The U.S. Economy
There seems to be quite some debate about the state of the US economy. Some, like President Bush, believe that the US economy is “strong and vibrant”. Others, like the citizens quoted in this AP article, say that they are struggling, like never before, to make ends meet.
Nancy Pelosi (perhaps naturally) agrees with those citizens:
Times are “very good for the rich and very, very bad for the poor” who “can’t afford to live,” laments Larry Mitchell, 43, a now-and-then merchant peddling his wares recently in a submarine sandwich shop parking lot. He says the middle class is “having a hard time.”
[...]
“President Bush and the Republicans are out of touch with Americans who are living paycheck to paycheck and are struggling to make ends meet,” House Minority Leader Nancy Pelosi, D-Calif., counters.Her rank-and-file portrays an economy under Republicans that leaves behind the poor and hinders the middle class. Democrats also complain about a soaring federal deficit and Bush’s tax cuts “for the wealthy” during wartime.
[...]
“Everything from a loaf of bread to a pair of shoes,” seems to cost more, said Ronald Barrett, 70, a Democrat supervising a group doing community service on Scottsburg’s quaint town square in Indiana.At a nearby diner, waitress Jeanine Gordon, 32, who makes the minimum wage, mused about her latest trouble — her van has been in the shop for a week because she and her husband can’t afford to fix it.
“This is the least I’ve ever made in my entire life,” the Republican and mother of three said. “The gas prices went up and the tips went down.”
On the other hand, the AP uses undeniable positive STATS. Perhaps the economy as a whole has gotten ‘better’, but a lot of individual’s lives have not improved, or even gotten worse? (speculating here)
Ed Morrissey does not agree with the tenure of before mentioned AP article.
My problem is that I do not live in the U.S. so that I cannot give a fair report about the life of the average American. All I can do is look at the STATS (which never tell the whole story). These STATS seem to be quite positive.
Thoughts anyone?
60 Responses to “The U.S. Economy”
It really depends what statistics you look out. istorically this is a lackluster recovery.
The federal deficit is now over a half trillion, this is a lot of pump priming, but at some point debt has to be paid.
Ditto the trade deficit which could threaten the dollar and makes us dependant on China and the Arabs who can cause havoc just by not buying debt.
The biggest driver of the economy is real estate which has in many regions reached buble proportions.
The next biggesr is health care whose costs have risen to nearly 17% of GNP in the last few years and threaten our competiveness and capacity to pay.
Short term things look ok, but again not unusually good for a recovery, recoveries end, this one is getting old and there are some big monsters in the closet.
However in the rightwing world you’re required to think this is the best of all possible economies just as Iraq is the best of all possible wars. Until they aren’t. And then it’s the fault of the MSM.
How’s this for a thought – “There are lies, damn lies, and statistics.” Twain, I believe.
I don’t mean to be flippant, but I have yet to meet a statistician who can’t make the numbers mean anything he or she wants the numbers to mean. Identical data can be looked at from a nearly infinite number of perspectives. Just as an example, the excellent unemployment numbers and job creation numbers fail to include the number of unemployed giving up (you only qualify as unemployed if you’re actively seeking work) or going back to school. The unemployment numbers also doesn’t take into account the number of people employed in less-than-full time jobs, ie under-employed, because there is an arbitrary cut-off point to qualify as “employed” that is less than the full-time 40 hour week. Similarly, the job creation numbers don’t talk about the salary of the created jobs (high-paying vs minimum wage) or the number of jobs that are taken by people who are already employed (ie the under-employed taking 2-3 jobs to become fully employed).
There are numbers that try to take these factors (or a subset of them) into account, but they’re never trumpeted like the unemployment and job creation numbers are, simply because they’re ALWAYS worse. And while I haven’t looked into it recently, I suspect that these numbers are still worse and paint a much less rosy picture of the US economy.
Both, very good points.
In fact, I pointed out that all I could do was to look at statistics because, to be honest, I dread them. There are too many negative sides about STATS to be able to truly rely on them.
Michael, you’re kidding, right?
Statistics are too negative to be able to rely on them? What do you propose we relly upon? Gumdrops and unicorns?
Do you understand the difference between a mean and a median?
