# Digging into the Data

by on September 20, 2011

Regarding Russ’s challenge to Tyler, Ron Muhlenkamp e-mailed to me these data showing that the average size of American households has been shrinking steadily since 1950.  Mr. Muhlenkamp offers this plausible hypothesis (also from his e-mail):

The reason median household income has not grown is because we have far more households per capita than we used to.

One reason is because we have fewer children per household but we also have far more households with little or no earned income  (retirees)

Where I grew up Midwest,  a generation ago, it was normal for a senior to live with his/her children when they could no longer work to support themselves, (as did My grandparents).  Today it is normal for such seniors to live in a separate household

I just sent you a table showing the growth per decade in population and in households.

Median income per capita has increased relentlessly (see also the chapter on consumer spending in my book)  median income per HH has not only because (we can afford) more households.

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Don September 20, 2011 at 5:38 pm

Link to the data doesn’t work.

Don Boudreaux September 20, 2011 at 5:40 pm

Try it again. I was having some problems with that link, but it’s now working on my computer. (I turned it into a pdf.)

Don September 20, 2011 at 5:45 pm

Thanks, I got the pdf.

Ken September 20, 2011 at 6:03 pm

Don,

The data in another representation:

2010 – 2.626 persons/household
2000 – 2.694 persons/household
1990 – 2.692 persons/household
1980 – 2.812 persons/household
1970 – 3.234 persons/household
1960 – 3.422 persons/household
1950 – 3.496 persons/household

You can see that something dramatic happened from 1960 to 1990, particularly the change from 1970 to 1980.

Regards,
Ken

Economiser September 20, 2011 at 7:27 pm

This is a much more compelling presentation. Thanks Ken!

Price B September 20, 2011 at 8:54 pm

This was the first thing I did when I saw that data, and I had the same findings.

Since 1950, this is around a 25% decrease in household size, therefore there are 25% more households in the U.S. economy, so there are more households sharing all wealth in the U.S.

With no change in output, this population shift pushes median income to fall by an equivalent 25%.

Median income has not fallen by 25%, meaning that output has grown by more than enough to overcome the downward pressure from changing demographics.

We should be celebrating.

ccresci September 21, 2011 at 7:43 am

Celebrating? Really? In real terms people should be much better off than they are now. With more economic liberalization and less economic nationalism people would be doing even better. The look-at-how-far-we’ve-come-attitude is only slightly better than the look-at-how-great-things-were-worldview.

Fred September 21, 2011 at 8:50 am

“In real terms people should be much better off than they are now.”

I am reminded of some movie where an American WWII soldier brings home his new Japanese wife, who embarrasses him at a social gathering by saying to a man what would be a compliment back home “You are very fat. You must be very wealthy!”

In this country poor people are fat.

They must be very wealthy.

Methinks1776 September 20, 2011 at 9:59 pm

Thanks, Ken.

The media is a great propaganda machine. It’s popular to moan about an imaginary slippage in the standard of living since the halcyon days of the 1950′s when blacks couldn’t drink from the same water fountains whites, Jews weren’t allowed in certain neighbourhoods, careers for women were limited to changing diapers, American families were stuffed into 900 square feet with one car, most sweated through the summer with no air conditioning and cancer was a death sentence.

When you list for people all the stuff they have now vs. then, they listen with their mouth agape, suddenly realizing they’ve been duped. It’s just sad. Sadder still is that people who believe the standard of living is slipping also believe government has the power to improve it.

L. F. File September 21, 2011 at 7:48 am

Somethings not considered:

By 2005 at the median income level there were 1.35 income earners per household this coincides with about a 65% employment/population ratio. The ratio averaged about 57% for the 1950′s indicating a much lower average number of income earners per household.

Between 1975 and 2009 hours worked for two earner households increased by 26% while median earnings rose by 23%.

Taking these factors into account should make the picture less rosy.

lff

Methinks1776 September 21, 2011 at 8:04 am

More extremely sloppy thinking. What else is new? You know, you pseudo-Keynesians need to make up your mind.

You can’t whine about more people being employed while at the same time whining that there isn’t enough employment.

Between 1975 and 2009 hours worked for two earner households increased by 26% while median earnings rose by 23%.

Oh, woe. How horrible that bra-burning, rioting women got what they wanted – a job and economic independence from men. Aren’t you libtards supposed to be all for that? Since women got our “independence”, we’ve been storming off to universities and into the workforce. You libtards manage to find a way to screech about sexism and bemoan women’s lack of dependence on men at the same time.

