Absolute mobility, quantified

by Russ Roberts on June 15, 2009

in Data, Standard of Living

This post looked at the proportion of children who have done better than their parents. Here's a measure of the amounts.

Half empty or half full? Both no doubt. Just don't tell me that people in the bottom 40% haven't received any of the economic gains of the last 30 years:

GenMobAmounts

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{ 49 comments }

Daniel June 15, 2009 at 8:02 pm

I don't believe anyone said that the bottom 40% haven't received any of the economic gains over the past 30 years, just that the growth in income has been small for lower incomes.

Additionally, Emmanuel Seaz, looking at Social Security data finds that "…changes in short-term mobility have not substantially affected the evolution of inequality, so that annual snapshots of the distribution provide a good approximation of the evolution of the longer term measures of inequality." (http://www.econ.berkeley.edu/~saez/kopczuk-saez-songQJE09SSA.pdf) This paper has a review of some of the longitudinal studies, some of which find large amounts of mobility across income groups, many of which don't.

While increases in welfare in the bottom quartiles has not been as bad as some claim (particularly when considering improvements in the quality and variety of goods), I think it is fair to say that the poor have not seen very much income growth over the past 30 years, while the rich have. This seems to be the more modest claim of Justin Wolfers' original post.

Pingry June 15, 2009 at 8:30 pm

Russ,

Those of us who do not eschew math and statistics to better understand the economy, rather than, say, worshiping the divinity of spontaneous order on simple faith, would say you can do better than say "Half empty or half full? Both no doubt."

Actually I do have serious doubt.

There is no such thing as half empty. If you're critical on the clarity of the graph that Mankiw posted a few weeks ago "for being right for the wrong reasons," then you must equally entertain the notion, that for clarity, there is no such thing as half empty.

Half of zero (.50*0 or 0/2) is still zero, that is, one cannot take half of nothingness, and simply chop it in half.

And, if something is half full, then it must be that it is .5x, or x/2. This unambiguously yields an 'event' which is mutually exclusive and collectively exhaustible from the 'event' which we shall define as 'half empty', so, in fact, I think there is serious doubt.

Spontaneous order is nice, but it's tantamount to a child learning simple arithmetic: It's a long way to go before he or she gets to build bridges, put a man on the moon, or understand macroeconomics for that matter.

No one is saying that math and econometrics are perfect, but they sure as hell give a better understanding than spontaneous order.

After all, Milton Friedman talked about the accuracy of the predictions, not the validity of the assumptions.

If it were up to silly spontaneous order and Austrian macro, we would be sitting in the next Great Depression was far more painful than Hayek and Mises could have imagined with irresponsible philosophy.

–Pingry

laminustacitus June 15, 2009 at 9:14 pm

"And, if something is half full, then it must be that it is .5x, or x/2. This unambiguously yields an 'event' which is mutually exclusive and collectively exhaustible from the 'event' which we shall define as 'half empty', so, in fact, I think there is serious doubt."

Mathematically analyzing linguistics can, in fact, lead to paradoxical answers. No surprise there.

"Spontaneous order is nice, but it's tantamount to a child learning simple arithmetic: It's a long way to go before he or she gets to build bridges, put a man on the moon, or understand macroeconomics for that matter."

The relation you speak of is only related to a terrible understanding of spontaneous order.

"No one is saying that math and econometrics are perfect, but they sure as hell give a better understanding than spontaneous order."

Spontaneous order, and econometrics are not necessarily opposed to one another – again, you confuse spontaneous order for something it is not.

"After all, Milton Friedman talked about the accuracy of the predictions, not the validity of the assumptions.

If it were up to silly spontaneous order and Austrian macro, we would be sitting in the next Great Depression was far more painful than Hayek and Mises could have imagined with irresponsible philosophy."

Strange Austrian macro seemed to predict not only the 1929 crash, but also the price of gold after the closing of the gold-window, and the current economic downturn, before they happened. Might I add that no other school of economic thought has such a record when it comes to macro prediction.

laminustacitus June 15, 2009 at 9:14 pm

"And, if something is half full, then it must be that it is .5x, or x/2. This unambiguously yields an 'event' which is mutually exclusive and collectively exhaustible from the 'event' which we shall define as 'half empty', so, in fact, I think there is serious doubt."