Yes, the historical housing boom is one of the prime reasons for our economic growth since 01. I think the #1 stat that represents the average person’s economic situation (besides the spiraling health care costs) is that the median income in inflation adjusted dollars is actually slightly down in most of the country since then. This means the average person has actually gotten poorer while the economy has had a dramatic expansion — which as far as I know is extremely rare and a bad omen for what will happen during the next recession (which I believe will happen within the next two years). Look at this graph to see how historically median income flucuates between economic cycles. Like Brian pointed out, a lot of the “newly created jobs” are of a lot lower quality than people were used to.
Andrew, re-read my comment. Somehow careful reading seem to be quite a challenge every now and then no?
I will help:
(emphasis in italic added)
In other words: they tell an important part of, yet not the entire story.
In order to end all possible confusion: because they do not tell the entire story, I am not willing to rely on them completely either.
In other words: there are STATS, which are important yet do not tell the entire story, which must be joined by other things, such as perspectives, or personal experiences, to truly be able to tell the entire story.
Hope that explains my point of view better.
As someone with a bachelor’s degree in applied mathematics, I’m sorry to hear that you dread statistics so much. Really, statistics are exactly what they are. The key is that you have to know what the different terms mean and you have to understand the underlying data.
Andrew and Brian bring up great points about the underlying data.
When looking at economic statistics, we seem to always focus on very immediate numbers, not the long term numbers like the federal defecit. This is a very meaningful number because, as Andrew brings up, this has to be paid back at some point. When it does, what happens?
Also, Brian’s unemployment and job creating examples are great examples of why we have to understand the underlying data. Unemployment is very low but that doesn’t mean there are very few people without jobs. It just means there are very few people without jobs who haven’t given up. This is a very different measure than the total number of people who don’t have a job.
The job creation numbers, as Brian points out, would be another great example. Suppose a Subway opens up in your neighborhood. I don’t know how many employees any single branch has but let’s suppose they have 20 full time jobs at $6/hour and 20 part time jobs at minimum wage. That’s 40 jobs created. This number looks more impressive in the job creation statistics than when 30 jobs get created at the local engineering firm with annual salaries of $80k/year. Which one of those will be better for the economy, though?
Mighty glad you approve, Michael.
The stats that I have seen recently that are the most telling are the ones that batch by income or revenue – the wealthiest individuals are becoming wealthier almost exponentially while total wealth for those below the 95 percentile is growing extremely slowly. Forget about the lower-middle income folks that create the political base. Same goes for companies – the largest companies are getting larger and spending considerable resources fighting anti-trust laws and court decisions.
I have nothing against wealth, as long as the opportunity exists to gain it legitimately. Unfortunately, the hard reality of human nature is that wealth is used to buy power which is used to minimize competition. In other words, the wealthiest individuals and largest corporations use their wealth/power to keep everyone else out of their club. The individual or small company that claws their way into that club has become the increasingly rare exception during the past few decades. Even during the tech explosion there were only a handful of rags-to-riches stories with most of them revealing distinct inside advantages.
What part of the story don’t they tell?
In this story, the statistics explain pretty much everything. The benefits of growth are only found for the wealthy. Median incomes are not keeping pace with inflation, or they are just doing so.
Again, do you understand the difference between a median and a mean? How a positive growth rate, inflation aside, says absolutely nothing about how the typical (or median) worker will benefit.
When Bill Gates walks into a bar, the average net worth is surely over a billion dollars. But that doesn’t mean much for the patron whose beer keeps getting more expensive every quarter.
Michael, consumer confidence took a big jump with the latest report here in the US. This is largely the effect of gasoline prices, as the quoted lady mentioned in your post. Here in the US, gas prices have a huge effect on the attitudes of the middle class and below.
And by, as Ryan points out, long term effects of present things like deficits, &c.
Ryan, thanks for that comment, I enjoyed it very much. You much better explained, although perhaps not your intention, what I meant with my words.
I ‘dread’ statistics, because choosing for one approch, necessarily leaves out other ‘facts’ and, as such, means that some parts of the picture are missing.
Random example: economy has grown with 5%, 4.5% increase in jobs… yet, the poor have become poorer (and the rich, richer). Has then, the economy truly improved? Or have the lives of rich individuals improved (which improved the ‘average’ number), but have the lives of the poor gotten worse? Who is to say that ‘the economy’ then, has improved? That one should ‘advertise’ a strong and vibrant economy?
