting the cheap but ultimately fraudulent appeal of so many AI videos.

I think of myself as pretty wonkish, yet I strongly favor not letting the income tax kick in until pretty high income levels. Two cheers for Van Hollen, Booker, and Porter!

I agree with critics of these proposals that a civilized state requires broad-based taxation. Taxing the rich won't do it. Taxing the rich won't do it even if you fully replace the revenue you lose, because dollars from the middle-class are not fungible with dollars from the rich with respect to the purposes of taxation.

If you cut taxes on a teacher by $10,000 but raise taxes on Elon Musk by $20,000, you have reduced the deficit, but you have created less, not more, fiscal space for government action. This is because the teacher is going to spend her $10,000, putting a bid under current goods and services, limiting the space available to the state before its spending proves inflationary. The $20,000 Elon Musk would have kept would have sat in an investment portfolio, and affected his spending behavior not at all. A marginal dollar of Musk's income is almost entirely inert with respect to current spending and so inflation pressure. A marginal dollar of a much more deserving teacher is hot money.

So, if you want to have a civilized social democracy, you absolutely do need broad-based taxation, or some other means of regulating expenditure flow from the middle class. I am with the revolting wonks on that.

The question is what form the tax should take. To answer that question, we should work towards legibly different purposes for different taxes.

Creating fiscal space, "financing the government", is not the only or main purpose of taxation. An equally crucial purpose is regulating the distribution of wealth and income. American policy is a catastophe in part because its wonk class has not publicly made the case for this function, which has left our tax policy and the discourse surrounding it incoherent. As long as we cede, to steal a leaf from Medlock, the case that taxes are a necessary evil we accept only to buy government services worth their cost, we won't have a decent society, because you can't have a decent society with dispersions of wealth and income level as great as we currently now accept.

The purpose of income and wealth taxes should be solely, openly, to regulate the distribution of income and wealth. The way plutocrats have destroyed the United States is precisely by blurring the lines between taxes we impose upon them to ensure we remain a cohesive political community and the middle-class taxation necessary to finance a civilized society. Plutocrats defang the income tax by using middle-class and ordinarily affluent people as human shields. They persuade upper-middle class people that hard-working professionals and entrepreneurs are taxation's "victims", people ripped off by getting less in value than they pay in, when in fact it is only the very wealthy, people rich enough to be able to remove or immunize themselves from social pathology, for whom that is even arguably true. An affluent accountant in fact has more in common with a homeless person than with Jeff Bezos. The tax system should reflect that.

So, I favor a $200,000 standard deduction, $400,000 for married couples, then gentle progressivity from that point upwards, until we hit something close to a 100% marginal tax rate.

None of this is punitive. It's not because the very rich are bad people, although often they become bad people once they are very rich. It's because the shape of the income and wealth distribution is an essential matter of public concern, and limiting the dispersion of income and wealth levels is a necessary social function.

But then how do we finance the government? If we devote the income tax, openly and exclusively, to shaping the distribution, we still need something that regulates the expenditure flow by the broad public, so that there is fiscal space for an active social democratic state.

That, I would argue, should be the role of progressive consumption taxes.

Income taxes are for the rich, to limit just how rich they can become. The vast majority of the demos should see nothing to fear in them, and so should be supportive so long as we can make the absolutely true case that it is essential we regulate the distribution.

Consumption taxes become the broad-based taxes we levy and adjust to create space for the universal benefits that a civilized society guarantees. In European social democracies, this is the role of the value-added tax, which is a pretty good tax we should adopt as a financing tool in addition to much more aggressively progressive income taxes rather than as a replacement for them. VAT-style consumption taxes can be made modestly progressive by imposing lower-rates on essential goods, and by partially rebating the tax via a UBI.