Mathematically analyzing linguistics can, in fact, lead to paradoxical answers. No surprise there.

"Spontaneous order is nice, but it's tantamount to a child learning simple arithmetic: It's a long way to go before he or she gets to build bridges, put a man on the moon, or understand macroeconomics for that matter."

The relation you speak of is only related to a terrible understanding of spontaneous order.

"No one is saying that math and econometrics are perfect, but they sure as hell give a better understanding than spontaneous order."

Spontaneous order, and econometrics are not necessarily opposed to one another – again, you confuse spontaneous order for something it is not.

"After all, Milton Friedman talked about the accuracy of the predictions, not the validity of the assumptions.

If it were up to silly spontaneous order and Austrian macro, we would be sitting in the next Great Depression was far more painful than Hayek and Mises could have imagined with irresponsible philosophy."

Strange Austrian macro seemed to predict not only the 1929 crash, but also the price of gold after the closing of the gold-window, and the current economic downturn, before they happened. Might I add that no other school of economic thought has such a record when it comes to macro prediction.

kebko June 15, 2009 at 9:18 pm

Russ, thanks for the very powerful representations here. These graphs clarify the point extremely well.

Russ Roberts June 15, 2009 at 9:38 pm

Daniel,

Go read this post:

/2009/06/wrong.html

Justin Wolfers (and many other folks) argue that "most/nearly all/all of the gains from economic growth of the last 25 years went to the top 1%/5%/20% and the poor/bottom 20%/bottom 50% got nothing/virtually nothing/a minimal amount."

It is not just about growing inequality. It is about the poor suffering or being stagnant financially while the rich do great over time. My claim is that the charts and data people use to support this claim are flawed.

The graph I cite in this post may have problems. It may be have its own flaws. But at least it tries to look at how people do over time compared to their parents. And it shows that the biggest absolute gains and the biggest percentage gains went to the bottom 20% and the bottom 40%.

It is not the only evidence I have seen on this issue. All of the longitudinal evidence I have seen (where the same people get followed rather than taking snapshots of the entire population at a point in time, come to the conclusion that there have been substantial gains to poor people over time in the United States including the last 25 years.

Greg Ransom June 15, 2009 at 9:39 pm

Note well that the children of the bottom group are to a substantial extent the children of folks who at one time citizens of another country.

Russ Roberts June 15, 2009 at 10:18 pm

Greg,

I don't think so. I don't think the PSID includes immigrants. It's a study of 5000 families (or maybe people) who get followed year after year.

Bret June 15, 2009 at 11:48 pm

Wow! Pretty decent for whites but not so hot for blacks.

Here's one of the conclusions that the Pew reaches regarding their data ( http://www.pewtrusts.org/news_room_detail.aspx?id=52052 ):

"Surprisingly, America is a less economically mobile society than many European countries. Some 42 percent of children born on the bottom rung are still there a generation later. Almost half of middle-income African-American children fall to the bottom of the income ladder as adults."

So half full if you're white, but if you're black it's more like 3/4 empty.

John Dewey June 16, 2009 at 12:23 am

Bret: "So half full if you're white, but if you're black it's more like 3/4 empty."

2007 statistics on single parent households by race probably give a clue about why African-American children may not succeed as much as the rest of the population.

% of children living in single parent households

Non-Hispanic white …… 23%
African American …….. 65%
American Indian ……… 49%
Asian ………………. 17%
Hispanic ……………. 37%

dg lesvic June 16, 2009 at 12:24 am

Baloney!

Bret June 16, 2009 at 1:01 am

John Dewey,

So we have a (sort of) correlation between single parent households and less income mobility and less economic gains. Which causes which? (For example, I can imagine it could be that crushing poverty forces the men to live away from the home so that the women can collect more welfare benefits).

muirgeo June 16, 2009 at 2:55 am

Look to the Forbes Richest 400. From 1982 to 2008 their combined income rose from $.092 trillion to $1.700 trillion. This while median income rose from 35,000 to 46,000.