Whether the economy ‘has improved’ is dependent on one’s view of what the ‘economy’ should look like (language barrier, I’m trying to be as precise as I possibly can).
Hmm… that’s still too unclear, let me word that differently: what a ‘healthy’ economy is, is to a degree subjective. For instance, for some a strong a ‘healthy economy’ means one in which the differences between the rich and poor are not too big, in which a steady increase of jobs are, &c.
For others, it is about the ‘general picture’…
Perhaps I am making no sense, but I am trying to word why I do not rely completely on STATS.
To me a better formulation is to say that there’s not anything wrong with statistics (which are actually becoming one of the primary driving forces behind science and policy in general) but that you can get vastly different answers depending on what questions you ask. For example, if you just ask how much the economy has expanded in the last 5 years (looking at the GDP) it looks like it’s done really well. However, a large percentage of that was caused by housing — which was driven by many individuals taking on debt under “exotic mortages” that were far riskier than usual and there are widespread predictions that a large percentage of people will default on their loans. As a country we are taking on massive amounts of debt to fuel our growth, and if it isn’t sustainable (productivity can’t keep up or we can’t react well to a downturn) then things could get real bad in a hurry. So I think the reason why Michael stated distrust at taking statistics at face value is because the questions that are being asked are so complicated that it is difficult to know all the implict assumptions used to create the number. But yes I agree, median income is a very straight forward (for this topic) statistic that is well representative of how people should feel as a whole.
So I am not so much arguing these STATS, but I am arguing that someone concludes out of STATS, as if it is completely objective, that the economy is ‘healty’ and on the right track.
Ah, darn, whatever, I give up.
Lastly Mikkel added a great final comment on that.
Yes that was what I was trying to say with this:
I realize that I should have chosen my words more carefully and for that I apologize.
This whole exchange has been pretty amusing IMO. Most people do agree that stats are useful and necessary, but that they can also be used to prove differing points according to which stats are quoted (Mikkel stated this much more eloquently).
What I found amusing is that those who seemed to want to deny this and have us concentrate only on stats to tell the story, didn’t even provide any stats to back up their conclusions and in fact, some of the conclusions were refuted in the stats provided in the link from Morrissey’s article. For example, the old canard about jobs created being low paying ones (the Subway example was a nice twist on the old “burger flipper” story); but the report shows growth in all sectors and overall personal income levels rising.
I honestly don’t know how well the economy as a whole is doing. My impression from the stats that I have seen as well as personal observance, is that we have had a recovery but not a robust one, the housing scenario as others described is a serious issue, and that even more so, personal debt and lack of personal savings have put a lot of people in dire straits, so that even reasonable salary increases don’t help their standard of living. Look at the data below:
It’s more than a little frustrating to have people start a discussion about economics but then throw up their hands in the face of a few numbers.
Statistics, and math in general, can be quite confusing for some people. But the notion of a mean versus a median (plus inflation) pretty much explains everything in the article. These are incredibly basic concepts. Junior high level.
However, politicians and commentators of all stripes rely upon the fact that most people don’t know the difference. It is your (everyone’s) responsibility as a thinking person to be minimally educated in such concepts if you expect to be able to have a informed conversation.
I don’t expect a Dutchman to understand the peculiarites of the Ohio River Valley economy and culture. I do expect a leading poster on a top political blog to know what a median is.
Andrew thank you for shining your light of wisdom and knowledge on what, according to you, a political blogger should know and probably more importantly think.
Wonderfully said, I thank you for your marvelous comment. I regret my lack of knowledge and understanding of the great truth of statistics which truly are a blessing to mankind, as long as, that is, one takes one’s responsibility to do something about one’s stupidity.
I apologize a 1000 times, for my utter stupidity and sincerely ask to you to accept before mentioned apologies. Not because I, stupid ignoramous, deserve it, but out of the goodness of your heart.
Andrew,
Your points on mean and median and application of those concepts to regional economic trends is appropos. But others here have tried to throw out the old canards about the national stats: that unemployment figures are falsely optimistic due to people giving up and no longer being counted among the unemployed, and that job growth figures are falsely optimistic because they include mainly growth in low paying sectors. I haven’t seen stats to show that either of these claims is true right now, and on the latter, the data that I have seen seems to contradict it.