Consumption taxes are the most intelligible, legible means to create fiscal space for government action, because they tax precisely the private spending that must be discouraged to create non-inflationary space for public spending. Legibility of the different purposes of different programs is important in a democracy. People should be able to understand what a program is and why they should support it. When a tax system, like our current income tax, takes on a huge hodgepodge of roles, it's easy for malentrepreneurs to tar the whole enterprise with the tax's least popular or most threatening aspects.

So, let's limit the income tax to people with very high incomes. And let's impose serious wealth taxes as well.

But let's not imagine we can make up for the loss of middle-class tax revenue by taxing the very rich. That's not even why we tax the very rich.

Let's tax ourselves, to finance the security and broad-based prosperity for which we all yearn, by replacing the middle-class income tax with progressive consumption taxes.

# Where am I?

I am in Montevideo, Uruguay. My family has mostly moved here.

We retain a US residence, in the most economical way I could arrange. To the degree it remains safe to do so, I hope we travel back to see family frequently.

But my kid will attend school in Montevideo, not in the US.

Yes, we have emigrated in response to the election of Donald Trump. We lived the last few years in suburban Pinellas County, Florida. We were very unhappy there. But prior to November 2024, we were gathering ourselves to move to a mid-size US city where a transit-centered urban life might be affordable. We were thinking about Pittsburgh and, um, Minneapolis, even though my wife and I both detest cold. In the US, we enjoyed living in San Francisco, but 400-ish square feet had become intolerable, and even that is less affordable now for us than it had been when we moved.

Leaving the country was a decision based on information flows much slower than the news cycle. While we were packing up our lives in December, I was more optimistic about the direction of the US than I had been since inauguration. But we were already committed to the move, had been by May, with advances paid to lawyers and a private school where the kid will be taught in English. (We figure he'll pick up Spanish quickly, but he's worked very hard in school, we didn't want to overthrow his academic successes by throwing him into the deep-end of education in a foreign language.)

Was this the right thing to do? I have no idea. You can see some of my thinking coming together in this piece from February.

I feel like a coward. I am relatively privileged as an American — economically, racially. My family is far from the top of the list of people under threat. But then events in Minneapolis are a reminder of how quickly the Niemoller poem can be run through.

Putting aside my own welfare, and my family's, is this the right thing to do, ethically? I don't know. I do feel I have an obligation to do my part, to fight for the United States. I am an American, and always will be. I remain tremendously proud of what the American experiment meant and still means in aspiration. We hold these truths to be self-evident, that all men are created equal. Government of the people, by the people, for the people.

Of course I am, we all should be, ashamed of how short the American reality has often fallen from those aspirations. Of how short the United States is falling now.

But the American project remains, in my view, a miracle in world history, and though it is wobbling — drunkenly, dangerously — we can and should and must save it.

My tiny contribution to human affairs comes through words. I mean to continue to write them. I will continue to have lots to say about how, in my view, the American experiment can be reformed, refounded, rise again from the pile of toxic ashes it has become.

I don't write much about my personal life here. That's not what this blog is for. But there are questions of standing, so you should know. Perhaps my cowardly flight means I have no standing to offer advice to the United States. That, dear reader, is for you to judge.

I will, nevertheless, do my best. If you are ever in Montevideo, please let me know.

# Constant real wages can hide a lot of pain

A thing that puzzles economistic types is why the public gets so mad about inflation even when, according to the stats, wages keep up with, or even more than keep up with, prices.

Some explanations are basically psychology. People anchor on certain prices as reasonable, and it takes a while to overcome a kind of instinctive sticker-shock revulsion. Can that box of cereal really cost $8?

There's what one might describe as the fundamental inflation-attribution error: People interpret wage increases as just desserts of their own efforts, but price increases as exogenous phenomona, beyond their control and unfair. As I wrote a while back:

> If a worker earns a constant nominal salary at a constant price level, she just never got a raise. But if a person gets a 4% raise and the price level rises by 4%, her experience is she earned a 4% raise through sweat and skill and staying late, ginning up the nerve to ask, demanding, holding firm. But then Joe Biden came along and took it away from her with his inflation.

