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It seems that the 'fairness' wonks get away with using 'household' based purely on irrelevant thesis, i.e., the fallacy that since, ultimately, the earner's(s') income must support a *household*, that it's therefore the household's total income that "counts" for comparison purposes, not the individual earners'.

I keep arguing that an increasingly ignorant electorate - that is, the sort today's public education system seems to want to produce - makes it easier and easier to pass this sort of fallacy off as "fact". All the economic reality in the world isn't going to help us if the folks doing the voting (a) are never exposed to it and (b) can't see the difference.

I suppose it's no wonder then that mainstream education "reformers" like Bill Ayers would replace actual education with radical indoctrination based on "social justice" (i.e., marxist socialism) and even less of a wonder that someone like Obama would spend a significant portion of his career supporting such efforts.

I'm not calling into question your ability to construct a just-so model of why considering earners over households might be a good idea (I have an earner-centric model in my head that shows insanely great economic growth numbers by converting the bottom half of current earners into slaves).

What the argument for earners hasn't accounted for is why earners are the interesting unit of analysis. Why is there something to be gained by looking at earners when judging income inequality overall?

To play advocate for households: maybe people who study the issue of income inequality started out by tracking earners. Then they found out that wasn't telling the whole story: some members of families were removing themselves from the workforce due to some important social or economic phenomenon. So the people who study these things said to themselves, "earners aren't telling the whole story. The income top earner in the family is going up above the rate of inflation, but this family as a whole is clearly more distant from the mean than last year. Maybe households are the better unit for meaningful comparison. Continuing to count all this based on earners is just doing it for its own sake, and isn't telling us anything useful."

Or maybe choosing households was completely arbitrary, or driven by political calculation - I still have no idea. If it were me I'd make some some modest assumption of goodwill and competence on the part of others, at least as a starting position. Or maybe that's naive and this is all self-evident and I'm missing why.

goy:

The problem with ignoring income inequality - well let's say you think there's no moral issue in any of this. You should still care as a practical matter, because in a democracy the vote of that dude at McDonald's is just as important as Sean Hannity's, and if incomes get too far out of whack people will elect politicians who redistribute wealth.

I know "social justice" has gotten a bad name (definitely earned), but I bet you're for increasing levels of justice generally: you're probably ok with women's suffrage, the defeat of separate but equal, etc. You might even think Social Security has been a net good. And there are all sorts of examples of other western countries with beefier welfare programs, whose societies and economies have not imploded. So a reasonable person could argue, for, say, national healthcare, on "social justice" terms don't you think?

The marxist part no doubt exists in baby boomer academia, but I'm pretty familiar with Obama's writing and speaking on education policy and I have no idea what you're talking about.

Steve C:

As you said, people get paid to think about these things. Some get paid to think objectively; that's why the Census Bureau employees publish many different ways of defining "income," of considering income distribution in more ways than just "household income," and of trying to point out the differences that arise depending on the method chosen.

But others get paid to think about political angles; their incentive, whether they are left or right, is to cherry-pick the stats for political advantage. Yet others, such as Alan Reynolds, get paid to analyze what the political cherry-picking is ignoring; that's why Reynolds wrote his book, Income and Wealth. One thing I've learned, the hard way, is to be skeptical about talking-point assertions by anyone, left or right, getting paid to deliver a political message.

Also, guess what: it's possible to be *for* Obama, without being required to defend each and every item on his political platform or his talking points. (Exception: those involved in the Obama campaign pretty much have to defend everything, but that's politics, isn't it?).

Bryan Jones explained it as the "theory of rational voting choice" (see http://tinyurl.com/3r4u5x ). As an example, I can think of at least one person who is "for" Obama because he'll better fulfill this nation's desperate need for improved respect worldwide, and for a leader with a Reagan-like ability and desire to communicate effectively -- in spite of this person's extreme dislike for Obama's economic rhetoric and platform. In short, in spite of grimacing every time Obama talks economics during the campaign, this person places Obama closer than McCain to the bullseye in Jones's model of rational voting choice.

I happen to agree with this person's disdain for class-warfare rhetoric -- which, especially in these times, could result in a short-run tyrant-majority throwing the growth-economics baby out with the bathwater. I therefore agree with this person that candidate Obama should, if possible, be moved closer to the bullseye on that issue in the rational voting choice model -- and if that's not possible, that some might just have to hold their noses as they cast their votes behind the curtain.