An additional 1.6 trillion dollars stashed between 400 families!!! Justifying this silliness is simply shilling for oligarchy.

Massive amounts of income and wealth have been accumulated in a small minority and there is very little good done by it.

Iranians are fighting for freedom while Americans are happily heading towards servitude.

dg lesvic June 16, 2009 at 3:08 am

Ping Pong,

You wrote,

"No one is saying that math and econometrics are perfect, but they sure as hell give a better understanding than spontaneous order."

I assume that you mean a better understanding of economics, and, by "spontaneous order," logic, that what you mean is that math gives a better understanding of economics than logic.

Tell us, then, how you could observe the Invisible Hand, and, if you couldn't observe it, measure, count, or calculate it.

dg lesvic June 16, 2009 at 3:48 am

Prof Roberts,

Since the advocates of the welfare state are going to blame the free market for any losses of the poor and give credit to the welfare state for any gains, what difference does it make whether they've lost or gained?

To make your case for the free market, you must still take recourse in economic reasoning.

And everything else is just a distraction from it.

dg lesvic June 16, 2009 at 4:00 am

That isn't to say that there is anything wrong with economic history, just that it isn't economics. History is fine, in its place, but not in place of economics.

Economics informs history, but is not informed by it.

John Dewey June 16, 2009 at 6:40 am

bret: "it could be that crushing poverty forces the men to live away from the home so that the women can collect more welfare benefits"

I have no doubt that our system of government transfers has played a role in the breakup of families. I believe the economist Thomas Sowell has been making that point for decades.

Of course, the term "crushing poverty" seems a litle silly. As Senator Phil Gramm noted years ago, the U.S. is the only nation in history where the poor people are fat.

Daniel Kuehn June 16, 2009 at 6:42 am

I'm sorry, I have to agree with Daniel – the original Freakonomics post did not say that there "weren't any gains".

I think it's also important to note that your graphs present median income by quintiles and the Freakonomics graph presents means. Much of the inequality/rich get the bigger share of the pie story looks at the very rich, not just the top 20%. While both of your figures present quintiles, this is more likely to come up in the Freakonomics graph because it uses means. That's not to say medians aren't a good measure by any means – they just would hide that particular story.

It still am not sure why this contradicts or is a better alternative to the "Wrong" chart. Mobility and inequality seem to me to be two related, but very different issues to study. I agreed with you then and still agree with you that you can't take a decades-long change in inequality graphic and say something about how individual families are doing. But aside from that caveat, these graphs seem to complement the Freakonomics graphs, not contradict them.

Julia Isaacs also had a paper in this series, and I believe her conclusion was that the very richest families and the very poorest families had lower inter-quintile mobility than middle income families. This doesn't seem to exactly square with these numbers, but I suppose it could be consistent if there's significantly higher variation in the difference between parental income and children's income in the middle quintiles.

Russ Roberts June 16, 2009 at 7:53 am

Muirgeo writes about the gains between 1982 and 2008 to the richest Americans:

"An additional 1.6 trillion dollars stashed between 400 families!!! Justifying this silliness is simply shilling for oligarchy.

"Massive amounts of income and wealth have been accumulated in a small minority and there is very little good done by it."

You make the same mistakes as many others, the same mistake I keep explaining. You implicitly assume they are the same people. They are not. For example, Sergei Brin and Larry Page founded Google in that period and (I assume) joined the Forbes 400. It's not an oligarchy. We have a lot to show for it.

Daniel Kuehn: you force me to quote Justin Wolfers once again:

"Economic growth since the mid-1970’s just hasn’t delivered much for many families."

THEN READ THE CHART WOLFERS USES. The chart "shows" that families in the bottom 40% have enjoyed annual income gains much much below 1% per year. Much less than one half of 1% per year. If your income growth is that lousy, (while per capita income is growing at something like 2%) that means that your income will take 100 years or more to double. That means that the average gains of 2.5% are misleading because all the gains are going to the rich.