L. F. File September 21, 2011 at 11:02 am

Well if you define progress as working more and earning less you certainly have a point. And all you were trying to do anyway was change the subject because you had no good on-topic – i.e. household income – argument.

But staying on topic the Wall Street Journal had a different take than yours on the situation.

“The long-run decline in wage opportunities has put lots of pressure on families,” Mr. Greenstone said. “People are adjusting, but they’re adjusting in ways that we might not like very much. All of that points away from a vision of the American dream where each generation is doing better than the last.”

lff

Methinks1776 September 21, 2011 at 11:54 am

Uh, yeah. I define “progress” as individuals having the freedom to work toward the life they judge as most perfect for them, unmolested by sloppy “thinkers” like you.

Thus, I think it is clearly progress if a woman has the ability to choose to trade a higher household income and a bad relationship or the shackles of marriage and child rearing for a lower income and freedom. I think it’s progress that a married woman now has the option of maintaining a career – even if she chooses to do so at a lower wage in exchange for flex time. You bemoan women’s exercise of their increased options.

We women earn less money because we are more expensive to employ, what with needing so much time off and flexibility to tend to the offspring and all.

Your sloppy, conflicted idiotology ultimately defines “progress” as top down control of human beings by a political elite. You know, the animals more equal than all others. Sadly, it’s pretty clear you useful idiots don’t even realize it. Your brain goes blank when it reaches a fallacy and skips to something else. This is why Greg Webb was absolutely correct when he said that there is only one brand of statist – stupid.

And all you were trying to do anyway was change the subject because you had no good on-topic – i.e. household income – argument.

You clearly don’t understand that money is not wealth.

Ken September 21, 2011 at 1:38 pm

L.F. File,

The whole point is that it is a mistake to compare “households” over time, as they represent incomparable entities. Thus saying households in 1975 had such and such characteristic, while households in 2010 have this characteristic is misleading at best.

As for things being less rosy, ask yourself would you rather be the median household earner with all the amenities of 1975 or would you rather be the median household earner with all the amenities of 2010? The honest answer would not just be to choose 2010, but an emphatic choosing of 2010. Humans, particularly Americans, have four times the income, 40% larger more efficient houses, more personal time, and more amenities than imagined possible in 1975.

Even the difference between 2000 and 2010 is pretty significant.

Regards,
Ken

ArrowSmith September 20, 2011 at 6:57 pm

BTW – Just read that Milton Friedman thought Hayek’s economics was bunk, but loved ‘Road to Serfdom’.

L. F. File September 21, 2011 at 11:11 am

Milton might not have liked this part of “The Road To Serfdom” much:

“There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.”

lff

Methinks1776 September 21, 2011 at 12:52 pm

You claim Keynes makes sense to you, yet you don’t have even the most slippery grasp of what Keynes said. You claim Krugman makes sense to you, yet you don’t understand a thing Krugman says. You claim Friedman would disagree with Hayek, yet it’s obvious you’ve never read anything Friedman has ever written nor heard anything Friedman ever said. Friedman agrees with Hayek.

Can you at least tie your own shoes?

Ken September 21, 2011 at 1:43 pm

lff,

“Milton might not have liked this part of “The Road To Serfdom” much:”

Really? From a simple google search and found in less than 10 seconds on wikipedia:

“Winners of the Nobel Prize in Economics who fully support a basic income include Herbert Simon[30], Friedrich Hayek[31][32], James Meade, Robert Solow[33], and Milton Friedman[34].”

Can you read that last name? You know it’s always a wise policy to, you know, actually know what you’re talking about before commenting on something.

Regards,
Ken

ArrowSmith September 20, 2011 at 6:58 pm

Hard times will force families to move in together, thus increasing that average # per household back to 1950 levels! Thanks GOP!

tdp September 20, 2011 at 11:12 pm

Friedman was a converted Keynesian, so he tended to approach economics with a different mindset than Hayek, however, they both made valuable contributions to economics, not least by popularizing free market economics. The greatest thing Friedman did, other than change the way economists studied the Great Depression, was to demonstrate the inherent justice and morality of allowing people the freedom of choice in both economic and personal life. Hayek’s greatest service was to show the inherent deficiencies in socialist economies and the inevitable loss of liberty and dignity that follows interventionism (as described in “The Road To Serfdom”).

W.E. Heasley September 20, 2011 at 7:14 pm

One thing overlooked is: regardless of the statistical outcome of median income, average income, household income [per capita being more empirical], due to the presenter’s implicit assumption of “the way things ought to be”, the statistics tell a story that does -or- does not fit the presenters vision of “the way things ought to be”. Hence the thrust of the statistics is an argument based on the presenter’s vision and how the statistics need changed to fit the vision or the statistics are perfect as they fit the vision of the presenter.