Could there be a correlation between homeownership rate and household income? A graph of homeownership rate here:
http://calculatedrisk.blogspot.com/2008/01/homeownership-rate-cliff-diving.html

If so, we might surmise that as more and more Americans bought investment and vacation homes, as more and more people stopped sharing residences and bought their own McMansions, this naturally led to a falling household incomes.

As the article above from CR shows, homeownership rate is cliff-diving now. Should we then expect to see household income climb as people shack up together, move back in with Mom and Dad, foreclose the vacation home? Good news for the next Pres.

Steve C - "...I have no idea what you're talking about."

And that's precisely the problem. Neither does most of the voting public. This would not be the case if the media had a shred of ethics or honesty. Read up on Bill Ayers' education philosophy. Obama chaired the Chicago Annenberg Challenge program developed and championed by Ayers. What Obama has said or written since (notably silent on his chairmanship of the CAC - his ONLY experience working in an executive capacity, ever) is irrelevant, as it has all been in the context of his unlikely political ascendancy.

A reasonable person could argue, for, say, national healthcare, on "social justice" terms as long as they're willing to admit that by "social justice" - which has no fixed / accepted definition nor intrinsic meaning, per se - they are referring to marxist socialism, for which that term has become the standard euphemism.

The federal government has neither the constitutional authority nor the moral responsibility to act as guarantor of a citizen's health - any more than it has same with regard to a citizen's food, housing, job, clothing, transportation or other necessities of life (i.e., why stop at just health care?). As such, arguing for national health care on the basis of "social justice" can only be done outside the context of the constitutional framework in which we (in America) live.

Steve -

Thanks for the pointers to the census bureau, I googled that earlier and couldn't find much about the merits of earners vs households, and what drives decisionmaking about using one vs the other.

"Also, guess what: it's possible to be *for* Obama, without being required to defend each and every item on his political platform or his talking points. "

Not sure what this is in response to, I don't know what his talking points are these days specifically. I see a good explanation of earners and am trying to get to why it's clearly more relevant in the discussion about income inequality.

...or if this is about the goy comment on Ayres, I will say that this is a great example of a weird conspiracy-theory meme taking hold on the right - a little like lefties who won't shut up about voter fraud in Ohio in 2004. I'm guessing that no amount of explanation would ever sufficiently answer goy's questions. This stuff reminds me of Matt Taibbi's encounter with the 9/11 Truth movement:

http://www.rollingstone.com/politics/story/11818067/the_low_post_the_hopeless_stupidity_of_911_conspiracies

Being concerned about class warfare (which in 2008 apparently means talking about the middle class - and proposing tax cuts[!] for them - whereas extolling the virtues of the rich is never class warfare) and marxist socialism is kind of fighting the last war, don't you guys think? You (er, we) won, it's over.

As George Will put it today:

"In 1987, on the eve of Prime Minister Margaret Thatcher's third victory, the head of her Conservative Party told a visiting columnist: "Someday, Labour will win an election. Our job is to hold on until they are sane." Republicans, winners of seven of the last 10 presidential elections, had better hope they have held on long enough."

That's about right.

Your explanation is mathmatically good. Nevertheless, you have to demonstrated that the composition of household has really changed this decade in relation to last decade

Well here is the data right here;

http://www.census.gov/hhes/www/income/histinc/h12AR.html

It doesn't support Steve's claim at all. For single earner families income went down.


These guys supporting Republican trickle down theories have no shame. The country is collapsing around Friedmanism and Reaganomics and they still sit here and make excuses with the data.

Steve,
I enjoy your blog and think you are sincere in your convictions on this point. But I think there is one point you are overlooking. We established the fact that nominal incomes are up about 60% from 1994-2008 while GDP was up about 103%. But how do we consume all we produce if our incomes do not keep pace with our productive capacity? The only way was to buy on credit and that chicken is coming home to roost. Henry Ford knew he had to pay his workers enough to buy the cars he produced or there was no sense in producing them. Right now businesses are coming to that conclusion and opting for the latter
You mention supply side economics. I believe supply side works to a degree. But why did it stop working? I believe the economy still has the productive capacity it had last year. So why are we starting to produce less (recession=gdp shrinking)? And why will giving more supply side tax cuts cause more production if we are not fully utilizing the production we have today? Robert Reich and Warren Mosler (thanks for suggesting both of them) conclude the economy needs a demand side kick in the butt. I agree. Obama is not going to throw supply side out; his planned tax rates will be lower than Reagan. So it's time to hold my nose and cast the ballot.

muirgeo:

My goodness, what an incredible display of ignorance. Or is it just another hasty display of your ideological bias? Never mind, I'm not really interested in the answer.

