The Lake Wobegon Fallacy

by Russ Roberts on January 3, 2006

in Inequality, Myths and Fallacies

One of the principles of journalistic ethics is "balance."  One person’s opinion is often balanced by someone else’s opinion on the other side.  This principle is ignored in reviewing movies, books or concerts.  It is ignored on the sports page—when the home town team plays badly and loses, the reporter rarely goes out to get a quote from the "other side."  The one place that balance lives and thrives is the news section.

Any data or statistic that is announced will usually get an optimistic assessment and a pessimistic assessment.  This creates a market for gloomy assessments and a market for cheerful assessments.  There are certain commentators who are known to be pessimists and others who are known to be optimists.  I have a feeling that the pessimists do a better business for the same reason that people like horror movies.  The pessimists usually have an agenda.  Increasing the proportion of people who think the world is doing badly increases the demand for reform.

For some think tanks and agenda-driven economists, the world is always going to hell in a handbasket.  Things are always getting worse.  Every silver cloud has a dark lining.

News from Boston finds that nearly 1 in 20 Boston households are millionaires.  That’s the awkwardly-worded headline in the story from the Boston Globe.  (Households aren’t really millionaires, individuals are.  But you get the basic idea).

Now there are many things to quibble about when evaluating that number of 1 in 20.  But basically it’s good news for Boston and a sign of its economic health.  Boston, in fact, ranks first among all cities.

But in the fourth paragraph comes the gloom in discussing a forecast that Boston will be getting even more millionaires in the future:

But the jump in millionaires may also drive up prices for numerous services and goods, including housing. Down the road, some economists worry about the deeper social implications of a rapid rise: The rich will enjoy ever more of life’s luxuries, while the poor struggle to pay rent and dig out of debt.

Rents may indeed rise and that may cause some hardship.  But the basic premise of the paragraph is that the world is a zero-sum game where one person’s wealth comes at the expense of others.  Imagine saying the same thing looking at the history of the 20th century.  The standard of living grew by a factor of 10 to 30 fold (it’s hard to measure) but can you imagine an economist adding the gloomy caveat that all the luxury that resulted and improvements in health care  and longevity over the 20th century would be tough for poor people?  Poor people in 1900 are among the people who benefited the most from the growth in wealth.

But the story in the Boston Globe goes one step further than finding the dark lining in the silver cloud.  It pioneers a new insight from statistics using Mark Zandi of, one of the regulars in the market for gloom:

Economist Mark Zandi said he sees two classes emerging in Boston and
nationally: One earns above the region’s median family income, about
$75,000 in the Boston area, and lives in comfort, with job security,
stock holdings, and little debt. The other half earns below the median,
has far less job security, and worries about credit card debt and
student loans.

”This reinforces the view that the folks who are
doing well are doing very well, and the folks who aren’t doing well
aren’t doing very well at all," said Zandi, chief economist for Moody’s ”The middle class is bifurcating. It’s becoming two classes."

It’s early in 2006 but this may be the best quote of the year, or maybe even the decade for saying something that is true but totally meaningless.

Two emerging classes?  A bifurcating middle class?   One below the median and one above.  I hope Mr. Zandi was misquoted.  Because as far as I know, there has always been a group below the median and a group above it except in Lake Wobegon.  And those groups are pretty evenly weighted.  Oh, usually around 50-50.  Half above and half below.

If you worry that only 50% of the population earns more than the median, you are going to be worried for a long long time.


16 comments    Share Share    Print    Email

Previous post:

Next post: