George Will’s column in yesterday’s Washington Post is especially good. Here’s my favorite paragraph from that column:
Economic hypochondria, a derangement associated with affluence, is a
byproduct of the welfare state: An entitlement mentality gives
Americans a low pain threshold — witness their recurring hysteria
about nominal rather than real gasoline prices — and a sense of being
entitled to economic dynamism without the frictions and "creative
destruction" that must accompany dynamism. Economic hypochondria is
also bred by news media that consider the phrase "good news" an
oxymoron, even as the U.S. economy, which has performed better than any
other major industrial economy since 2001, drives the Dow to record
highs.
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I am really surprised that you haven't blogged about Mankiw's editorial in today's Journal, speaking of gasoline prices.
Robert Reich, former secretary of labor for the Clinton administration has some comments today that slightly disagree with George Will.
http://robertreich.blogspot.com/2006/10/people-are-rising.html
Of course, current statistics prove him wrong. But then…
There are three kinds of lies: lies, damned lies, and statistics.
Benjamin Disraeli (1804 – 1881)
Do these statistics support George or Bob? Neither? Both? Free Trade? Protectionism? Paranoia? Optimism?
Data Series Apr 2006 May 2006 June 2006 Jul 2006 Aug 2006 Sept 2006
Civilian Labor Force 5,157.6 5,092.0 5,114.7 5,095.5 5,086.0 5,111.9
Employment 4,788.1 4,784.4 4,794.1 4,739.2 4,726.1 4,748.2
Unemployment History 369.5 307.5 320.6 356.2 359.9 363.7
Unemployment Rate 7.2 6.0 6.3 7.0 7.1 7.1
Dismiss complaints about high nominal gas prices in one breath; celebrate high nominal stock prices in the next.
Excellent point, Jason. Of course, what is the point of even having cake unless you can also eat it too?
This talk about economic hypochondria is absolute bs. The general public is pissed off because the median income has risen, adjusted for inflation, by less than .5% a year since the early seventies, while productivity has risen by about 1.5% a year since then. People aren't complaining about nothing; they are mad they will have lower living standards than the last generation, and they are right.
As of now, generation Y is headed towards being less educated than the Baby Boomers, thanks to skyrocketing college and university tuition costs (which conveniently mirror huge cuts in state and local budget allocations for higher level education).
Economic growth for the past five (including 2006) has been 2.6%, about long run rate. Thats not fantastic. Also, since productivity has been rising by well over 2% a year, this means employment has been growing far less. Fact is, unemployment is not 4.6%, but about 7-8%, not counting underemployed.
Like I said, people have a reason to worry. You can tell people that their falling grade over the course of the semester is not a problem, but don't expect people to heed your words. They will rightly be worried.
Alex, I highly doubt anyone even knows about median income, let alone cares about it. I don't particularly care what anyone else makes, I care about what I make, and it's been, on average, a pretty steady ride up since I got out of high school 20 years ago.
Alex,
Were you here a few weeks ago when the Profs and others tore apart almost everything that you wrote today? Referring to economic malcontents, you say "they are mad they will have lower living standards than the last generation" – are you insane? You volunteer to go back to the previous generation – what is that 1986 – and blog about this topic. Oh wait, I mean, go post it on the only BBS in town with your 300 baud modem.
You have stumbled into the wrong place if you want to argue that living standards have dropped. Please give evidence to anyone's living standards dropping. The high standards of $600 CD players, $400 microwaves, TVs with 10 channels, no Internet, dirtier air, dirtier water, less reliable cars, less comfortable clothes, fewer medicines, fewer microbreweries, less selection of food, did I mention no Internet, fear of getting nuked from the Soviets, etc. Oh those were the days.
I'll take what we have available now even if I have to sacrifice it to your supposed .5% drop in real wages (or whatever garbage you tried to cite.)
Is a person who bases his claim of immiseration on the statistical artifact "median income" a co-median?
Alex, I'd like to buy a book for you, called _Myths of Rich and Poor_. I only ask that you assert that you will read the book cover to cover. Send your shipping address to nelson@crynwr.com.
Wow, you folks should audition for the propaganda ministry. I mean, you say exactly the same things that people in 1984 say. Anyway, lets get down to the facts, not opinions, which is all you folks seem to have. Median income currently stands at about $45000. That is an increase of 15-20% over the past generation, adjusted for inflation. That sounds great, except that health care costs are rising by 6% a year, as is tuition and housing costs. If your income is rising 1% above inflation a year, which puts you with 10% of the workforce (the other 90% are making less than the spread between inflation and their pay hikes, with 70-80% losing income), then your pay check over time is losing value, as the CPI is increasingly made up of college tuition, health care and housing, as these become larger parts of the GDP and what people spend. I am assuming everyone here has taken economics 101 in preschool to understand CPI, GDP, and how I came about my answer. If you all really think you are better off now than you were twenty years ago, then that could be true, but you can't extrapolate that and use it as a basis of comparison with the country. Its confirmation bias, not what the BLS, CBO, GAO, IRS or any government organization (run by Republicans who ahbor talk about inequality) are putting out as data. I have nothing else to add in this post, as it is clear you are all in denial, just like the inquisition which punished Gallileo was about the solar system being Heliocentric.
