For several years now, Americans collectively have sustained a slow improvement in their living standards only by more of them going to work.
The familiar 3 percent annual gains in the quantity of goods and services that workers produced for each hour they were on the job have become only a pleasant memory. As that annual improvement in productivity has continued to slip, steady increases in the nation's standard of living have occurred only because ever more women kept taking jobs, giving family after family a second income.
Last year even that trend wasn't enough to offset all the depressing factors at work, including the impact of higher oil prices imposed by the Organization of Petroleum Exporting Countries. As a result, for only the fifth time since World War II per-capita disposable personal income, adjusted for inflation, was lower at the end of a year than at the beginning.
A drop in consumers' real buying power doesn't automatically translate into a lower standard of living, of course. Many families dipped into their store of wealth to maintain their standard of living in the face of a drop in their real income. Some people simply saved less on a current basis; others withdrew money from savings accounts or refinanced homes whose value typically had increased dramatically.
This, too, will come to an end in 1980. A combination of recession, double-digit inflation and higher taxes will put a triple whammy on what consumers will be able to buy with their after-tax income. And as the recession takes hold in earnest, there should be a drop in real consumption per capita, not just incomes, according to most economic forecasts.
The 1980 recession, of course, will be in part a result of a deliberate effort by the Carter administration to slow the economy to fight inflation. In defense of that policy, Treasury Secretary G. William Miller has declared "the American people are prepared and have the will and the determination and character to sustain a period of austerity provided it is fairly shared in order to wring out inflation."
That proposition will be tested this year, whatever comes after, as the living standard of the average American will go down by all the usual measures.
Not everyone is willing to buy the notion that income and consumption statistics can encompass the concept of a standard of living adequately. Many people bridle at the idea because one's standard of living is a matter of such personal choice.
Take the automobile, for example. People have widely varying needs and tastes that affect their choice of a car. With federal law mandating better fuel effciency for cars, and sharply rising gasoline prices reinforcing that thrust, the average car is shrinking in size and perhaps in performance, at least as desired by some buyers.
A disappointed new car buyer who loved the big cars of yesterday may feel his choices have been limited and that, in terms of transportation, his standard of living has gone down. Another American whose taste in cars runs to the small and easy-to-handle, and who has no patience with drivers of ponderous gas hogs in the first place may wonder what all the fuss is about.
Or take lowered thermostats.Many people have turned them down at home to save on skyrocketing fuel costs only to find they are just as comfortable as before, perhaps with the aid of a sweater. Some persons with dry skin actually may be more comfortable with lower temperatures, which mean a somewhat higher relative humidity.On the other hand, older people with poorer circulation actually may endanger their health if their homes get too cold.
The point is, not every change in the quantity and quality of the things people buy -- even when partly involuntary -- necessarily means a change in everyone's standard of living.
Similarly, Americans consume many goods and services provided by government that they buy only indirectly by paying taxes. For instance, when federal and state government pay for construction of an interstate highway system that dramatically reduces travel time, many of the benefits never show up on any statistical balance sheet. The faster movement of goods by truck over the highways does get counted as improved productivity in the trucking industry, but the two-hour drop in the time it takes to drive to grandmother's house does not.
Likewise, the statistics don't count the effect of cleaner air and water that result from pollution-control requirements. Business makes large investments -- often under legal mandates -- to reduce pollution that may be at the cost of foregoing other investments in plants and equipment that would add to the nation's output of goods.
Cleaner air and water may improve the nation's health, to say nothing of being able to swim again in rivers like the Potomac or fish in waters from which game fish have long been absent.
No matter how many refinements might be made in the statistics, however, Americans' standard of living undoubtedly still would be falling in 1980. Beyond this year, too, there is every reason to think it will not be rising nearly as rapidly as it has in the past.
Much of the slowing of improvements in real incomes of workers is due to a marked slowing of gains in output her hour worked. Economists believe this drop in productivity gains is due to many factors, but after listing all they can think of and calculating their impact, they are left with a large, unexplained gap. In short, they do not know why productivity gains have slowed as much as they have.
As economist Herbert Stein wrote recently, "We don't know whether ending inflation, plus reforming taxes, plus deregulating industry, plus anything else we might add to the prescription, will restore the pre-1973 growth rate (of productivity). The reason is simple. We don't what made the growth rate slow down so markedly after 1973."
But productivity is the key to continued increases in the standard of living unless Americans collectively continue to increase the number of hours they are working.
Even most of the economic pessimists don't think productivity actually will turn down, except on a cyclical basis as the economy approaches -- or is in -- a recession. That means the longer-term outlook at worst is no increase in the U.S. standard of living, not a steady decline.
As Stein wrote, "It would be wrong to say -- as is sometimes said, persumably for dramatic effect -- that the age of alluence is over and that Americans have to accept lower living standards.
"There is no convincing evidence that we are in for an absolute decline in per-capita real consumption. But unless significant growth of productivity is resumed, the expectations of rises in living standards which have become part of the American culture will be disappointed, with potentially serious political and other consequences."