The recent 20 percent decline of the cost of a barrel of oil, from a nominal record of $78.40 (which, adjusted for inflation, was well below the 1980 peak of $92 in 2006 dollars), has produced an 81-cent decline in the average cost of a gallon of regular gasoline in 70 days. For consumers, that is akin to a tax cut of more than $81 billion.
President Bush's tax cuts were supposed to cause a cataract of red ink. In fiscal 2006, however, federal revenues as a share of GDP were 18.4 percent, slightly above the post-1962 average of 18.2. And the federal budget deficit was $247.7 billion, just 1.9 percent of the $13.1 trillion GDP. That is below the average for the 1970s (2.1), 1980s (3.0) and 1990s (2.2).
It is said that workers' compensation has been stagnant. But to tickle that bad news from the statistics you must treat ``compensation'' as a synonym for wages, and then ignore the effect of taxation on individuals' well-being.
Kevin Hassett and Aparna Mathur of the American Enterprise Institute, writing in National Review, say annual wage growth since 2000 has been 0.6 percent, but the annual increase in real hourly compensation, including benefits -- and if you do not include them, why are they called benefits? -- has been 1.3 percent. And taxes -- particularly those paid by middle-class families with children -- have declined substantially.
Furthermore, as Hassett and Mathur write, consumers, by modifying their behavior, protect or enhance their well-being in ways not captured in economic statistics. For example, an American who, prompted by higher energy prices, traded in a Hummer for a Prius has served his or her standard of living. "If I ate 80 apples last year, and the price of apples increased this year to a million dollars, my welfare would not go way down; I would just switch to oranges," the authors write.
Finally, today's widening income disparities will be partly self-correcting. Granted, income statistics show the increasing disadvantages of persons with education deficits. But that is the market saying -- shouting, really -- "Stay in school!" Over time, the voice of the market is rational, credible and therefore a potent instrument for changing behavior.