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Rising Incomes and Falling Income Statistics

Posted By Don Boudreaux On September 8, 2008 @ 9:27 am In Data,Inequality,Myths and Fallacies,Seen and Unseen,Standard of Living | Comments Disabled

Here’s a letter that I sent recently to the Washington Post, in response to the same Robert Samuelson column that Russ blogged on [1]:

Robert Samuelson helpfully explains why the data routinely cited to show the alleged economic stagnation of middle-class Americans are misleading (“The Real Economic Scorecard [2],” September 3).  In particular, he’s correct that average or median income can stagnate or fall even if everyone’s income rises.  Here’s how I explain this possibility to my students:

Imagine what the average or median income would be in a room occupied only by Bill Gates, Warren Buffet, and Bono.  Now imagine that I enter the room and accept their offer to become their full-time shoe-shiner at an annual salary of $500,000.  Because this income is higher than I earned before entering the room, I’m richer.  And because my entering the room does not lower their annual incomes, none of them is poorer.  But my presence in the room (with my new income still far below that of each of these men) dramatically lowers the room’s average income, and pretty significantly lowers its median income, even if the income of each of these men rises during the current year.

Everyone is richer, yet average and median incomes are lower.  As Mr. Samuelson points out, this possibility is not merely academic.

Sincerely,
Donald J. Boudreaux

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[1] Russ blogged on: http://cafehayek.com/2008/09/samuelson-on-st.html

[2] The Real Economic Scorecard: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/02/AR2008090202437.html

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