There are also explanations that are more objective, less psychological.

When inflation is high, the dispersion of prices and wages is also high. Under zero inflation and constant wages, forward-looking economic calculation is easy. You can think about what you'll need a few years from now, observe how much those things cost, and try to save what you need.

Your plans won't be perfect. Maybe the price of cereal goes up while the price of bacon goes down. In aggregate, there's no inflation, but if you were planning a lot of cereal purchases you'll come up short. Relative prices shift regardless of changes in the overall price level. However, under no or low inflation, only changes due to supply and demand fundamentals provoke changes in prices.

But when the price level changes quickly, the dispersion of price changes tends to increase. Some prices are sticky and increase only sluggishly. Others spike easily. If the overall inflation rate jumps to 8%, but housing increases only 4%, then some substantial fraction of other prices are likely to rise by more than 10%.

Quite directly, this means economic calculation is harder when inflation is 8% than when it is 2%. It's not enough merely to take into account that, a year from now, you'll need 8% more cash to buy the same stuff. Even if you are confident the inflation rate will remain 8%, you face more uncertainty due shifting relative prices of the things you need. If what you'll need next year is very close to something like the CPI "average" bundle, then sure, figure on an extra 8%. But relatively few consumers actually purchase the average bundle. If what you'll need deviates substantially, maybe planning for 6% higher costs will cover you. But maybe planning for 10% higher costs won't.

Even if your wage increases will exactly match the inflation rate, the risk you face of suffering shortfalls increases as the inflation rate grows.

What is true of prices is also true of wages. When inflation increases, the dispersion of wages also tends to grow. Employees with lower bargaining power see their wages grow more slowly than the rate of inflation. They end up taking real wage cuts. Employees who are in demand capture real gains, flitting jobs or negotiating raises to ensure their pay increases more than enough to cover rising prices.

Suppose that, in aggregate or at the median, wage gains exactly match inflation. Let's say roughly 50% see wages grow faster than inflation, and roughly 50% see wages grow more slowly.

When inflation is low, the dispersion of these changes is low, so these differences aren't a huge deal. If inflation is 2%, and a substantial fraction are experiencing 2.5% nominal wage growth while their less fortunate twins experience 1.5% wage growth, the worst anyone experiences is real wages declining by 0.5%. That's not great, but perhaps it's not a crisis, if a given worker experiences that for a year or two. Losers fall behind their more fortunate neighbors by 1% a year. Again, not great, but not a catastrophe.

But when inflation is high, it's a different story. If inflation is 8%, and a substantial fraction experience 10% nominal wage growth while their doppelgängers experience only 6%, then the less fortunate see real wage declines of 2%. That's more than enough to really hurt, a loss of more than $1500 for a typical household. In relative terms, losers fall behind winners at a conspicuous 4% per year. Ouch.

In aggregate, of course, winners exactly match losers. If Joe is suffering 2% real wage cuts and Jane is enjoying 2% real wage gains, shouldn't we just score that a wash?

No, we shouldn't. We know, as a matter of descriptive economics, and presume, as a matter of normative economics, that utility or welfare are marginally diminishing in wealth. Holding the average wage constant and all else equal, the greater the wage dispersion, the lower the welfare. Starting from the same wage, it hurts us more to lose 2% than it benefits us to gain the same 2%. A typical household will not consent to betting $1500 on a flip of a coin.

That's basic, old-school, conventional economics. If we add more psychological, "behavioral-economic" phenomena, like habit formation, endowment effects, and aversion to loss of relative status, the cost of real wage dispersal grows even more.

8% inflation matched, in aggregate or even at the median, by 8% wage growth is much worse than 2% inflation matched by 2% wage growth. Some of that pain is psychological. But higher inflation means higher relative price dispersion and therefore higher risk for nearly all consumers. It means costly wage dispersion not matched to differences in productivity.