Its not the statistics it’s the vision.

Dan Phillips September 20, 2011 at 8:21 pm

Why does anyone give a rat’s behind how many people live in a house not their own?

Michael September 21, 2011 at 9:10 am

No one, in any real sense. The email Don received is underscoring the importance of understanding your data.

What constituted a “household” in 1950 is different from constitutes a “household” today, so any comparison between the two, like mean or median income, is comparing apples and oranges. Without recognizing that change any conclusions you draw from comparing present median household income with that of the 1950s is suspect.

David September 20, 2011 at 9:55 pm

I wonder if divorce rates affect this at all, especially when looking at the share of income to bottom and top quintiles. I know couples that marry at an older age with higher levels of education have a smaller chance of getting divorced than a couple that gets married with only highschool educations. So lower earning households are more likely to be split into two households and higher earning couples are more likely to stay as one household. I wonder if any research has been done on this.

Cliff September 20, 2011 at 10:15 pm

Tyler has addressed all of this. Income started to stagnate in the ’70s, and in very recent years household size has actually gone up. You can see there has been no change in household size for the last 20 years and little in the last 30 years. His conclusions are pretty robust to this particular criticism.

Guy in a Jury Assembly Room September 21, 2011 at 11:55 am

No he didn’t. He cited an old USA Today article that “projected” a reversal of the 1/2 century decline in household size, but the subsequent 2010 Census proved that guess false. That was sloppy work by Tyler, in favor of his theory.

LowcountryJoe September 21, 2011 at 1:23 am

Speaking of Ron Muhlenkamp, whom I didn’t know had ties to you, I think Russ should interview him for a podcast. Ron has a couple of books he could discuss and he has numerous views on markets, many times mixing in demographic statistics and his free-market mindset.

Tuure Laurinolli September 21, 2011 at 3:38 am

Are there no per-capita income distributions available for United States?

House of Cards September 21, 2011 at 4:29 am

“Today it is normal for such seniors to live in a separate household …”

I think that the trend will reverse itself during the next decade. The spread of poverty in this country, due to Rethuglicanism/libertarianism, will insure that extended families will (have to) live under one roof. There are three families (10 relatives) living in the same household nextdoor to my house. Fortunately, they have a big house.

There will also be many more instances of people who are not related having to share a house or apartment. We usually thing of this when we think of college students getting together to rent a house. This may become the norm for the multitudes of poor working people as well. The march toward Third World status in the U.S. has become inexorable. I suggest moving to Canada in you want a better future for your family. I’m not sure how easy that is to do though. You may have to have a job in place.

SweetLiberty September 21, 2011 at 9:08 am

I tend to agree with your second sentence, with one minor edit…

The spread of poverty in this country, due to Progressivism/Socialism, will insure that extended families will (have to) live under one roof.

House of Cards September 21, 2011 at 11:10 am
Slappy McFee September 21, 2011 at 11:37 am

And so is government spending and regulation.

Slappy McFee September 21, 2011 at 9:17 am

And just think. Everyone living in cramped apartments next to mass transit stations which they use to go to their assigned government task.

A dream come true.

Go Green!!

muirgeo September 21, 2011 at 8:59 am

The change in households per capita from 1990 to 2010 is negligible. Also his analysis doesn’t account for the fact that more women went to work over those same time periods so household income is more likely to represent 2 incomes needed in one household to make their income. Also excluded from this analysis is the increased cost of education, housing, transportation and health care.

Here’s a better picture of what’s going on.

When you have to “question” the data its a good time to question your own motives and positions. Denying the data will NEVER allow you to formulate a solution. Our problems quite simply will not get better until we get more money into the hands of the working class. Neoliberal solutions like cutting spending will and our clearly making things worse. We will not at this point see a big improvement in our economy until some major structural changes are made. Those changes will clearly be in the direction of what demand side economist would recommend and will clearly not be a result of recommendations from ideologically bankrupt supply siders.

The only thing the free marketeers will have is excuses, illegitimate questioning of the data and things like the Confidence Fairy.

SweetLiberty September 21, 2011 at 10:22 am

Muirgeo,

You never cease to amaze. You assume the graph you present makes the case that “cutting spending will and our [sic] clearly making things worse”. But, per your graph, households are going into debt in order to consume – which should stimulate the economy from the demand side! Things should be MUCH BETTER with all the consumer spending going on! This is EXACTLY what you want! Spend, spend, spend!!! And when consumer debt has maxed out, you want the government to step in and spend, spend, spend. Yeah, that’s worked really well, hasn’t it? Demand side economics is a completely bankrupt philosophy.