But it's wrong. The Pew analysis shows that roughly within one generation, 20 to 25 years, the incomes within the bottom 40% double. That means income growth of 3% per year at least within family.

The point: Wolfers and others are talking about much more than inequality. They are talking about stagnation of the poor's situation. I think they are wrong. I know the charts they use to draw that conclusion are not the right charts.

I haven't read the Isaacs paper. But if you're quoting it correctly, it is about relative mobility. That is not what we're talking about.

I will post a long summary post soon on these issues.

geoih June 16, 2009 at 9:04 am

So much excitement over meaningless aggregates. Average income, average change in income, first quintile, second quintile, African-American, white, hispanic, whatever.

These things only exist in your mind. Human beings are not inanimate gas molecules, nor heards of cattle.

Perhaps next we can discuss how many angels will fit on the head of a pin.

Daniel Kuehn June 16, 2009 at 9:14 am

Russ -
And to repeat my point, I agree with that criticism of Wolfers. I have since your first post in fact!

Wolfers misinterprets his own graphic, but that doesn't mean that you have to. You write: "The chart "shows" that families in the bottom 40% have enjoyed annual income gains much much below 1% per year."

That's wrong. It was wrong when Wolfers claimed it and it's wrong when you're claiming it now. Wolfers's chart shows that the two bottom QUINTILES, not families in the two bottom qunitiles, have grown at a rate of less than one percent since the seventies. His graphic shows that the dispersion of income was narrowing up until the 70s and it has widened after the 70s.

You're criticizing him for claiming that poor families are "stagnating". He had one sentence in the post about how families "gain" or don't gain over time, and he left it very vague – but like I've said twice, I agree with you on that criticism.

But you're also criticizing him for not talking about what you want to talk about. Maybe you wished he did talk about that, but you can't really blame him for showing a widening income distribution when you want to talk about how families do over time. If he wants to talk about inequality and you want to talk about mobility, you can criticize him for one somewhat misleading sentence, but you can't blame him for not talking about what you want to talk about!

I'm not bashing what you've presented here and in the previous post, I'm just saying these posts seem just as valuable to me as the Freakonomics one.

RE: "I haven't read the Isaacs paper. But if you're quoting it correctly, it is about relative mobility. That is not what we're talking about."

It's related, though – but I'd say the same thing about your thoughts on Wolfers – "that's not what he's talking about".

Rvturnage June 16, 2009 at 9:37 am

Muirego, you should be proud of the income gains made by the richest 400…if you bothered to compare the lists. Of the people on that list in 1982, only 32 were there in 2007…and more impressively, in 2007 only 74 of the top 400 inherited their entire fortune. 270 were entirely self made. That should make you proud — well over half made it for themselves.

(info from: http://www.realclearpolitics.com/articles/2007/09/the_forbes_400_as_a_lesson_in.html)

Further, as Russ keeps pointing out, studies following individuals over time show a different story on mobility. A U.S. Treasury study shows that 57% of those in the top 1% were in a lower income bracket by 2005. Conversely, 58% in the lowest bracket moved to a higher bracket.

There's a nice chart in this WSJ piece showing the percent of change in income by quintile and top percentages…over the decade they were studied, the lowest quintile had the highest percent of increase in income.

http://online.wsj.com/article/SB119492157951090886.html?mod=opinion_main_review_and_outlooks

The article also points out something I'd not seen mentioned on this blog — age. Our workforce has been growing older with the baby boomers and age is a huge influence on earnings. Recently we've seen an influx of younger workers into the workforce, which will of course tend to show a larger inequality in distribution.

muirgeo June 16, 2009 at 9:42 am

Good point made on the likely significance of the data in the "Wrong" post. Especially if mobility is stagnant or not improving.

See Box 1) At the end of the paper.

It is important to note that in the
context of rising income inequality, stable mobility rates suggest that the distribution
of lifetime income must be growing more unequal. That is, lifetime or long-term
economic inequality is rising.

Daniel Kuehn June 16, 2009 at 9:43 am

Rvturnage -
RE: "Further, as Russ keeps pointing out, studies following individuals over time show a different story on mobility."