I presume you know how to calculate a growth rate spanning 13 years(?). If not, just stop here; the rest of this response won't make sense to you.

If you do, then to get an apples-to-apples comparison with this article's analysis (quintiles and deciles), you'll need to fill in the blanks below. I won't even ask you for the decile breakouts; quintiles will give us a suffient basis for judging your accusations, and besides, I'll be surprised if you can even come up with the necessary quintile data. (Do you even know the definition of a "quintile"? Hint: That would be a big step in the right direction.)

I saved you a little time by calculating the overall growth rates for all quintiles combined, from the table you're so proud you found (at this link: http://tinyurl.com/498l2p ).

After you finish filling in the blanks, we'll all be able to see whether I misstated any of the conclusions I drew. (Hint: I didn't.)

When do you think you can have this done? (Or, probably much less time consuming for you, when do you think you'll be withdrawing your accusations?)

------------
Here are the blanks you need to fill in:

Real growth in median and mean household income, 1994-2007 (for comparison with the charts in Addendum 2 of the main article at this link - http://tinyurl.com/4eeebw ):

Households with no earners:
Total, all quintiles: 0.3% median; 0.6% mean
Q1: ____; _____
Q2: ____; _____
Q3: ____; _____
Q4: ____; _____
Q5: ____; _____

Households with 1 earner:
Total, all quintiles: 0.9% median; 1.0% mean
Q1: ____; _____
Q2: ____; _____
Q3: ____; _____
Q4: ____; _____
Q5: ____; _____

Households with 2 earners:
Total, all quintiles: 1.3% median; 1.3% mean
Q1: ____; _____
Q2: ____; _____
Q3: ____; _____
Q4: ____; _____
Q5: ____; _____

Households with 3 earners:
Total, all quintiles: 1.0% median; 1.0% mean
Q1: ____; _____
Q2: ____; _____
Q3: ____; _____
Q4: ____; _____
Q5: ____; _____

Households with 4+ earners:
Total, all quintiles: -0.2% median; 0.6% mean
Q1: ____; _____
Q2: ____; _____
Q3: ____; _____
Q4: ____; _____
Q5: ____; _____

------------

Steve C:

Thanks for an objective discussion. I've just about had my fill of the other kind.

Here's an overview page at the USCB site:
http://tinyurl.com/3pslpv
Money income is the most common number used in this type of analysis. Wage income is mentioned, but a common criticism is that it does not indicate the value of fringe benefits many workers receive in addition to their wages and salaries. Anyway, I used money income because quintile and decile summaries are readily calculable from the $2500-wide data ranges they provide in the "money income" tables.

Next, here's a good explanation of some alternative measures of "income" (...I would prefer to use "disposable income" by quintile for the analysis, because it's after-tax, after-transfers, and includes the value of in-kind transfers -- but it's not as readily available as the money income tables). Here's the link:
http://tinyurl.com/3msgxw

Here's how the distribution of money income vs disposable income looks: http://tinyurl.com/4hfbh5

And here's the Alan Reynolds book that gets into all the nuances in more detail:
http://tinyurl.com/4dekbr
It's expensive, but they might have it at your local library.

I haven't thought much about Ayers, and don't really have the time or inclination. Stuff that's happening now is commanding all my attention, and I don't expect that to change any time soon.

Steve C - "I'm guessing that no amount of explanation would ever sufficiently answer goy's questions."

Well you would guess wrong. And if you think we "won", then you simply haven't been paying attention to what's been going on in our schools, our government and (most recently) in our financial institutions.

No explanation has been offered regarding Obama's long-standing political and ideological alliance with Ayers and his ilk. Obama has consistently sought to actually hide this association, along with his chairmanship of the CAC, which is his ONE AND ONLY experience in an executive capacity.

Pretending there's some equivalence between this and the 9/11 Truth crowd is silly - but you'd only know that if you weren't ignorant of three critical points: (1) Ayers' ideological bent (rabidly anti-capitalist, fervently pro-marxist - which is what makes the issue more than relevant to this discussion); (2) Ayers' transition from a domestic terrorist wanted by the FBI to a position in Chicago as an "education reformer" who is considered 'mainstream' by no less than Chicago's Mayor Daley; (3) Obama's *years* of political alliance with Ayers on the CAC, the Woods Fund, etc.