Slappy McFee September 21, 2011 at 10:31 am

I really don’t think he reads what he writes.

Economiser September 21, 2011 at 10:32 am

Consistency has never been a strong suit of neo-Keynesians.

Methinks1776 September 21, 2011 at 12:55 pm

or Keynes himself.

cmprostreet September 21, 2011 at 9:41 pm

Are you kidding? Muirgeo’s consistency in proving himself wrong is unparalleled!

I’ve found that many of his persuasion just keep using the same logical tactic over and over again: They say one thing, then say the opposite, and when called on it they point to the contradiction and conclude something else.

The only part of logic they seem to understand is that you can conclude anything from a contradiction.

Invisible Backhand September 21, 2011 at 11:31 am

Supply side economics caused this mess.

ArrowSmith September 21, 2011 at 1:04 pm

Yup invisible pink bunnies too!

Fred September 21, 2011 at 10:34 am

Goods must be produced before they can be consumed.
Supply precedes demand.
Demand does not magically create supply. Supply must come first.

You want wealth to be confiscated so it can be spent. Spent on what? If you’re not producing, then you’re depleting supply. If you’re paying people to do nothing, what are they producing? Once supplies are depleted, nobody is producing, and there’s no more wealth to confiscate, what do you do then?

Demand side economics is the path to poverty.

SweetLiberty September 21, 2011 at 11:09 am

Goods must be produced before they can be consumed. Supply precedes demand.

Absolutely. Another way to think of it is to consider trade. If I don’t produce (supply) anything of value that you or others want (demand), then I have nothing to trade for what I want. The only way I can get from you what I demand without first supplying something worth trading for is to ask you for charity or to forcefully steal what you have produced. The fact that government acts as an intermediary to this theft does not change the reality that only one of us is producing something of value while the other is not.

An economy is strongest when the maximum number of citizens are producing goods and services of value others truly demand and would willingly trade for. Wasteful production sponsored by government stimulus merely increases the supply of goods and services no one would willingly trade for at the expense of valuable goods and services people actually want.

Ken September 21, 2011 at 11:14 am

Fred,

“Demand does not magically create supply.”

The demand for information is NOT driving the supply of digital technology? If all the sudden the demand for iPhones dried up, it wouldn’t matter how much supply of iPhones there was. No wealth would have been created.

I think what you might be railing against is the blind Keynesianism that boosting ANY demand is good. Of course, this is false too. If no one wants an iPhone, but he gov kicks in and buys all of them (to increase demand of course), all this is doing is wasting money.

Regards,
Ken

Fred September 21, 2011 at 11:19 am

The iPhone had to be supplied before it could be demanded.
Nobody demanded an iPhone until Apple took a risk and brought it to market.

SweetLiberty September 21, 2011 at 12:15 pm

Ken,

Perceived consumer desires lead entrepreneurs to supply products and services which they believe will create demand for their goods. It is only through the supply of successful (valued) products and services that generate actual demand. If Apple had developed the iFlop instead of the iPhone, there would be no demand; only an unfulfilled and undefined desire for some as yet undeveloped product still awaiting invention.

Prior to the private internet, people didn’t demand internet services. And if the internet were still in government hands today, consumers still wouldn’t demand internet services because they wouldn’t know such things could exist. It took the privatization of the internet and entrepreneurs who correctly anticipated consumer’s desires to create an actual demand for technologies such as Google, Facebook, Flash games, etc.

People always desire food, clothing, shelter, entertainment, information, etc., but until someone successfully invents (supplies) a means of delivering these goods and services that others value, no actual demand will exist. This may seem like semantics, but separating “desire” from “demand” can clarify the discussion. Human desires are endless, but demand only relates to products and services which satisfy desires. Therefore, desire drives supply, and supply creates demand for valued goods.

Ken September 21, 2011 at 12:39 pm

All right. Let’s simplify things. Do you get hungry (demand) because someone supplied food or is food supplied because you are hungry (demanding food)?

The same is true for ALL things. Businesses fail because not because there isn’t demand, but not enough to cover costs. The iPhone was created because Steve Jobs and other inventors created a demand for it. They knew there would be enough demand to cover costs due to the general demand for fast moving, easy access information. They also knew there is a demand for easy to use items, like the iPhone, to deliver that fast moving, easy access information.