When you combine these effects, a substantial fraction of the public ends up losing both gambles. They experience prices growing faster than then headline inflation rate, and wages growing more slowly. The welfare loss this group experiences overwhelms the benefits enjoyed by those who win the same gambles. Everyone faces more risk. Adding zero-sum noise to economic outcomes is not a wash. It's a loss.

# When is the economy good or bad?

The great "vibecession debate" continues. Is the economy good or bad?

Y'all know I think it's bad, bad now under Trump, bad even when people with my politics touted its virtues as Bidenomics.

Whatever.

My purpose here isn't to take sides, but to offer a bit of a historical perspective on how we perceive the economy. Let's take a look at a chart:

(Click to enlarge.)

This chart is of the census bureau's real median family income series.

I didn't choose the series because I think it is a uniquely valuable indicator, but because the "data guys" on the Panglossian side of the debate like to point to real median household income. Unfortunately, the household series only goes back to 1984, and I wanted to go back farther. The family series goes back to 1953.

The two are qualitatively very similar. The main difference is that single-member households are excluded from the family series, pushing the median income upward. (Income from unrelated individuals who cohabitate with a family gets excluded from the measure, pushing incomes down, but this effect is small.)

The first thing to point out, as I've tried to emphasize before, is there's very little information in the level of these series.

In 1978, real median income was apparently higher in absolute terms than it ever had been! It was true then, as it is now, that the typical American was living a lifestyle that the greatest kings and emperors of prior centuries could never afford. GDP per capita was growing faster than 5%, a rate we've only rarely achieved since. Yet very few people, then or now, would argue that the 1978 economy was great.

You can see trouble in the data, just other data. Arthur Okun, an influential economist of the era, invented the "misery index", and that was pretty high in 1978, although it had come down dramatically from prior years. But much more than then-current conditions, commentators at the time felt — with foresight ultimately vindicated — that the relatively benign moment was a lull in a continuing storm. Despite good data, it was a bad time.

You'll notice that I've divided my chart into eras, and the era to which 1978 belongs is shaded not red for "bad", but yellow for "meh". That is because I am data-driven. Most commentators would say that the period I've marked the "great inflation" was the worst economy of the postwar US except for the great financial crisis. But by the numbers, by these numbers, the period is only a slow-growth stagnation, comparable to the aughts.

The key point is that the goodness or badness of the economy is never an objective fact about the world. It is a thing we construct, in a project often contentious in real time, but that usually hardens into consensus ex post. During soft patches, we debate whether we are in or near a recession. After a while some committee at the National Bureau of Economic Research gives a verdict that becomes authoritative, if not necessarily true.

There are an infinity of potential data sources, many of which will tell conflicting stories. There is no consistent and universal set of weightings we can apply in order to evaluate the economy. Data sources exist today that could not have existed even a few years ago, like AI-generated evaluations of media sentiment. The stories we tell, the evaluations we give, are never science. They are pastiche. The quality of the economy exists in the netherworld between subjective and objective, in the purgatory of the judgment call, where we humans also reside.

Although there is almost no information in the level of this median real family income series, there is a ton of information in the changes. Despite a misclassification of the great-recession era, turning points in this series do a really good job of segmenting the economy into recognizable eras and marking them as "good" or "bad". That's how I've parsed out the eras on the chart.

I've graphed the series on a log-scale, so that slopes correspond to growth rates. Part of the apparent virtue of the graph results from a kind of look-ahead bias. I define a turning point at 1969 rather than a similar break in 1971 or the more defensible turning point at 1973 because I know that inflation begins to draw up its skirts in the late 1960s. I arbitrarily chose four years as my minimum length of an era, because I didn't want to segment out every leg of every business cycle. This forced my Volcker Shock to extend a year longer than a mechanistic segmenting of turning points would have yielded. Still, the graph is pretty close to a mechanistic segmentation, and marks out eras commonly understood and discussed surprisingly well.1

A few points are worth discussing. Just on the basis of this little exercise, it's unsurprising that we have nostalgia for the period from 1954 to 1969. In the history of the economy as represented by this one, imperfect, measure, there is no other period with the length and slope — the persistence and growth — of this period. "Make America Great Again" gets some of its rhetorical force from the fact that there really was, in living memory, a kind of golden age to yearn backwards toward.