Alex,
The CPI already indludes the follwing [taken from http://www.bls.gov/cpi/cpifaq.htm#Question_6 ]:
MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories)
Nice try, though. Maybe with your Econ 101 instruction and your keen sense of understanding of GDP & CPI, you could also put some kind of cost on the increase in life expectancy. Life expectancy increases have got to be some kind of cost since life is not worth living, the sky is falling, and life isn't fair, don't they? And the longer one lives, the more misery one has to endure from life's cruelness, right?
Alex,
If you can find me just one poll where a majority of people say that they are worse off now then they were 10 or 20 years ago then I may start to pay attention to your ramblings – but you mentioned "living standards" but went on to bleet about CPI.
My point and others before me is basically that you can't measure "living standards" or "quality of life" by simple economic indicators adjusted for inflation, because they don't take into account "LIFE". The reality is that I can do more things, have more options to do those things, do them more efficiently, and live safer and healthier while doing them, and find more types of work to pay for it all than I could at any point in history. That is how I measure a living standard. I would say that people in all income categories have experienced most of the same "life" improvements as I have over the past 20 years, but your median income stuff might make things look stagnant. The poor sure have benefitted in the past 20 years – more have cars, air conditioning and own their homes then ever before.
Air travel in the US has increased over 100% since 1985, but the population has only risen around 30% in that same time period. The average house size has risen substantially since 1980. These are real things that improve our lot in life. Who cares if we have a few less bucks after we buy our goodies? Go buy a typewriter, if you think computers are too expensive due to your shrinking wages.
You, my friend, are the one drinking the kool-aid.
Last year, around this same time (Sep – Dec), I worked part-time at the unemployment office while finishing my final semester of college; I was assigned to Job Service and ensured that interested job seekers met the employing company's minimum qualifications before setting up an interiew or fowarding on their applications or resumes. One would be completely shocked to know that a large percentage of people in the labor pool with very low qualifications have cell phones, own cars, and even look as though they're not going without food for too long of stretches during the day. Anecdotal, I know, but still.
When you are refering to low income people owning things, that is refering to gold collar workers, people who generally don't have a college degree, but because of the work they do and because they are single, they can afford a car, house, things, etc. Its fine to count those people as living well, as long as you include the caveat that they will have financial difficulties down the road and they will have nothing saved up for retirement. Going back to living standards and quality of life, lets get some things straight; the top 20% of US households make 50% of the country's income (the top 1% gets 20%, and the top .1% gets 9%, or twice what the bottom 20% gets), as well as account for about half the country's consumption. When you look at increased use of air travel, more cars, bigger houses…. you are looking at the benefits accruing to people at the top, not the general population. Also, I hope you remember that averages tell you nothing about anything. The average household income in the US is $70-75000. The median? $45000. Quite a difference, huh? The typical household is not bringing in $70000 a year. That actually corresponds to less than 30% of US households. Here is an example. Let's say that there are fifteen families, and the average house measured 2000 Sq. feet. That's 30000 Sq. feet, but one family has a hosue that is 9000 Sq. feet, while the other 14 have houses that are 1500 Sq. feet. The average is 2000, but the typical family has house space a quarter less than the average. That's how things truely are, from houses, cars, nearly all consumer goods you can imagine. I am not arguing that the people here haven't seen their lives improve; it could be real, you might not have a family to take care of (which would drastically increase your chances of filing for bankruptcy and having financial difficulties), you might live in a much cheaper area than the national average, etc. But to argue that the American people have seen a steady improvement in their living standards and quality of life is to focus on statistics that tell us of the great time that people at the 99th percentile, not the 50th percentile, are having. This isn't class warfare; this is just reporting the facts, whether you likr them or not, deny them or not.
All,
Why are you responding to a reference to CPI as if it is a legitimate measure of price inflation? Call that error out as soon as somebody tries to claim it as any sort of economic indicator.
Alex,
“The general public is pissed off because the median income has risen, adjusted for inflation, by less than .5% a year since the early seventies, while productivity has risen by about 1.5% a year since then.”
I doubt the general public would know what the hell you just said.
They would, however, understand a headline that read, “Gas prices rising! Greedy oil companies to blame.”
The general public hasn’t taken Economics 101 in preschool as you assumed everyone here has. The public loves drama, and that stuff you were talking about with the top 1%, etc. isn’t the kind of stuff they look for in US Weekly. They will forget about gas (or whatever they are so pissed at right now) as soon as the media starts talking about some other “disaster” looming.
