Tyler responds to my response.
Karl Smith joins in. (I agree with Karl that regression to the mean is part of the story. Just don’t know how important.)
More below the fold on Tyler.
Here is Tyler’s response:
1. Male median wage data (down since 1969) suggest divorce is not the main issue; in any case divorce is an economic and psychological catastrophe for many people, and defending living standards by invoking the effects of divorce in the data strikes me as actually more pessimistic than my view. I suspect Russ’s own cultural values are in accord with this perspective. Russ’s postulated effect also does not explain 1998-2011 median wage stagnation very well.
Does Tyler really believe that the median male worker of today has the same standard of living today as in 1969? My original challenge to Tyler was to give me his interpretation of data points like the one he invokes here. It is certainly consistent with his story but it’s too consistent. Per capita GDP has increased a lot since 1969. Did none of it go to the median male worker? Besides problems with inflation measurement in the wage data, there is also a problem with benefits. By the way, the income data leaves out a great deal as well.
I bring up the distorting effect of divorce on the data not because I think it redeems the last 40 years. That’s not what we’re talking about. We’re talking about whether the economy is broken. If the average person does not share in economic growth of the magnitude we’ve had in the last 40 years then we should have a revolution not a modest increase in taxes on the rich or a hike in the minimum wage.
I have no problem with the 1998-2011 “stagnation.” That is not the Great stagnation. That’s what happens when you have a horrible recession. Different argument.
3. The key question is the net bias of statistics, not the bias for consumer durables alone. Our real economic performance on a lot of services — a huge and growing part of the economy — is extremely weak. As durables get cheaper, the biases in measuring their quality become less important.
I am not editing Tyler. His numbering is erratic…
The net bias is the key. Could be that the deterioration of services offsets the gains from durable quality improvements in measuring overall inflation. The question is an empirical one.
4. I don’t see that Russ has made an actual counter to my argument here.
Agreed. Didn’t really try. It’s a small point.
6. In successful periods growth shows up in the major mainstream economic statistics, including the median. If it doesn’t, at the very least we should conclude that growth is considerably slower than usual.
9. There is no measured median income progress since 1997 and very little since 1973; that’s not just a cyclical phenomenon. The supposedly good years of the noughties now look like a bubble, not the reality.
I don’t have anything new to add to these points that I haven’t said before.
On panel data, I read the Pew Report which Russ cites. Over a more than thirty year time period, only 63 percent of children had incomes exceeding those of their parents, and that comparison includes some pre-TGS, quite high-growth years. I don’t find that number impressive at all. In any case the key question is a comparative one, and while the study has not been done, it is highly likely one would find much stronger cross-generational measures of progress for earlier generations.
The median data by quintile in that chart suggests that much of those who do gain are in the bottom half of the distribution. But this is an empirical question. I bring up the Pew study because it shows that the median has grown substantially when you follow the same people. There is a lot more to be done with panel data.
On reconciling the per capita gdp and median stories, the concept of rent-seeking — most of all through the service sectors and finance and government — will suffice. I know that Russ already agrees with the finance side of this story, maybe the government side too and who knows, perhaps education and medicine as well?
I certainly agree with Tyler that there has been a lot of waste in education and medicine and that the growth in rent-seeking is destructive.