It's fallacious to call it a "different story".

- Inequality has increased
- Poor families have improved their lot substantially
- Generally speaking there is a lot of mobility in this country

I suppose these are about different things, but they're not "different stories" in the sense that they contradict. They don't.

And I agree on muirgeo – pointing out what's happening for the top couple hundred people doesn't tell us all that much.

You all are trying to pit apples and oranges against each other, when really they make a nice fruit salad in combination :)

Methinks June 16, 2009 at 10:14 am

(For example, I can imagine it could be that crushing poverty forces the men to live away from the home so that the women can collect more welfare benefits).

There is no "crushing poverty" in the United States. The vast majority of Americans can't even conceive of "crushing poverty".

The poorly designed (read: government designed) welfare state breaks families apart not because of "crushing poverty" but because welfare is designed to infantilize adults and create multi-generation dependents.

Randy June 16, 2009 at 10:17 am

What the Progressives really mean when they say that inequality is increasing is that they have found a group that they intend to target for expanded exploitation. All the rest is rationalization.

The question, therefore, is not whether or not the rationalizations are valid (they're not), but whether or not we will allow the exploitation. And we will allow it, of course, because the only way to stop it is to go on strike.

Russ Roberts June 16, 2009 at 10:33 am

Daniel Kuehn,

It's not just "one sentence" that mentions absolute mobility.

Here is how the Wolfers post ends:

"In light of this, perhaps there’s no paradox in the fact that happiness hasn’t grown in the U.S. since the 1970’s. Rather than inferring that growing income doesn’t raise happiness, these data remind us that for most of the distribution there hasn’t been much income growth."

The last line is the point of the post. The title of the post is "Economic Growth Across the Income Distribution."

He is not alone. It is widely argued that the bottom 20% and the bottom 40% have received no benefits from economic growth. The charts and data used to support this view are the wrong charts and data.

Russ Roberts June 16, 2009 at 10:34 am

Rvturnage (and others):

I suspect the Treasury study that shows lots of mobility is not reliable either. I forget why but at the time, when it was released, I remember thinking it was flawed. I'll look into it.

Greg Ransom June 16, 2009 at 10:45 am

This sort of thing is what Darwinian biologists do every day — it's population thinking: how populations change over time. There is actually a mathematics to it.

I'm sure the rocket scientists in economics would be attracted to the math, if not to the emphasis on sound causal explanations.

Daniel Kuehn June 16, 2009 at 10:52 am

Russ -
Right – the post is about how the distribution changes over time, measured by how families perform at points in time, and not about how families perform over time (which is what you seem more interested in). Isn't he talking about the distribution in the quotes you've furnished? Isn't that what I've been saying?

dg lesvic June 16, 2009 at 10:56 am

If we may get back to economics for a moment:

Mad Dog Economics

Warren Buffet’s left hand does not know what his right hand is doing. While the giggling capitalist supports the Marxist with a smiley face, Barack Obama, because he would “spread the wealth around,” as a practicing capitalist, he is doing just that himself, expanding his markets and spreading the wealth around as best he can. If the capitalists themselves are doing so, what more could politicians do, but get in the way? We didn’t need them to spread automobiles around, just a capitalist named Henry Ford figuring out how to produce them at a price the masses could afford to pay, and without giggling about it; nor, to spread computers around, just more dour capitalists, cutting the cost from hundreds of thousands to hundreds of dollars apiece.

Capitalism is a feast, and socialism cursing the host. It isn’t capitalists hogging the wealth and socialists sharing it, but the other way around. Socialist dictators do not share their plunder, inviting the masses into their palaces and to their banquets; and while they leave but crumbs to be shared, capitalists not only produce but share the wealth. Even the greediest capitalist investing in a factory doesn’t operate all of the equipment nor consume all of the product himself, but shares the work and the output with others, generating employment and abundance for them along with himself. Since price goes down as output goes up, and availability up as price goes down, the benefits of investment don’t just “trickle” but pour down to the poor. But trickling or pouring down, they are essential to the poor. For, without private businesses to support them, socialism and the welfare state would collapse, and, the poor depending on them, starve to death. So it makes no more sense for them to sacrifice the private for the public sector than the foundation of a building for a penthouse at the top of it.