Most importantly, this isn't about stuff that happened years or decades ago. This is about stuff that's happening now, in our education system, which is the sort of thing that makes public acceptance of bad political decisions possible (see first comment). Ayers made his almost feral animosity toward capitalism - which is a fulcrum aspect of his education reform program - crystal clear on 9/11 (yes, THE 9/11), while he and Obama were working together on the CAC. He has spoken in Venzuela as recently as 2006 in support or Chavez' marxist education programs there. If you think for one moment that those sympathies don't 100% control his "education reform" in Chicago, we'll then you're guessing wrong. Again.

If you think for a moment that "social justice" (aka marxist socialism) isn't a major portion of what's now taught in most Ed. Schools, you'd also be guessing wrong. And if you think that Obama has abandoned this ideology after pursuing it all of his adult life, in conjunction with Ayers and other like-minded individuals, you're guessing wrong. The names and terms have changed into euphemisms, but the goal is the same: destroy "evil" capitalism, and any means is justified by that end. If that sounds overheated, it's simply because you haven't actually looked into it. Remember how long it took for people (myself included) to recognize how serious this financial crisis really is? It's not the only one.

I've written about this at length. These issues were coming out months ago but have been ignored by the media, for what are now obvious reasons (see McCain's most recent ads).

Please see links below.

Ayers' 2006 speech in Venezuela:

http://billayers.wordpress.com/2006/11/

Commentary on the topic with plenty of links to other info:

http://www.agoyandhisblog.com/2008/08/24/one-hundred-years-of-useful-idiots/

http://www.agoyandhisblog.com/2008/08/23/more-on-obama-ayers-education-and-socialism/

http://www.agoyandhisblog.com/2008/08/22/obamaayers-the-bigger-picture/

Steve C - here's a very timely American Thinker article that discusses this. This issue has tendrils in the immediate financial crisis, given that CRA, sub-prime loans and the social engineering programs that pushed banks to lend to the "underprivileged" (and economically unqualified) have created a huge portion of the toxic debt now held by banks and other lending institutions.

http://www.americanthinker.com/2008/10/why_obamas_communist_connectio.html

"Well you would guess wrong"

Ok, can you describe what that would look like? Let's say Obama held a press conference, handing out documents and making a statement. And let's say journalists from major MSM outlets verified the truth of those documents. What would those documents include, and what would be said in that statement, to completely satisfy you that Obama is not an Ayres disciple, or whatever it is you're concerned about, even in the face of follow-up articles by Stanley Kurtz or in right-wing journals calling it all into question?

I'll let you have the last word on this.

So I'm trying to sort through all this and figure out the point. Is it that:

- it's wrong to conclude that inequality is increasing based on household income numbers, and earner numbers tell a different story

or that

- it's wrong to conclude that overall incomes are stagnating based on household numbers, and earner numbers tell a different story

I think another commenter pointed out that there probably ought to be some revealing story about what's happening with the average composition of a household to conclude that it's a number not worth paying attention to...otherwise movements between households ought to average out.

I haven't had time to read through those links but I will later.

-Steve C

Perhaps it's best not to feed the trolls, but the idea that Obama is a secret Communist is hugely funny to me. That would make these guys secret Commies, too, his economic policy advisors:
http://econ4obama.blogspot.com/2008/06/obama-economic-advisors-and-economic.html

Of course, maybe goy is right and once in office, Obama and his advisors will end the charade and start doing awful ... Communist things like ... killing puppies and torturing Christians and ... raising taxes, etc.

Mark:
I read Alan Reynolds's book and then decided to dive into the data. In short: He's right.

Don't forget to convert GDP to GDP per capita, otherwise it's an invalid comparison with income per earner.

Also, don't forget that our economy's productive capacity is not a static container with a specific volume, it is a hopper with new jobs flowing in and obsolete jobs going out. Growth economics is concerned with the new jobs flowing in, and how to maximize the flow so that it exceeds the old jobs that (must) flow out as other countries learn how to make the maturing products and services.

Supply side economics, contrary to the ridiculous, bastardized-for-politics straw man definition ("if tax rates are reduced, tax revenues will be even higher before the next election"), is focused instead on moving the aggregate supply curve to the right, which creates jobs and reduces inflation. Keynesians don't focus on it or talk about it much, because aggregate supply received only perfunctory mention by Keynes in his General Theory, and that is considered a weak point in that work. But I can't blame him, because he was trying to help get underutilized *current* capacity up to full utilization by stimulating the aggregate demand curve. With all that underutilized capacity for contemporary products and services, it was a waste of time to give any rigor to growing the economy's capacity for *future* products, services, and jobs. [Unfortunately, we might be entering another one of those underutilization periods, so I guess it wouldn't hurt to brush up on our GT.]