If they do have info to back these assertions, fine, I’ll look at it, but until then I’m suspect of an agenda behind their statements.
a tale my economics professor said.
A real estate broker thinks business is good, so good infact that he hires an artist to paint a picture of his family for him – a luxury as it were. He meets with the artist, the artist leaves and decides to go to a pub to celebrate. In the pub he over hears someone saying that there may be a recession. He asks the bartender if he’s heard of anything – the bartender says no. But the artist thinks – hmm I shouldn’t get a 2nd drink, I’ll save the money instead. So he leaves. The Bartender thinks, hmmm I better hold off getting that decorative glass just incase there is a recession.
The bartender tells the glass company that he’s heard there may be a recession – so he’s cancelling his glass order. The owner thinks, oh hell, I better not buy that land if there is going to be a recession – so he goes to the real estate broker tells him there may be a recession and he’s not going to buy new land. The broker thinks – uh oh, If there is going to be a recession I better not spend extra money on a painting. And cancels it.
Doesn’t have much of a bearing here – at least not on the surface – but it was fun to listen too.
Anyway, for me, Clinton years for me were not good – 3 out of his 8 I was in poverty. Under Bush each year I have increased my income, and am at the highest I have ever been. I’ve got more health insurance coverage than ever before and less debt now than I did 5 years ago.
As Clinton started – are you better off now than you were 4 years ago – I am.
All Politics are local – so are economics.
Well, I do indeed think that political bloggers should have an elementary knowledge of statistics, along with economics, history, and some other basics, if they wish to be taken seriously.
You can think whatever you like about the causes, results, benefits, or problems of a certain economic policy, but you’re not entitled to your own data.
Unless there is some methodological problem with the data collection, the data is just the data, and statistics is just a tool to reduce the information present in the data.
Screw what people think and look at what people actually do. If anyone owns stock in BestBuy they will know the company keeps posting positive sales numbers. I can not think of a thing that is sold at BestBuy that would be considered as a necessary item. If people are making so little money, then why are they buying so many HDTVS’.
C Stanley, note that I never stated that things are worse than they look. I only stated how you have to pay attention to the statistics and what they mean in order to fully understand them. I don’t have the data (on hand at least, I know I saw something recently that suggested people were leaving the job market in high numbers) to suggest that the statistics aren’t painting an accurate picture so I didn’t try to claim that they are, only illustrate how they could be. Of course, they could be better in other ways. Unemployment numbers could go up even as fewer people are jobless if a lot of people think the economy is doing great and re-enter the market. Job growth numbers could be even better than expected if few Subway jobs are being created and a lot of engineering jobs are being created.
That said, I do have some personal experience I can share. My wife recently obtained her accounting degree. She now has degrees in business administration and accounting. People constantly talk about how easy it is to find a job based on the number of job postings you can find. Well, she’s finding that it’s not nearly as easy to find a job as one would assume based on the number of postings. There are a lot of people applying for every job, so many that even the “entry level” jobs in her field are requiring 3-5 years experience around here. This doesn’t bode well for someone just out of school, even with 1 year experience in the field she doesn’t have enough experience to land an “entry level” job. The only offer she has received so far is one that was listed as only requiring a high school diploma and paid accordingly.
BTW: Must be my “health nut” credentials that led to the Subway example as opposed to the typical burger flipper example. I tend to avoid burger joints like the plague.
See C Stanley’s post above that discusses the personal savings rate. Over the past year or so, we’ve entered a reality in this country where people spend more than they make. This is a dangerous territory to enter even temporarily and we’ve now been there consistently.
Exactly, Ryan and Calvin. We are all rightfully concerned by the national debt, but many are overlooking the risks of massive personal debt and negative savings rates.
C Stanley, I take your points and I too would be skeptical about such claims.
Here is the most relevant data that I have seen recently regarding your concerns:
http://www.census.gov/hhes/www/income/histinc/incpertoc.html
Looking at the real median income levels for individuals, we see that median income for males has dropped since 2000, and interestingly, is not much higher than it was in 1973! (Mean income has grown substantially since 1973, so we can see where claims of income inequality are coming from. Household median and mean incomes have increased approximately in sync with increasing workforce participation by females since the 1970s, though there is still a huge gender pay gap, and median household income is down since 2000 as well.)