My argument is in partial agreement with you, that the arbitrary increases in “demand” that is provided by Keynesian economics isn’t really demand, as no one really wants those products, but the producers (supply providers) have convinced enough government officials to divert resources that would satisfy real demand to producers, so the producers wouldn’t have to suffer for the mistakes they’ve made (usually in over estimating demand for a product).

However, to say that all you have to do is arbitrarily increase supply (like GM cars) to create demand is as mistaken as arbitrarily increasing demand (like gov arbitrarily buying a fleet of GM cars) will create supply.

Regards,
Ken

Fred September 21, 2011 at 12:55 pm

“However, to say that all you have to do is arbitrarily increase supply…”

That’s not what I’m saying. There was no demand for Android tablets until after the iPad was brought to market.

Apple took a risk and supplied the iPad, people liked it and demanded more, and now companies are competing for the best tablet device.

But it all started with Apple perceiving a desire (not demand, but desire), taking a risk by supplying a product that filled that perceived desire, thus creating demand.

Supply precedes demand.

Ken September 21, 2011 at 12:58 pm

Fred,

Please explain the difference between a desire and a demand.

Regards,
Ken

Fred September 21, 2011 at 1:00 pm

I don’t think I could do any better than the last paragraph of SweetLiberty’s above 12:15 post.

Ken September 21, 2011 at 1:06 pm

So we’re basically arguing over nothing. I disagree with SL’s definition of demand, but I see what you’re saying if that’s how you define demand.

Regards,
Ken

SweetLiberty September 21, 2011 at 2:48 pm

Ken,

I’m going to rephrase and expand upon your first two paragraphs – not to be snarky – but to further elaborate my position since you disagree that there is a distinction between “desire” and “demand”…

All right. Let’s simplify things. Do you get hungry (desire) because someone supplied food or is food supplied because you are hungry (desiring food)? Comments: You may supply food which meets my desire and therefore becomes something I demand, or you may supply food which does not satisfy my desire, in which case I won’t demand it. I will only demand your food once I determine whether or not is satisfies my desire (hunger, taste, etc).

The same is true for ALL things. Businesses fail not because there isn’t enough desire, but not enough demand for their particular product to cover costs. The iPhone was created because Steve Jobs and other inventors created a demand for it based on satisfying the ever-present desire for communication, information, entertainment, etc.. They hoped and anticipated there would be enough demand to cover costs due to the general desire for fast moving, easy access information. They also knew there is a current demand for similar easy to use items prior to the invention of the iPhone, to deliver that fast moving, easy access information which they used as a basis to justify the probability that an iPhone product would become popular and be demanded by consumers.

You go on to say…

However, to say that all you have to do is arbitrarily increase supply (like GM cars) to create demand is mistaken…

I am certainly not saying this! Arbitrarily increasing supply (like GM cars) does NOT automatically create demand (for GM cars). However, if GM creates (supplies) a new model of car based upon perceived desires for the features of that new vehicle, then consumers will SET demand for that new model based upon availability, price, and how well the new model satisfies their desires. Demand may be zero or higher. But actual demand cannot be determined until that new model is first supplied and the consumer becomes aware that such a vehicle exists to even demand, thereby evaluating how well that new vehicle will satisfy their desires!

I think we are generally on the same side here as well, but I still maintain that there is a distinction between desire and demand and that supply relies upon attempting to satisfy desires and demand must rely upon the supply which exists. I hope I have adequately clarified my case.

Darren September 21, 2011 at 5:11 pm

Demand side economics is the path to poverty.

Just a thought, but it seems demand would incentive for supply to increase. However, this would only apply to existing products and services. If we were content with the status quo, relying stricly on demand to direct the allocation of resources might make sense. But, how can we demand something we haven’t thought of? Until someone supplies the *new* product/service, there will be no demand for it and *new* products and services is how civilization/society progresses (economically). I’m sure something here doesn’t make sense; probably the result of my sloppy thinking.

yet another Dave September 21, 2011 at 12:52 pm

Also excluded from this analysis is the increased cost of education, housing, transportation and health care.

It’s amusing that your list includes only things where government intervention has driven up prices even as you repeatedly bleat for ever more government intervention.

I’m sure you don’t see the irony.

Craig S September 21, 2011 at 1:48 pm

“Neoliberal solutions like cutting spending will and our clearly making things worse”

Spending has continued to increase, it is disengenous at best to say otherwise.

Ken M September 21, 2011 at 10:59 am

The change in household structure is also an important truth behind the persistent claim that “the poor are getting poorer”. Even ignoring the income mobility hidden behind comparing income distributions over time, the fact is that a large portion of those “poor households” are attributable to huge increases in the number of single person and, more importantly, single parent households.

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