Socialist distribution along with capitalist production is the square peg in a round hole. Taking from the rich to give to the poor can only make matters worse, not just drawing money but manpower downward upon the hierarchy of production, and the manpower faster than the money. For manpower doesn’t merely follow money but anticipates it. And, with manpower and competition among the poor increasing faster than the redistributed money, they’ll be poorer than they would have been without it.

What are the “excesses” of capitalism? How could there be excessive profit, means and incentive for investment, and eradicating poverty?

It is not the market that is “ruggedly individualistic” nor restriction of it “kind and gentle,” but the other way around, the free market division of labor enabling us to support one another, and restriction of it keeping us from doing so.

If you wish to share in the riches of the market, why restrict the division of labor enabling you to do so, the capitalists investing for you, and foreigners slaving away for you?

There is a “free lunch” for the poor. It’s called capitalism. By participating in a free market division of labor, they automatically share in its bounty. Without their doing anything to make themselves richer, the more productive automatically do so, making the poor richer as they make themselves richer.

That is what Adam Smith meant by the “invisible hand,” leading the individual to promote the interests of others as he pursued his own. So the politicians interfering with it are interfering with the free lunch of the poor, and the poor supporting them are like mad dogs biting the hand that feeds them.

Defending the market is not attacking the poor. Biting the Invisible Hand that feeds them is attacking them.

Mr. Buffett apparently sees a left-handed confiscation for charitable purposes as a corollary of his own right-handed donations for them, and a President Obama as a left-handed Bill and Melinda Gates. But Bill and Melinda are not mad dogs, biting the hand that feeds us all.

I understand that Mr. Buffet giggles only when talking about other people’s money, and is all business when minding his own. Must we defer to the wisdom of a man who, however successful in his own trade, doesn’t know enough to stick to it, and the banana republic dictators that his presidential candidate would emulate?

I’m not saying that Barack Obama is a Communist, but, if he were any more to the left, we’d have to call him Comrade.

Investing in the ideology of Marx and Lenin, after the fall of the Berlin Wall, is like betting on the Yankees after they had already lost the World Series.

Surely Mr. Buffett’s fortune was not founded on wagers such as that.

So I would follow his walk but not his talk, and no more invest in the ideology of Castro and Hugo Chavez than he is investing in their economies.

Daniel Kuehn June 16, 2009 at 10:59 am

dg lesvic – that post of yours was about economics?!?!?!?

——

I thought people in this thread might be interested in this Brookings event I just got an email on:

http://www.brookings.edu/events/2009/0623_income_inequality.aspx?rssid=UpcomingEvents

Note that it's about inequality, not mobility.

dg lesvic June 16, 2009 at 11:08 am

Well, Daniel, can you tell me what all your charts and statistics have to do with economics?

Daniel Kuehn June 16, 2009 at 11:13 am

dg lesvic -
I didn't present a single chart or statistic, but I did talk about other people's. They are quantifications of the distribution of income in the economy (actually, I suppose quantifications of the changes of distribution of income in the economy) – and we know this income is largely representative of the marginal productivity of workers (or capital owned by individuals). All of these issues are classic fields of economic inquiry.

Your post seems to be a flowery polemic against the cultural critics of capitalism. An important statement, perhaps – but I don't see much economics in it. It's social commentary.

Russ Roberts June 16, 2009 at 11:34 am

Daniel,

No.

This statement

"these data remind us that for most of the distribution there hasn’t been much income growth"

is a statement about absolute mobility not inequality.

I am done for now discussing this. If you don't agree, I have nothing more to say.

Daniel Kuehn June 16, 2009 at 11:46 am

Russ –
How do you continue to push me on this despite the fact that I've repeatedly agreed with you on the interpretation of Wolfers and the value of your mobility data? I'm done too. This is tiring and I have to say a little insulting.

dg lesvic June 16, 2009 at 12:12 pm

Daniel,

This is just for you, and, by the way, I'm insulted if you think anyone is insulting you more than I am.