From this data, and given that unemployment rates have not changed significantly in the past 5 years, I think that we can responsibly draw the conclusion that jobs are indeed paying less.
C Stanley I want to point out two things, because this is a perfect example of how complicated this is and how the question becomes of the upmost importance. The common wisdom is that when growth/productivity starts to moderate but wages rise then that is a precursor of large increases in inflation and could signal the end of an expansion period. Now, the spreadsheet didn’t show enough data, so I went directly to http://www.bea.gov and looked at their charts. Here’s what I found:
There is a noticeable (national) income spike between Q3 2005 and Q4 2005 (from 10.6 trillion to 11.1 trillion). Because of this (and sentiment that started to worry about the end of the cycle began after seeing the Q4 numbers) I compared the period from Q4 01 (beginning of expansion) through Q3 05, and from Q3 05 through last quarter. Using the inflation-adjusted GDP, I calculated that it expanded at a quarterly rate of 1.29% for the first period and 1.6% for the last period. The personal income for period 1 rose at a quarterly rate of 1.05% while it rose at 2% for the second period. This is inline with the comments that personal income didn’t rise as fast as the GDP for most of the last 5 years and with your comments that it is now rising significantly. My point about this isn’t to get you to change your mind, but to point out how tricky it is. I mean, first of all the last three quarters is seeing significantly higher growth (although one could argue that was just because of the huge increase in Q1 of this year and there is debate about whether it was just an abberation) so perhaps wage pressures will moderate and we’ll get continued growth. I don’t know — but taken at face value, the huge jump in wages with a smaller jump in GDP (especially years into the cycle) is not a good thing.
However, you are absolutely right about the importance of the saving numbers. Since personal spending is the backbone of the economy, if people are going into debt you can expect they will start to spend less money. So then I went to that chart and found from Q4 01 through current the numbers went
40.5 225.4 221.2 153.0 139.3 149.1 173.9 194.0 182.5 178.9 168.3 141.2 208.9 52.5 -30.8 -132.6 -28.5 -29.7 -62.2.
The saving was very positive until it dropped off in Q2 05, which suggests that the economy was expanding even though people in general weren’t spending all they were making, and it’s fallen off and gone negative recently, suggesting the economy might still be expanding due in part to people sepnding more than they earn. Obviously if that trend continues, the economic growth will have a hard time keeping steady.
Finally, it is true I don’t have any statistic to prove that people are going into lower wage jobs however the median wages number is pretty supportive of that argument. If average wages increase while median stays the same, that suggests that more people are seeing their wages increase at a slower rate than the uppermiddle class and above. Since traditionally specialized jobs have the biggest increases in wages during economic expansion, this implies that fewer people are in those jobs and are in service type work that reacts less to overall economic growth.
“People will spend every dime they have on what they want, but not a dime more than necessary on what they need.”
BTW, isn’t rudimentary statistics a standard part of math curriculum in the US? Or did that go out the window with 2nd languages and rudimentary physics?
C stanley said :
But others here have tried to throw out the old canards about the national stats: that unemployment figures are falsely optimistic due to people giving up and no longer being counted among the unemployed, and that job growth figures are falsely optimistic because they include mainly growth in low paying sectors.
Exactly correct Mr. Stanley. These are the same people who were lauding Clinton for low unemployment figures during his years.
As Michael points out, the figures present a certain picture. Now others may try to claim that the numbers don’t tell the whole story. But I contend that they seem even more impressive when you consider the economic impact of 9/11 , Katrina , and other factors.
No matter how positive the economic picture there will always be some who refuse to accept the reality.
Ryan:
I agree with the fact that the savings rate in this country is atrocious. Personally, I put away 15% of my income every month. This is an honest question. How do we change the destructive spending habits of our fellow citizens?
MichaelF, how do you square your opinion on the success of the economy with the fact that median incomes (for individuals and households) have dropped since 2000?
I think you can arguably say “I’m impressed that the economy isn’t worse than it is for the typical worker because of all of these events” but it is a stretch to argue that the economic picture is positive for the typical worker, given that wages have dropped and are now stagnant.
