Who Needs a Raise When You Have TV?

(Quite possibly the most ridiculous but traffic-inducing headline ever written)

Bloomberg View , December 02, 2013

Are you better off now than you were 10 years ago? For middle-class Americans, a common answer to this version of Ronald Reagan’s old question is no. Nor are they optimistic about the future. The recession may be over officially, but a lot of smart people are convinced that broad-based improvements in the standard of living are largely a thing of the past.

Before you embrace the idea that today is worse than yesterday and tomorrow won’t be much better, however, consider a common experience:

On a flight across the country, you watch the playoff game on live television, listen to some favorite playlists as you catch up on work, then relax with some video poker. Arriving home, you delete the game from your DVR and consider your options. Too tired for an intense cable drama -- which you prefer to experience in immersive weekend marathons of at least three episodes each -- you stream a first-season episode of “Duck Dynasty” from Amazon.com, then run last week’s “Elementary” from your DVR queue. While watching, you check IMDB.com to see where you’ve seen that familiar-looking guest star before, then you jump to your Facebook and Twitter feeds. You finish the evening with “SportsCenter,” recorded just far enough ahead that you can skip most of the commercials.

Little of this customized entertainment would have been possible a decade ago -- and almost none of it shows up in the income and productivity statistics that dominate our understanding of the economy. A form of progress that large numbers of people experience every day, the increase in entertainment variety and convenience represents a challenge to the increasingly conventional wisdom that American living standards have stagnated, at least for the middle class.

The proliferation of entertainment choices doesn’t by itself refute those arguments. But entertainment is far from the only sector of the economy where unmeasured quality and variety improvements have ramped up in recent years. It reminds us how easy it is to take for granted even fairly obvious increases in the standard of living and real incomes of typical Americans.

After all, it’s not as though no one has noticed the improvements. Critics often opine on whether the proliferation has produced a “new golden age of television,” while media companies and advertising agencies live in fear of what all that competition means for future profits. From the mobile-phone business to social media -- not to mention movies, games, music and sports -- an enormous amount of innovative talent goes into developing new entertainment goods and services.

Yet in the economic statistics that measure living standards, this real-life value goes largely ignored. For the very reason that entertainment is so cheap, the enjoyment people derive from having a better chance of finding exactly what they want, when and where they want it, doesn’t count for much. Giving consumers new features for little or no additional money increases well-being but doesn’t do much for productivity statistics. Making matters worse is that so much entertainment itself strikes many commentators as embarrassing. (“Duck Dynasty”? Let’s talk about manufacturing output.)

It’s true that, as a portion of the household budget, entertainment is indeed small. The average U.S. household spent only 4.11 percent of its income after taxes on entertainment in 2012, down from 4.43 percent in 2007.

The biggest cost isn’t money but time. When we consider how many hours people spend consuming it, entertainment starts to look a lot more valuable.

The average American devotes about five hours and 10 minutes a day to “leisure and sports” activity, including two hours and 50 minutes watching television, up from 2 hours and 37 minutes in 2007, according to the 2012 American Time Use Survey done by the Bureau of Labor Statistics. The numbers are lower for the fully employed, but leisure still accounts for an average of about four hours a day -- more on the weekend, less during the week -- with TV again the most popular activity. Just over half the population works on a given day, while about 80 percent watches TV.

“People spend most of their waking time in nonwork activities,” said Peter Klenow, a Stanford University economist who has done work on how leisure activities affect the standard of living. “So improvements in the quality of your leisure time become important.”

The value of customized entertainment isn’t trivial to economic well-being. It’s just very hard to measure.

To decide whether, or how much, the economy is growing, government statisticians tote up what people spend for well-defined goods but have trouble capturing the value of more variety, convenience or other intangible qualities, such as higher production values or better writing on television. “What they’re really good at is recording whether the exact same thing we bought before from the exact same retailer is cheaper,” said Klenow.

The statistics also provide much more detail on well-established products than new, frequently changing ones. The Consumer Expenditure Survey reports how much the average household spends on beef versus pork versus chicken, or “floor coverings” versus “household textiles,” but it lumps “audio and visual equipment and services” into one category. (Adding “services” was itself an innovation, adopted only in 2005.)

To measure how changing entertainment options have affected real living standards, what we’d need to know is how much money you’d have to pay each person to make them just indifferent between the entertainment they consume today and the entertainment they could have consumed in the past. What people shell out today for, say, cable TV or Netflix subscriptions is almost certainly a small fraction of that total value -- yet it’s the only value official statistics pick up. The result is most likely a significant underestimate of improvements in economic well-being.

Consider a different hard-to-measure change: the increasing variety of imported goods. In a 2004 article, the economists David E. Weinstein and Christian Broda estimated that consumers would be willing to pay $280 billion a year -- about 3 percent of gross domestic product -- just to have access to the variety of foreign goods that were available in 2001 versus 1972. That’s a big number.

New entertainment options are particularly important to poorer people with ample leisure time. (Those working two or three jobs are a different matter.) That’s because as income falls, the time devoted to leisure goes up, even among fully employed people.

For workers with one full-time job in 2012, those in the bottom income quartile, with weekly pay of $530 or less, averaged about 4 hours and 25 minutes a day in leisure activities, including 2 hours and 36 minutes of television. By contrast, those in the top quartile, making more than $1,291 per week, spent 3 hours and 49 minutes at leisure, including an hour and 55 minutes of TV. Entertainment, whatever its source, isn’t a luxury.

“Too many people presume that what the poor want from the Internet are the crucial necessities of life. In reality, the enchantment of the Internet is that it’s a lot of fun,” the Indian journalist Manu Joseph observed in a September New York Times essay. “And fun, even in poor countries, is a profound human need. Quality of life is as much an assortment of happy frivolities as it is the bare essentials of survival.”

What’s true in India is equally true in the U.S. Fun matters, even if it’s hard to measure.