A Brighter Future

Improving the Standard of Living Now and for the Next Generation

Richard Holt, Daphne Greenwood

• Publisher: Routledge
• Year: 2014
• eBook ISBN: 9781317478249
• Topic: Business
• Subtopic: Business General
• Index: Business

As the United States continues its slow climb out of the Great Recession, it is important to focus on new directions to improve the standard of living in America. This book explores what is behind a faltering standard of living in the United States since the early 1980s and what can be done to restore it. The book is uniquely valuable in going beyond mainstream thinking about how to restore prosperity. Economics has traditionally equated economic growth (increases in per capita income) with improvements in quality of life and the standard of living. This book questions that assumption. The different chapters in the book show the standard of living as being more than income, to include many non-market aspects such as access to public goods (roads, clean air and water, schools, parks, and museums), intangible aspects of quality of life such as equity and a sense of community, and broadly based economic opportunities. This means that improving the standard of living is a multi-dimensional challenge rather than one of solely increasing aggregate demand, productivity, or GDP. This book embodies a pluralistic approach and draws on the expertise of a wide array of thinkers. The intended audience is for various courses offered in economics, sociology, political science, public policy programs, and in environmental and ecological studies.

PART
I	Recent History and Prospects for the American Standard of Living

1	Improving the Standard of Living
	Income, Quality of Life, and Sustainability

DAPHNE T. GREENWOOD AND RICHARD P.F. HOLT

The focus of this chapter is twofold: first, to develop a better understanding of the term standard of living, and second, to explore new ways to improve the standard of living now and for future generations. We use the term standard of living rather than well-being, happiness, or life satisfaction, in part because the term is more familiar to policy makers and citizens. While there is a rich academic literature on well-being, happiness, and social welfare, it has been far removed from public policy debates until quite recently.¹ Some of the authors in this volume use the term well-being, and we have also when it seemed appropriate. Policy makers often speak of maintaining or improving the standard of living, and general public discussion and polling questions also use this terminology.

Public familiarity and acceptance of the term standard of living was a key reason that we specified it as a primary goal in our book Local Economic Development in the 21st Century (Greenwood and Holt 2010b). We went beyond the traditional focus on income to add many nonmarket quality-of-life factors: publicly produced goods and services, freely available environmental goods and services, and production of goods and services outside the market. And since the majority of people express concern about the world in which their grandchildren will live, sustaining the standard of living for future generations is also part of our definition.

We define the standard of living more broadly than most economists do because we believe improving it now and for future generations requires more than simply increasing total output or income. When policy focuses primarily on the level of income, quality of life and sustainability are considered separate issues. It is often assumed that economic growth will take care of them. Throughout this chapter, as well as others in this book, evidence is presented that this approach does not work very well. For example, if average income increases slightly but there is much more crime and congestion, then the overall standard of living may fall. And protecting the environment might limit the rate of economic growth, but do more to increase the standard of living.

In today’s world, it is increasingly important to understand the impact of economic choices on social and ecological systems. Economic growth can contribute to the standard of living, but also it can subtract from it. This leads us to question the economic assumption that more is always better, particularly when it comes to the standard of living. Does increasing the square footage of homes, the number of medical tests and treatments, or the size of fast-food meals make people better off? The world’s population and consumption levels are growing exponentially while environmental and natural resources are becoming more fragile. It is ever more useful to think of our planet as a closed system—“spaceship Earth,” in the words of Kenneth Boulding (1993). To do this, we need a multidimensional approach to improving living standards rather than the one-dimensional approach of using gross domestic product (GDP) as the primary measure of well-being.

The structure of this chapter is the following: first, we begin with a brief discussion of the popular view of the standard of living and discuss its shortcomings. Second, we outline a new definition of the standard of living that is (1) based on multiple methods of provisioning, and (2) includes nonmarket aspects of quality of life. Third, we emphasize the importance of investing in a variety of different capital stocks to sustain the standard of living over time. Fourth, we compare our definition of the standard of living to several other measures of well-being, including the Levy Institute’s Measure of Economic Well-Being (Wolff and Zacharias 2007; Zacharias et al. 2014) and various subjective measures. And fifth, we discuss new policy directions consistent with this new and broader definition of the standard of living.

SHORTCOMINGS OF THE TRADITIONAL VIEW OF THE STANDARD OF LIVING

Improving human well-being has been the central focus of economics since the time of Adam Smith and as far back as Aristotle’s coining of the word economics. The dominant view of both economists and policy makers throughout the twentieth century was that income levels are the basis of most other important aspects of human well-being. For example, Michael Spence, a Nobel Prize winner in economics, stated in his role as chair of the Commission on Growth and Development:

We chose to focus on growth because we think that it is a necessary condition for the achievement of a wide range of objectives that people and societies care about. One of them is obviously poverty reduction, but there are even deeper ones. Health, productive employment, the opportunity to be creative, all kinds of things that really matter to people seem to depend heavily on the availability of resources and income, so that they don’t spend most of their time desperately trying to keep their families alive. (2008)

Benjamin Friedman has even argued that economic growth has intrinsic moral value, since with increases in income people show more empathy and become willing to support programs and policies to help the poor and increase opportunity. He writes that “economic growth—meaning a rising standard of living for the clear majority of citizens—more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy. … When living standards stagnate, or decline, most societies make little if any progress toward any of these goals” (2005, 4).