Calvin: A VAT or national consumption tax and more tax breaks on saving?
Not sure if I would go for VAT but the Linder Fair Tax proposal would help toward this end, and definitely I’m in agreement that tax breaks for savings are a good idea.
I would add: Education. Someone asked if statistics is still part of math curriculum (it is, but so rudimentary that there’s little there to help people learn to apply the knowledge). But what about education about basic economics and about personal finance? Our secondary public schools don’t educate on those subjects at all.
Calvin, I agree with Andrew. I think I once saw a proposal to offer even more tax breaks on saving that would be paid for by some kind of consumption/sales tax (so the nation doesn’t go further in debt trying to encourage citizens to not make the same mistake). Of course, in the current climate, try convincing people to do that. That’s the unfortunate crux of the situation at this time.
As with you, I also make sure I put away a good chunk of my earnings regularly. 10% is automatically saved and I strive to average another 5-10%, if not more, saved. My wife and I set early retirement as a goal and are willing to do without all the expensive toys in order to aggressively save and try to reach that goal. Once she gets a job, our savings rate may skyrocket even from the already relatively high numbers.
Calvin I personally think the best way to change the destructive spending habits is to educate people on how easy it is to build long term wealth if you invest and help them figure out how to cut costs specifically for that. The problem I’ve noticed is that most people think that there is the option between instant gratification, and toiling away to save money and being old before you have enough to use. Basically, the mantra is “save save save” when it should be “invest invest invest.” When I’ve sat down and shown friends how they can become millionaires relatively young by investing in index funds in their early 20s and contributing annual amounts that anyone except for the poorest could spare, it’s actually changed their behavior. It’s a tricky question because a lot of it is institutionalized. One of the easiest ways to decrease monthly costs is to stop eating at restraunts/fast food but the ignorance on this is stunning — it’s no coincidence that obesity and junk food is most prevalent amongst the poor. Maybe I’m too idealistic, but in my experience the false perception that it’s hard to become well off is the number one reason for people to just spend the little they already have. (Although everyone seems to spend more than they can afford regardless of how much they have so obviously it’s not just that.) I’m looking into teaching education classes about this pretty soon, so I’ll get a better handle of what drives most people.
I agree that we need some basic education on finance. Also in basic probabilities and statistics — we’re horrible at judging what might happen, particularly if it’s scary — and most have no notion of the power of compounding interest.
In a sad, related note, many people tend to think of a good education being a hedge against economic downturns. However, the data shows that the real median income of a household headed by college grads is down significantly since 2000. Hat tip to Krugman and Delong.
I should note what I said is from the perspective of a single young person which is primarily what I’m focused on because a) I’m selfish and b) it’s easiest to focus on the young. And yes, I’m also for income taxes being (mostly) changed to consumption taxes. I liked the (progressive) Forbes flat tax he proposed (what is the Linder one specifically?)
Mikkel:
Here’s the Linder Fair Tax proposal. It’s basically a national retail sales tax proposal which would abolish all income tax. It contains provisions for exempting a certain amount of spending to make it more progressive (since people at lower incomes have more expenditures on basic needs instead of luxuries).
But only during inflationary times. During recessions, it is important to encourage spending rather than savings. That is why I would rather see savings/spending incentives handled primarily through Federal Reserve decisions rather than taxation. The Fed is flexible whereas taxes are rarely repealed. In my opinion, taxation should only be regarded as a necessary evil to generate revenue needed for the common good (defense, public works, etc.), not a means for conducting economic experiments.
Mikkel, are you concerned about increasing income inequality? Don’t you think that eliminating income taxes or implementing a flat tax would radically increase this?
Given that we are in a very deep federal debt hole, shouldn’t we be increasing overall levels of taxation? Can this be done with a more regressive tax code?
Chris, I agree, but how can we encourage spending without incurring massive personal debt during recessions? If the fed keeps money cheap, then we will certainly borrow more of it!
The Bush flat $300 tax rebate to all taxpayers seems like the best method to stimulate the economy without increasing personal debt, and relative cheap compared to other federal tax stimuli.
Andrew – somehow getting your economic position points from Krugman and Delong doesn’t fill me with a sense that you are a neutral observer. Krugman’s playing fast and loose with economic data over the past few years in attempts to make Bush look bad are very well documented.
