# Boudreaux's Time Machine

Over at Cafe Hayek, George Mason economics chair and Cato adjunct scholar Don Boudreaux has come up with a wonderful thought experiment to illustrate just how absurdly inaccurate the government's methods for calculating real wages are. Don looks at the Census Bureau report (from the depths of which the New York Times editorial page draws forth the blackest despair) and finds that real median family income has increased an unimpressive 31 percent in the 37 years from 1967 to 2004. In 1967 it was \$35,379 (in 2004 dollars), and in 2004 it was \$46,326.

Are we really only 31 percent–less the 1 percent a year–better off? Don's thought experiment asks us to imagine that the incomes and years are swapped, and then see how we feel. Would you rather live in 1967 on \$46,000 a year (the 2004 median), or in 2004 on \$35,000 (the 1967 median).

Let's take it up a notch. So, it's 2004 and you make \$35,000 (let's pretend it's individual, instead of family income). A gangly professor with crazy hair drives up in a time-traveling Delorean and offers you the 1967 equivalent of \$46,000 (that's a 31 percent raise!) if you'll let him drop you off in 1967, where you'll live for one year. You say, “Right on!” and take a lift to yesterday.

So now you're in 1967 with about \$8,500 in your pocket, and you're ready to roll. Have you become wealthier?

The professor materializes again and tells you that he lied. Ha! You're not staying for a year. You're staying for the rest of your life. But he guarantees your salary each year will be that year's inflation-adjusted equivalent of the salary that you have in the “stayed-in-2004” timeline. (In 1973, you'll get your 2010 wages, etc.) You start to cry (no Prozac!). The professor exclaims, “What's the problem, kid? You'll always be wealthier than you would have been. And besides, it's a simpler time. People bowl together!”

You get the idea. Don has a bunch of great examples of things you can't get in 1967, only some of which I stole.

How much would you have to be paid each year to agree to live the rest of your life from 1967 on? Maybe I'm weird, since my entire life would be different–and almost certainly worse–if it wasn't for the Internet. (I almost certainly wouldn't have most of my friends, my very cool job, and more.) There are so many things I rely upon that you couldn't buy at any price in 1967 that it's pretty hard to think of a number that's high enough to compensate for the loss. Personally, I don't care that much about improvements in TV picture quality, or even how comfortable, safe, and gadget-laden cars are now. It's the things that just didn't exist in 1967 that do it for me.

Here's another thought experiment: Suppose you get a medical procedure with new technology that saves your life. It didn't exist last year, but now it does. If you had been sick like this last year, you'd be gone. So, in a year, you went from a condition in which no amount of money would have been able to save you from death, to one in which a mere \$10,000 buys you the ability to see your daughter's wedding. How much wealthier did you become in the space of that year? Is it more than 31 percent?

[Cross-posted from Cato@Liberty]

## Author: Will Wilkinson

Vice President for Research at the Niskanen Center