(Much of this era was still under Jim Crow. But it was also when the civil rights movement bore its long-sown fruit. The period was riven by unrest and political assassinations. It was a time of remarkable music. Whether on balance it is reasonable to describe the era as a golden age is a judgment call that belongs to you, dear reader.)

I was very surprised to see that the only period that comes close to the postwar boom, in growth but not duration terms, is the Obama-Trump era, from 2012 to 2019. I will confess to you, dear reader, that my own subjective evaluation of this period would be "meh" to "bad". But by the numbers, by these numbers at least, 2012–2019 was the best economy since the postwar boom. Nevertheless, in 2016, in the middle of this apparently great period, the American people wanted a revolution. When the possibility of a benign revolution lost a Democratic primary, they chose a malignant one. Data is only useful if we remember to discuss what it omits as carefully and extensively as we describe what it seems to say.

Although I understood (and wrote ad nauseum about) the deficiencies of the Biden economy, I was surprised that restoring the Trump economy was compelling as a pitch to the American electorate. This data suggests I should not have been surprised.

Still. Was 2012-2019 a better economy than the 1990s boom? For those of you old enough to remember, I'll leave it to you to decide. We were all so much younger then. Is that the reason why it seems so wrong to me? I don't think so. I don't think a 28-year-old in 2018 had the kind of optimism about the economy that I had in 1998.

Today's "vibecession" debate is about how we will, or should, categorize the rightmost five dots on the chart. Based on this dataset alone, it's not surprising that we are arguing. If I were to draw a box around it, my mechanistic classification scheme would have it yellow, "meh". Sometimes we end up deciding the yellow periods are actually bad (the "great inflation"), sometimes we look back at them as decent if not amazing times (the "iffy aughts"). For now, at least through the lens of this dataset, it really is a "faces or vase" kind of question.

The period those last five data points most resembles is the late 1970s. The shape of the series is a similar, shallow "V", and for similar reasons, an inflation spike had eaten away at family purchasing power.

If we pair the series with Michigan consumer sentiment, we find the current pattern looks pretty similar to 1979 and 2007, peaks in real median family income followed by collapses in sentiment:

However good you think the economy is or recently was, if it's not just a vibecession, or if a vibecession can be self-fulfilling, the current set-up looks a bit ominous.

But let's end this with something cheerful!

A series not typically taken as an economic indicator, but that I like, is the suicide rate. I think the suicide rate is useful because it gets at welfare, which is properly the concern of normative economics, rather than "stuff", which is ultimately meaningless except to the degree that it contributes to welfare. King Midas could buy anything in the world, but he was not wealthy.

Welfare is a normative, rather than a positive or "scientific" concept. It is a thing we define, rather than measure. Nevertheless, it is what we care about, the ultimate object of our investigations, and in that sense welfare is more real than all of the things we can measure.

Once we have imposed a definition, we can try to measure proxies for welfare under our definition. I am not going to impose a specific definition, but I'll assert that "people not wishing to kill themselves" correlates with a wide variety of plausible conceptions of welfare, so the suicide rate might be a proxy, no doubt dirty and imperfect, for diswelfare.

Here's a chart:

(Click to enlarge.)

One thing that's fairly obvious is that the suicide rate does in fact have a pretty strong relationship with things we consider "economic". Both the Panic of 1907 and the Great Depression are very visible on the chart.2

I've included on this chart all the periods we teased out of the real median family income chart above, and bounded them with the same dates. I think that the two charts complement one another. In our earlier discussion, classifying the Great Inflation as a "meh" rather than "bad" period seemed wrong. We see a sharp rise in the suicide rate during the period, which suggests that "meh" should be bad. The suicide rate during the "iffy aughts" is much more restrained, suggesting a more benign period, as I think we mostly remember it.

