Jeremy Horpedahl on The Real Cost of Thriving Index
Sep 15, 2023
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Jeremy Horpedahl, director of the Arkansas Center for Research in Economics, corrects American Compass's Cost of Thriving Index (COTI) and reveals that the cost of thriving has actually decreased. The corrections consider changes in taxation and highlight flaws such as ignoring inflation adjustments and including employer-paid healthcare costs. They discuss the impact of women's representation in education and workforce on the cost of living. Also, they explore the irony of work as a source of purpose and the importance of empirical cases and understanding data.
The Cost of Thriving Index (COTI) shows a decrease in the cost of thriving when considering quality improvements in goods and women's earnings.
Potential solutions to tackle increasing costs include revising zoning laws, improving efficiency in education, and reducing supply restrictions in healthcare.
Working-age women in the US have experienced significant increases in employment opportunities and wages, reshaping family dynamics and career choices.
Deep dives
The Importance of Cultivating a Good Relationship with Parents
The podcast episode highlights the importance of cultivating a good relationship with one's parents, particularly for young people. The speaker emphasizes the value of having a weekly phone call with parents as a way to strengthen the bond and gain insights from their experiences. This practice is seen as a valuable asset in navigating the challenges of adulthood and understanding one's background. The speaker advises young people to prioritize this relationship as it can be rewarding and provide support in various aspects of life.
The Cost of Thriving Index and its Contrasting Perspectives
The podcast delves into the Cost of Thriving Index, a measure created by Orrin Cass at the American Compass Think Tank. The index compares the costs of five essential goods (healthcare, transportation, education, food) from 1985 to the present. According to Cass's index, the median male worker today cannot afford these goods, whereas in 1985, they were more accessible. However, the guest speaker, along with Scott Winship, challenges this perspective. They argue that when considering other factors, such as the quality improvements in goods and the inclusion of women's earnings, the median worker today can still purchase these goods, and the cost of thriving has actually slightly decreased.
Addressing the Rising Costs of Housing, Education, and Healthcare
The podcast explores potential solutions to tackle the increasing costs of housing, education, and healthcare. One suggested approach involves revising zoning laws and land use regulations to allow for more affordable and flexible housing options, addressing the issue of unaffordable housing in many cities. For education, the focus is on reducing costs through improving efficiency and considering reforms that lower tuition fees. In healthcare, the emphasis is on slowing the growth of salaries within the industry and reducing supply restrictions to increase the number of doctors, nurses, and medical technicians. These reforms aim to alleviate the economic burden on individuals and make basic necessities more affordable.
Higher Employment Rate for Working-Age Women
As of July 2023, the employment to population ratio for working-age women in the US is at its highest in history. Over the past century, the ratio has steadily increased, with a recent surge in working-age women joining the workforce. This can be attributed to societal and political changes that have allowed women to work full-time, earn higher wages, and access the same job opportunities as men. The rise in working-age women is reshaping family dynamics, with some families choosing to have women as the sole breadwinners, while others opt for men to pursue further education.
Inaccuracies and Cherry-Picking in Cost Measurements
Oren Cass's measurement of Consumer Accurate Price Index (COTI) has been criticized for several inaccuracies. One example is the inclusion of the full cost of healthcare, including the portion paid by employers, which results in double-counting and an overstatement of the rise in healthcare costs over time. Another error is using the average cost for public four-year college without accounting for the financial aid available, thus inflating the increase in college education costs. Additionally, Cass's index focuses primarily on items that have increased in price, neglecting the significant decreases in prices for consumer goods such as electronics and clothing. By cherry-picking items that have become more expensive, Cass overlooks the comprehensive analysis provided by broader inflation measurements like the consumer price index.
Jeremy Horpedahl is the director of the Arkansas Center for Research in Economics and an associate professor at the University of Central Arkansas . Today we talk about American Compass’s Cost of Thriving Index (COTI), what it says and why it is wrong.
The COTI shows that Americans today have a higher cost of thriving than ever before, but in a paper with AEI’s Scott Winship, Horpedahl corrects the index and shows that the cost of thriving has instead decreased. Some of the corrections are essential to the average American’s life, for example accounting for changes in taxation in the past few decades. Listen in to hear more about the cost of thriving today, why it has decreased, and how I cannot pronounce COTI for the life of me.