I would really like to know what data you are using to accurately measure changes in American living standards, but it would mean more to me to read what you have to say about the economic education of the general public.
A few comments. One vis a vis Alex's rant. It seems nobody noticed that he quoted median income *rising* inflation adjusted.
Unless you feel that CPI *understates* inflation significantly, that means that the median person is better off than in 1986. It's just shocking that we put up with a situation in which we are only 20% better off, instead of being 100% better off, or whatever it is Alex thinks we are entitled to.
Second, regarding the original quote. I find it highly amusing that Will ridicules reification of nominal prices in petrol alarmists, while just a few sentences later, he makes the *same* mistake in service of his own hobby horse: "even as the U.S. economy [...] drives the Dow to record highs."
The Dow's "record highs" are a phantom attributable to inflation. The total return on the Dow since its high in 2000 is anemic, and the dow itself is well down from that high when adjusted for inflation. The unrepresentative Dow has also outperformed broader market indexes in that time (the Wilshire 5000 is still 7% off it's nominal high).
Third: All those who think looking at median income is pointless, and that mean income is a better measure of typical economic advance, shall immediately present for flogging^Wre-education.
Even in happy happy joy-joy libertarian fantasy land, I find it hard to believe that an extra 50k would increase Warren Buffet's sense of economic well being as much as it would most of my (middle and working class) neighbors.
How the median is doing is a much better indicator of average performance than the mean.
Which you choose depends on what you are trying to measure, total wealth, or average economic security. They are both important for different reasons.
Question:
How accurate is median income as an indicator of economic well-being?
I ask this because I wonder how median income would change over time without monetary inflation. Even if incomes stayed the same, prices would be going down as productivity goes up, so you'd be better off materially.
It depends on what you mean by economic well being.
If you're trying to figure out how well the country is doing in terms of ability to dominate world affairs, the median is irrelevant, and in fact, per capita isn't even much relevant.
If you're trying to figure out whether the typical person feels like they are getting ahead or falling behind, median income is better.
Also important is probably median wage per hour worked. If both of those numbers are rising inflation adjusted, then the "typical" person is better off. If both are falling inflation adjusted, then the typical person is worse off. If income is rising but $/hr worked is falling, I'd say things arenn't very good, but probably could be a lot worse. If $/hr worked is rising but income is falling, then whether that is good or bad would depend on to what extent the lesser work hours were by choice.
Regarding your last musing: if prices are going down, wouldn't that represent deflation?
Can you really separate monetary inflation like that? I don't see how you can pull apart productivity effects from monetary effects. It's too easy to create money, and there are too many actors doing so.
Michael,
I meant prices going down with a stable money supply. Increasing productivity is the reason for the falling prices. Wouldn't measurements be more accurate in that case?
Let's say we were in your "libertarian fantasy land" – no more feds, no more regulations, money 100% backed by commodity. The median income could go down, and, perhaps due to an increase in demand for special labor, etc., those below could be just as well off or better, due to an increase in productivity.
It seems easier to measure without the feds pumping money into the system, especially if they pump money into one side (does new money count as income?), since that could make an imaginary increase in median income. I believe macroeconomic measurements, such as GDP and CPI, are relied upon for far more than they are worth and should be taken with more than a grain of salt.
In the second paragraph of my last statement above I meant a decrease in median income as a result of situation such as an increase in special labor, but improved prosperity in spite of the decreased median due to an increase in productivity.
The other way sounds confusing.
except for a few individuals here with rational sense, you're all crazy, stupid and suffer from right-wing paranoia. yes, the dow is exploding. so what! in case you didn't know, that's only one macro indicator of stock performance of the 30 largest corporations in the u.s. economy. that does not affect 95% of average people. of course, wall street and the investor class love it. wages are flat since 1965. the minimum wage adjusted for inflation should be at least $12.75 an hour. most industrialized countries of the world have socialized health care, extended unemployment and training benefits, 4-6 weeks vacation for employees. we have nothing! george bush and his ilk are oil men and they're going to keep shtupping us until we can't take it anymore. i remember when americans were moaning and groaning about carter inflation and $1.05 per gallon oil prices. now that gas is about to hit 4 or 5 dollars, NOTHING! americans are lethargic and so busy pointing the fingers at left-wingers and other liberals that don't even exist. Liberals? Where????? show me 5! the dollar's dropping like a rock against the euro. we're spending a billion a week on a catastrophic war we can't win. we're sending jobs to china and india. we're bringing in boatloads of illegal immigrants to fuel corporations and further drive down wages while busting unions. college tuition is through the roof. infrastructure is crumbling. we don't even take care of our veterans who valliantly fought for and defended us! future generations are going to inherit massive debt. foreclosures are on the rise and millions are bankrupt. americans, stop living the american delusion and wake the fxxx up for heaven's sake!