There's a surprising spike in the suicide rate during the "Morning in America" period. I don't have an explanation for, or a story to tell, about that. I am eager entertain yours!

But for the period following, I think layering the suicide data on top of the purchasing power data helps us reconcile the numbers with our intuition. On the real median family income chart, the George-HW-Bush-era recession is an event comparable to the Volcker Shock and Great Financial Crisis. Those of use who lived through these events know that's wrong, the early 1990s recession wasn't fun, but it was a milder downturn than what the nation had gone through a decade earlier, and would go through nearly two decades later.

The suicide rate tells this tale: It rises during the Volcker Shock and rises sharply in the wake of the Great Financial Crisis. It is declining during the GHWB recession.

The suicide rate data also helps us reconcile discrepancies surrounding the late 1990s boom and the Obama-Trump expansion. My dark view of the Obama-Trump period may be idiosyncratic, but I think nearly all observers would agree that the late 1990s expansion was a bigger boom, a better economy, than the late 2010s. We see the suicide rate decline quite sharply during the late 1990s boom. It rises through most of the Obama-Trump expansion.

In general, there has been a strong upward trend in the suicide rate since the Great Financial Crisis, corresponding I think with the sense of upheaval and malaise also visible in social instability and the rise of outsider political movements. There's a kind of dark matter. Something is amiss, something is wrong that more conventional economic measures aren't capturing.

Perhaps the explanation is something not conventionally economic, negativity bias in social media for example. After all, social media and smartphones become prominent at approximately the same time as the Great Financial Crisis, so maybe they are the cause of the deadly gloom.

That is not my view. Long-time readers will know that I think our secular decline in welfare is related to the bifurcating class structure of American society and the unfairness implicit in how it must be sustained. In my view, the Great Financial Crisis both exacerbated these class divides and unmasked them, made them impossible to paper-over as we had managed previously.

I could be wrong! Maybe it really is just down to social media.

All I'll say is whatever it is, if there's a widely distributed product that makes us want to destroy one another and kill ourselves, that strikes me as very much an economic problem, an object that demands economic regulation. "Tech" is a big part of our economy!

Economics is either a positive science of predicting human behavior (in which case it has nothing to say about policy, except to inform other people who decide what we want), or it is a normative enterprise and its object is human welfare. If you are an economist and you say we should do X or Y or Z because it would increase GDP, but you have no reason to think the increase in GDP will make us better rather than worse off other than loose historical correlations, then you are much worse than useless. If it is plausible to you that big chunks of our economy are products so harmful they amount to half a Great Depression in suicide rates, then "maximizing GDP" cannot be a remotely decent proxy for the human welfare that it is your vocation to improve.

1. If I hadn't cheated at all, if I'd just placed boundaries at sharp turning points, the main difference would be taking the Postwar Boom as continuing through 1973, and then a shorter Great Inflation. The Volcker Shock would have been one year shorter, Morning in America one year longer.

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2. I marked the Great Depression as beginning in 1929, and ending in 1941, when the US joins the war. The Panic of 1907 begins in 1907, and I take its ending to be 1915, the last year of high unemployment. For more on the relationship between suicide rates and the business cycle, see Luo, Florence, Quispe-Agnoli, Ouyang, and Crosby. The suicide rate chart is a composite of three data sets, stitched together to cover the period, CDC Health, CDC (recent) Suicide Data, and CDC HIST290. Crude rather than age-adjusted measures are shown. Age-adjustment seems not to alter the qualitative picture. I want to thank Matt Darling for first showing me suicide rate data from 1900, further peaking my curiosity, and the late, irreplaceable Kevin Drum, who put together the chart Matt posted.

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