And the drop in median income is easily explainable by the large numbers of workers that returned to the payrolls after welfare reform. Their incomes are overall are below the old median, but they now represent wage earners rather than indirect subsidized government employees. And their median income averages more than they used to receieve on welfare.
Andrew,
Read over the Fair Tax proposal and see what you think. It is supposed to be revenue neutral, and progressive by design even though it is completely based on taxation of consumption instead of income. I’m inclined to support it but honestly I’m not sure yet. I’d be interested to hear others’ opinions on it.
In this debate, why don’t we try to not mention Bush or Krugman. Or any other politicized names for that matter. Let’s focus on your own ideas and see if we can come up with compromise. Something none of the politicians can do.
Austin, I just got a pointer to the education-based data from them. It’s well known that median incomes aren’t keeping up with averages and have fallen since 2000. I haven’t presented or claimed to believe in any of Krugman’s (or Delong’s) reasons for this (they claim it’s tax policy) or what we should do about it (tax the rich). Policy direction is entirely different from the data. Do you dispute the census statistics?
If welfare reform is a signifcant cause of dropping median incomes, why didn’t we see this from 1996 to 2000? Median income increased substantially over that period.
Furthemore, median income of college educated (not likely to be welfare reicpients) has dropped since 2000.
Perhaps you believe that all of the welfare recipients went to college in the interim period, and are now flooding the market?
I don’t think that your conclusions are supported by any of the data.
Andrew – Nope, I won’t dispute data. I believe in facts being facts.
But the old saying brought up earlier about lies, damn lies and statistics amused me, because the whole discussion missed what Twain had meant. His point was wasn’t that facts themselves are right or wrong; it is statistics are used to present underlying facts that is subject to manipulation.
I will absolutely grant that the reduction in college educated median income is real.
I can also posit a very likely reason from my own personal experience. My income today is about 20% less than 4 years ago, even though I remain with the same company, and consistently get excellent reviews.
Why? Two main factors I see.
First, I am (I like to think, and my reviews indicate) a top 10% employee. But since 2000 while the economy in general, and my field of telecommunications in particular, went through tough times, I managed to remain employed through the layoffs, but at a cost of my bonuses being reduced and some years eliminated, and seeing much smaller increases in my base salary, which did not offset my loss of bonus income. Others did lose their jobs, and indeed the new job salaries didn’t come to the levels generated by the late 90′s economic bubble.
Second, my stocks and other investments certainly did not perform as they had in the late 90′s. That is very likely another reason for the drop in median income, as a much larger portion of the public got involved in the market at that time, and the gains for 1996 through 1999 were larger than historically normal (I am playing a hunch here, and do not have the hard data to back it up, but I bet it is correct).
Forgot to include the conclusion: overall, comparing incomes to a baseline that ends in the year 2000 is misleading, as we definetly had a bubble economy for the last half of the decade.
Let’s see . People don’t trust the figures . Then they claim you can’t admit ancidotal evidence . This is getiting reiculous .
In the Massachusetts / Southern New Hampshire area I can attest to the fact that salaries of skilled employees has certainly risen. Rates for subcontractors having flattened out in the building industries but those are artificially low as a result of cheap foreign labor. For example, I can hire good hardwood floor installers cheaper because Asian crews are bidding absurdly low .
Adrew asked :
If welfare reform is a signifcant cause of dropping median incomes, why didn’t we see this from 1996 to 2000? Median income increased substantially over that period.
Furthemore, median income of college educated (not likely to be welfare reicpients) has dropped since 2000.
The question of welfare reform is an easy one. The law allowed all sorts of grace periods and exceptions which have since been eliminated. Also, there was an initial transfer of many people from Welfare programs to Social Security programs.
Your question in regard to college educated is even easier to understand. The number of college educated people is on the increase. This is particularly true of women and minorities. As an interesting aside, the gap between women and men continues to decrease as more women then men enter graduate schools. Also, Black women with college degrees now earn more than do White women. Of course there are those on the left who find the need to challenge these facts as well since they do not fit their talking points.