A Declaration of Economics

Since we live in a world of scarcity, we must all economize. But that doesn’t make us all economists. Economics implies something beyond Home Economics, the problems of Ma Kettle in her kitchen; it implies Political Economy, the problems of nations and social classes in the market and the political arena, and not its passing data but eternal truths.

The data by itself is a meaningless jumble. It is only through the logic of economics that we can make sense of it. But while the logic is essential to an understanding of the data, the ever changing data is irrelevant to the eternal logic. So though the macro-economic plotters of the data and governors of the nation’s economy use economics, they do not contribute to it. And, however more complex the data of the overall economy than that of the corner grocery store, they are still more like Ma Kettle, adjusting to changes in the data, than Adam Smith, discovering eternal truths, and not economists, like Smith, but economic managers, like Ma Kettle, though on a larger scale.

Though today economics is like a dead language, reserved for academic specialists, and anathema to most others, it was once a popular, living science.

Was the mathematization and mystification that alienated the public and left economics to the professionals a progression or obfuscation of it, an advancement of the science or merely of the profession at the expense of the science?

Consider just one of its old-fashioned propositions:

There’s demand for apple pies but none for mud pies, so they won’t be worth a red cent, no matter how much labor has gone into them.

That simple, naked truth, exposing the Labor Theory of Value, strips away the whole fabric of the profession, “the economist’s new clothes.”

“What could easily be explained in a few sentences of mundane speech was expressed in a terminology…unfamiliar to the immense majority and therefore regarded with reverential awe.” Ludwig von Mises

There is nothing in economics that could not be explained in mundane speech. For even the most complex theorems are comprised of simple elements, which can be explained in simple terms. And, if they aren't worth the bother of explaining them, they're hardly worth the bother of trying to understand them.

Confusion is complicated, economics simple; and if it isn’t simple, it isn’t economics.

All of the talk of mathematics in economics confuses the passing data of econometrics with the eternal truths of economics. Since there is none of the passing data in the eternal truths, there are no quantities, and no mathematics.

However essential to econometrics, it is irrelevant to economics, and, its only purpose, to obscure it.

The obscurants say that they’re just trying to make it easier to understand. They’ve certainly done a wonderful job of that.

“I’m the chairman of the department, and even I don’t know what they’re talking about when I go from one classroom and one specialty to another.”

from a conversation at UCLA

They may get the Nobel Prize for it, but no cigar from any real economist.

They tell us that the test of an economic theory is its success in predicting the future, but betray themselves every time they get up to go to work in the morning like the rest of us. For, if they could really predict the future, and with mathematical precision, wouldn’t they all be stock market millionaires?

Economics is not a predictive but explanatory science. Demand going down as price goes up, all other things constant, does mean that it will necessarily go down as price goes up, for all other things are not constant.

The empirical economists could never explain how you observed the Invisible Hand, and, if you couldn’t observe it, measure, count, or calculate it. Since statistical measurements are always of past events, never exactly repeating themselves, they are irrelevant to the eternal and immutable laws of economics, always exactly repeating themselves. You cannot construct an economic theory upon the shifting sands of statistics, nor, without the statistics, have anything to calculate. There is no mathematical because there is no empirical economics, and without mathematization and mystification no professionalization. Economics is still the simple, wide-open science of its amateur founders and pioneers, and too important to be left to “economists.”

“Economics must not be relegated to classrooms and statistical offices and…left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man’s human existence…Whoever neglects to examine…the problems…voluntarily surrenders his birthright to a self-appointed elite of supermen. In such vital matters blind reliance upon ‘experts’…is tantamount to the abandonment of self-determination and to yielding to other people’s domination…economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists…It concerns everyone and belongs to all. It is the main and proper study of every citizen.”

Mises

Today, that seems a vain hope. But that's how it was before the professors took over. According to the 19th Century political writer, Bagehot, “Political Economy was indeed the favourite subject in England from about 1810 to 1840;” and, as stated in the letters of a Miss Edgeworth, a contemporary of Ricardo, “so much the fashion that distinguished ladies before engaging a governess for their children inquired about her competence to teach political economy.”

