Overall wages have been stagnant for a good long time, but Scott Sumner suggests that doesn’t matter because our standards of living are so much better than it used to be. He compares now to 1973:

1.  Houses are bigger and have more baths.
2.  Electronics are so much better it is ridiculous.  100 times as many TV channels.
3.  We take jet vacations to Disney World or Europe, not car trips to a state park.
4.  Granite counter-tops vs. Formica.
5.  Thai or sushi restaurants vs. meat and potatoes “supper clubs.”
6.  Better medical care and longer life expectancy.
7.  Cars with paint that doesn’t rust out in three years.
8.  For the lower middle class: Wal-Mart vs. K-Mart.
9.  No more purple shag carpets.
10.  U2/Radiohead vs. Dylan, the Beatles and the Stones.

I think in large part he has a point—growth of wages does not represent growth of riches. But you know, I don’t know too many people taking jet vacations instead of going to closer locations.

I took a “staycation” this year and so did several of my friends and coworkers. My countertops are still formica. My television isn’t so large-screen. And I don’t even know what to make of the Wal-Mart vs. K-Mart issue; the prices may be great, but as an employer I hear they are misery.

Sumner talks as though we all crossed from one economic class to the other—as though granite countertops are now commonplace for the middle and lower-middle class. And perhaps they have; but I haven’t seen many.

Two other things Sumner misses is what we’ve traded for this increase in standard of living: more two-income households—out of necessity, not choice—and crushing debt. Sumner makes the point that college dorms are a lot nicer than they used to be, and that’s true. But students are also graduating with a lot more college debt than they used to have. And just as student debt has funded the luxurification of college dorms, our collective debt provided the capital needed for the explosion in consumer electronics, fancy houses, and jet vacations. If people weren’t running up their credit cards and working more, then we wouldn’t be here now.

In other words, wages have been stagnant but our spending has increased. That’s not sustainable—a lesson we learned a few months ago when a credit crunch put the brakes on large segments of the consumer culture. Realistically speaking our standard of living is better than it was nearly four decades ago. But how much of that improvement relies on us fooling ourselves into thinking things are better than they are?