Genuine Economic Progress is about Higher Incomes AND Lower Prices

A few months back I wrote:

From the perspective of a worker, the point of a job is not simply to have a paycheck; it is to have a paycheck that permits one to buy useful goods and services.

This is an important point to keep in mind because so many policies—from subsidies and regulations to occupational licenses—simultaneously increase the prices paid by consumers and the incomes received by (some) producers. In fact, I’d go so far as to speculate that a majority of policies have this effect. (There are, of course, exceptions; taxes push consumer prices up and producer net-of-tax revenues down). From a public choice perspective, this makes sense: any one of these policies is likely to raise the incomes of a few well-connected producers by quite a bit while it is likely to raise the prices paid by a vast multitude by only a little. Even if, in aggregate, the price increases outweigh the income increases, it makes political if not economic sense for a politician to favor such a policy.

This is tragic because genuine economic progress is about both rising real incomes and falling real prices.

The indispensable Mark Perry makes this point beautifully in a classic and brief post from 2010 (I’m sorry, Mark, to quote the entire thing. But I can’t find anything worth leaving out):

In 1964, here’s what the average American consumer could afford after working 152 hours (almost a full month) at the average hourly wage then of $2.50: a “moderately priced, excellent stereo system” from Radio Shack on sale for $379.95.

In contrast, the typical consumer today working 152 hours at the current average hourly wage of $19 could afford this “cornucopia” of electronic goods:

Keep this in mind the next time you hear a politician plugging some new policy that promises to raise incomes. Will it also raise prices above what they would otherwise be? Is it worth it, on net?