Underlying these widely held views are the following assumptions:

• The costs of providing environmental quality and other public goods will fall as an economy becomes more affluent and its technologies and institutions become more sophisticated. Hence, more income and output contributes to achieving environmental and social sustainability.

• In addition, people are naturally more willing to pay for environmental protection and to help their fellow human beings as they become more affluent, further contributing to long-term environmental and social sustainability.

• Most nonmarket aspects of quality of life (such as good health, strong family and community relationships, and civic participation) are positively correlated with income, so more income will improve each of them.

• Economic growth tends to be a rising tide that lifts all boats, increasing incomes throughout the population and raising the overall standard of living.

However, these assumptions do not hold in all times and places, and they do not seem to have been true in the United States during the last few decades. In addition, the world is changing, and the expectations that people have are changing along with it. That leads us to propose a broader measure of the standard of living. This is not because we minimize the importance of economic growth for improving well-being. Not only does it bring vitality and innovation; in general, people are better off with higher incomes because they can buy more or better quality goods and services. More spending can create job opportunities and provide higher tax revenues to support needed public goods.

Nevertheless, it is important to point out that many nonmarket aspects of the standard of living (good health, improved public safety, climate stability) do not necessarily move in tandem with market income and output. And growth in average GDP over the last decades has not trickled down to provide more well-being for all of the population in the United States (Zacharias et al. 2014). And greater concentration of income at the top has not caused an outpouring of generosity toward the less fortunate (Hacker and Pierson 2010; Reich 2010).

In fact, there is increasing evidence that higher incomes can subtract from the standard of living by lowering various aspects of quality of life (Greenwood and Holt 2010a, Greenwood and Holt 2010b, Greenwood and Holt 2010c). In addition, economic growth can be volatile and temporary, setting the economy on a path that is economically, environmentally, and socially unsustainable, and therefore does not provide long-term improvements (Holt 2005, 2010). Finally, for income growth to increase the overall standard of living, the benefits of that growth must flow to the great majority of the population. For at least the last thirty years, this has not been the case in the United States (Jones and Weinberg 2000; Piketty and Saez 2003; Saez 2006; Weinberg 1996).

Yet income growth continues to be the central focus of policy decisions and the default yardstick for well-being.² The primary goal of economists and policy makers since the Great Recession seems to have been to restore the indiscriminate growth of the old economy, instead of focusing on growth that would better protect environmental quality, economic opportunity, and social equity. But there are some encouraging signs of change. New measurements are being developed that capture improvements in the standard of living beyond income growth (McGillivray 2007), such as the United Nations Human Development Index, the Genuine Progress Index (Kubiszewski et al. 2013; Talberth, Cobb, and Slattery 2007), and the European Commission (2013).³ Many communities in industrialized countries are also developing locally based indicators of sustainability or quality of life to supplement traditional economic measures (Greenwood 2004; Greenwood and Holt 2010b; Wismer 1999).

The development of new measures to supplement the use of GDP reflects increased awareness that improving people’s lives depends on more than raising income.⁴ We believe this recognition stems primarily from two factors. The first is a desire to balance income growth with other aspects of human welfare such as health, aesthetics, human relationships, democratic principles, and the environment. The second is a growing realization that economic prosperity depends on environmental and social sustainability. In the next section, we discuss how a broader definition of the standard of living better reflects this dependence.

WHAT IS THE STANDARD OF LIVING AND WHAT DOES IMPROVING IT MEAN?

We recognize that coming up with a workable and measurable definition of the standard of living is difficult. That explains, in part, why economists have focused primarily on measurements of income or wealth. But another part of the story may also be methodological and ideological. Neoclassical economics is based on a particular view of individuals and their relationship to society and the environment. This view affects judgments about what comprises the standard of living and about how to improve it. Questioning these assumptions leads to different definitions and measurements of the standard of living, not to mention policy recommendations that may be antithetical to certain powerful interests. Reexamining what is meant by the standard of living is likely to influence the policy choices we make. That is the point, of course, but those who are happy with present policies and a narrower and m...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Foreword
• Acknowledgments
• Introduction
• Part I. Recent History and Prospects for the American Standard of Living
• Part II. Lagging Incomes and the Middle-Class Dream
• Part III. Policies to Improve Quality of Life and Sustainability
• About the Editors and Contributors
• Index