Andrew about increasing inequality — I believe, based on my understanding of economic theory as well as history, that if it continues the way it has been it will be one of the greatest threats to our economy at best and whole societal structure at worst. I agree with Buffet when he said that it seemed like it was creating a heredity oligarchy that threatens continued innovation. However Forbes claims that his flat tax plan (that looks similar to the Linder one) would actually effectively be a tax increase on the rich because it would get rid of all the deductions that they take. I haven’t seen any hard statistics, but anecdotally speaking it does seem like his argument probably does have merit since with enough financial transactions and a good accountant it seems like you can find enough loopholes to get around anything. Moreover, he claims his plan would actually reduce overall tax burden on the lowest income brackets — if and only if they started saving for their future — and (theoretically) would encourage better economic growth. I have yet to read any rebuttal that points out flaws in a progressive flat tax, so I’m pretty solidly behind it.
Also, I’ve come to believe that using taxes to try to obtain income equality is misguided. While I support most ideals of the “progressive movement” I think that it would be far better to implement them on the regional level with private sector supports. In particular, it seems like the Conservative/Libertarian camp is absolutely correct when it talks about how you can’t have big government without excess and a threat to personal freedoms. I also believe that free trade has the prospect to be one of the best global forces, but is being dominated by the wrong ideals. While many of the defining programs in the 20th century arose out of political populism, I think the 21st century would be well served through economic populism (my definition is too long to go into here, but touches upon the identification that Ideal Capitalism assumes rational intent when purchasing and societal structures could be fostered that educate people about the roles they assume.) If implemented over the long term it seems that this would assauge many of the economic conflicts between “Liberals” and “Conservatives.” Also, since it is more active than wealth redistribution it would create a more involved populace on average. Kiva is a good example of a progressive free market organization that I hope will become common place.
MichaelF wrote:
“The question of welfare reform is an easy one. The law allowed all sorts of grace periods and exceptions which have since been eliminated. Also, there was an initial transfer of many people from Welfare programs to Social Security programs.”
Care to present any evidence of this?
Total federal and state welfare outlays dropped substantially immediately after welfare reform was passed. In fact, these drops in spending were widely touted by the Republican sponsors of the reform act.
A “grace period” would be reflected in continuing high state or federal outlays; your alternative explanation would show a measurable increase in social security outlays beyond normal growth. Neither of these things occured.
“Your question in regard to college educated is even easier to understand. The number of college educated people is on the increase. This is particularly true of women and minorities.”
This explanation is also unsupported by educational and economic data. If increasing participation in higher education substantially depressed median wages, why did median wages grow during the 1990s when educational enrollment also increased substantially? (see http://nces.ed.gov/pubs2006/2006084.pdf for enrollment statistics, and http://www.census.gov/hhes/www/income/histinc/p16.html for income by education)
Please present any data or analysis that shows otherwise.
The larger point is that the growing economy of the 90s led to increases in median income for most all classes of people, considered by education, sex, race, etc. However the growing economy since 2002 has not let to median wage increases in most of these classes. Furthermore, productivity has grown during since 2002, but median wages have not.
A lot depends on where you live. If you live in an area reliant on manufacturing, like Michigan or Ohio, your local economy is doing poorly (especially in auto-industry reliant Michigan). In other places the story may be different.
But there is something interesting in these stories. My Republican friends complain time and time again that the Administration has done a terrible job explaining to the American public how great the economy has been. Morrissey implicitly echoes that complaint, although he blames the evil MSM more than White House incompetence for spinning the economy downward. Still, there is something going on here. Why is it that the numbers seem to show a strong, and recently broad, recovery. Yet polling shows incredible pessimism on the economy.
The only explanation I can think of is that the economy really isn’t that good for most Americans. Unless average Americans are too stupid or brainwashed to know how the economy is doing, they should probably be taken at their word. Median drops in real income probably explain a lot of it. Massive jumps in health care costs (and to a lesser extent energy prices) have contributed to the unease. But the biggest problem now is the declining real estate market. This is important not just because housing prices have dropped, but because so many Americans took out home equity loan during the low-interest rate early 2000s. Now those loans are becoming adjustable (after fixed for 3 years or so) and payments are going up. This only adds to the anxiety.
But maybe these sorts of anxieties are always present and the Administration has done a terrible job explaining how rich we all are. I somehow doubt that. This Administration does one thing well: politics. But they’ve NEVER convinced much of the country that the recovery was broad and deep, despite the statistics.