See A Review of Economic Doctrines..byT.W. Hutchison, P 6, and A History of Economic Doctrines..by Gide and Rist, P 134

Who the better teachers, the governesses of 150 years ago, whom even children could understand, or the university professors of today, whom not even their peers can understand; and which the better world, that of Ricardo and Miss Edgeworth, or of Keynes and Hitler, of old-fashioned, amateur economics, and freedom, peace, and progress, or of professionalized and institutionalized economics, and war, holocaust, and genocide?

Since real economics is still a simple, logical science, as accessible to laymen as professionals, and a field open to laymen is closed to professionals, all that is open to them in economics is bastardization of it, anti-economics in the name of economics.

“All professions conspire against humanity,” and all professional economists against economics.

It is not their science but yours, a priestcraft of professionals and science of amateurs.

So, you may stand with all the rest, if you like; I’ll stand with Mises and a few good governesses against the world, the mobs and lunatics running the asylum, and intellectual emperors with no pants on.

I would add that what I said about the economics profession in general most definitely does not apply to our hosts here, who are honorary amateurs, which, of course, means, true lovers of the science.

God bless 'em.

Daniel Kuehn June 16, 2009 at 12:17 pm

dg lesvic -
Not more than you, just different :)

I have read your Declaration of Economics before. I have to say, you set yourself to far too easy a task by debunking the labor theory of value :)

dg lesvic June 16, 2009 at 12:22 pm

And God bless you too, Daniel.

dg lesvic June 16, 2009 at 12:22 pm

What did I say?

Daniel Kuehn June 16, 2009 at 12:25 pm

RE: what did I say?

Hahahaha. I'll recap :) You quite insightfully pointed out the problem with the labor theory of value – that prices are determined by demand for goods and services in addition to the labor required to produce goods and services. I'm simply saying that you set your shining intellect to too easy a task by taking time debunking that old Marxist line :)

dg lesvic June 16, 2009 at 12:56 pm

The point of it was to show how plain and simple real economics was.

Randy June 16, 2009 at 12:56 pm

Its unfortunate, I think, that so many ignore Marx's understanding of the problem (the exploitation of the productive by the political) and proceed directly to debunking his analysis and proposed solutions. Not that his analysis and proposed soltutions aren't greatly worthy of debunking (we can't solve the problem of politics with more politics), but the problem also must be understood if it is to be solved, and Marx understood it well.

LowcountryJoe June 16, 2009 at 1:11 pm

>>I thought people in this thread might be interested in this Brookings event I just got an email on:…<<

DK, I thought that you might be interested in another blog — a blog that another frequent commentor at the Cafe runs:

http://ablankspotonthemap.blogspot.com/

Enjoy!

dg lesvic June 16, 2009 at 1:58 pm

Enjoy Muirgeo?

That's like enjoying a root canal.

Sam Grove June 16, 2009 at 2:01 pm

Daniel, I thought it an elegant expression of the problem of communicating the truths of economics in a world where professionals claim exclusive insight.

The brief debunking of the labor theory of value a mere fraction of the whole.

If you think that's what it was all about, well, I guess you were well "trained" in economics.

dg lesvic June 16, 2009 at 2:02 pm

Randy,

We need Marx to understand the exploitation of the productive by the political?

If he did understand it, he sure didn't convey that understanding to his followers.

So better to direct their attention to Hayek and Mises.

dg lesvic June 16, 2009 at 2:04 pm

Daniel,

You wrote,

"prices are determined by demand for goods and services in addition to the labor required to produce goods and services."

You got that half right.

Sam Grove June 16, 2009 at 2:06 pm

The common complaint about the rich, that their incomes are high indicates a poor understanding of the world.

If you want to compare the progress of well being among segments, then they should be compared by their consumption rather than by their income.

Much of the income of the "rich" likely is invested. Certainly they consume well, but I suspect that, accounting for inflation, consumption by the rich has not grown all that much compared to other segments of society.

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