Anyway, disposable personal income, which can be derived from GDP, is a closer aggregate for the comparison with income per earner. Here are a few links that will help one trace the numbers from GDP to PI:

Table 1.7.5 - relationship of GDP to PI
http://tinyurl.com/3ka4q6

Table 2.1 - relationship of PI to DPI
http://tinyurl.com/4p5b2m

Line 38 has the population numbers to convert everything to per capita. Also, both nominal and real are available, but I'm pretty sure they use the GDP deflator to convert, so there might be some differences due to that (it's a little different from CPI-U-RS).

Wish I had time to reconcile GDP/cap growth to DPI/cap growth, but I don't. I do know it's a better comparison with income/earner using DPI/cap instead of GDP/cap, because the GDP components of depreciation, corp profits, and personal taxes aren't gumming up the comparison.

Steve C. - "Ok, can you describe what that would look like?"

Tough, since valid documents fitting this description can't possibly exist. We know this based on what's already been revealed about Obama's past - an opaque past the media refuses to vet even 1/10th as thoroughly as they've examined Bristol Palin's pregnancy, "Troopergate" and Trig Palin's parentage.

The last word doesn't mean much, Steve C., since it's apparent you haven't taken the five minutes to read through the material I offered. I'm fully aware of how preoccupied everyone is with the current economic meltdown, and how it's conveniently and coincidentally dragged folks' attention away from Obama's utter lack of qualifications and transparently socialist ideological foundations.

Once in office, Obama is guaranteed to implement exactly the sort of economic social engineering that extended the Great Depression far longer than it should have lasted. And the fact that someone as thoughtful as Ethyl would rather make jokes about such things, and thinks the notions fully supported by Obama's past associations are just "hugely funny", and that a subject being seriously discussed throughout the conservative and PUMA blogosphere is the stuff of "trolls" is about as depressing an example of apathy as I've seen this week.

And it's been a pretty depressing week.

Steve you replied to me;


muirgeo:

"My goodness, what an incredible display of ignorance. Or is it just another hasty display of your ideological bias? .....

I presume you know how to calculate a growth rate spanning 13 years(?). If not, just stop here; the rest of this response won't make sense to you."

YES! STOP RIGHT HERE!!

From your original post on the subject;

"Rumor has it that middle class incomes stagnated or declined starting around the year 2000."

2000 was only 7 years ago. Any reason you suddenly want to borrow 6 years of data from Bill Clinton?

Now go back and correct your " Income per Earner" tables to calculate real income growth for the period in question. So is Obama right? Was it just a rumor?

muirgeo:

Good point; I should have been clearer, because income trends resulting from the *business cycle* have been falsely attributed to the failure of "trickle down." (Wild guess: you are one of the believers in that attribution.)

How fortunate it was that the business cycle peaked in 2000 (or unfortunate, depending on one's political preferences).

Here's the way I should have said it: "Rumor has it that, because of failed economic policy, incomes of the middle class and poor stagnated or declined, and did not benefit from economic growth."

I might just update that portion of the article.

Why did I start with 1994? Click on this link, then page down to the bottom: http://tinyurl.com/3tabxg
That's as far back as they go. They stopped there, because there were significant differences from the way they collected the data before 1994.

So, to clarify the business cycle effects, I stratified the quintile growth rates by business cycle. 1994-2000 was trough to peak; 2000-2003 was peak to trough; 2003-2007 was trough to peak. The quintile growth breakouts are below.

The inferences don't change: participation in the business cycle was about the same, with one or two exceptions. Additional inference: the poor fared better in upturns.

Q1 Q2 Q3 Q4
'94-'00 2.3% 1.9% 1.7% 1.8%
'00-'03 0.4% 0.1% 0.6% 0.5%
'03-'07 0.7% 0.0% 0.1% 0.2%

Now: When will you be ready with your quintile breakout of the numbers on the page you found ( http://tinyurl.com/498l2p )? It would be a good idea to save the year-by-year detail, so we can reassemble them by business cycle periods.

Steve C:

There's a long list of possible hypotheses to test. One of the more interesting ones to me is "lower- and middle-quintile incomes did not participate in the economy's growth" -- which is another way of saying "when the economy grew, the rich got richer, but nobody else did." (That hypothesis is false.) The book Income and Wealth points out several ways of testing that and similar hypotheses quantitatively. Other hypotheses (that don't interest me as much as they do others) involve the earners per household, and its causes and effects, by quintile. I'll be happy to let someone else explore that, and will be interested in whatever is discovered.

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