Do the Rich Capture All the Gains from Economic Growth?
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When considering consumables, we've had pretty reasonable inflation and people are making more than their parents. But if you were to calculate inflation based on prices for things that don't benefit from advances in our production abilities (commodities, equities, housing, education, health care, etc), we'd be making nowhere near as much as previous generations when adjusted for inflation using that calculation.
Affording a car, TV, computer and food to feed ourselves isn't that difficult for many people. It's the life-altering purchases that are slipping farther and farther from the reach of the middle class.
I think one of the big things left off is housing prices. But I'm pretty sure rent, healthcare, and education are part of it:
[1] https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...
Edit: Shiller was wrong (I asked him about this point after a lecture about his work on historical housing prices).
See all the weights here: https://www.bls.gov/cpi/tables/relative-importance/2017.pdf
Housing prices go into much bigger bubbles than rent. If interest rates go up or down, it doesn't very much affect the average person's ability to pay rent. But it has a huge impact on how much the average person can borrow.
My understanding for the reason that housing prices aren't included in CPI is because nobody buys houses in cash. So including mortgage payments in theory makes sense -- but it' tricky -- because everyone's mortgage originated at different times and under different circumstances.
But they should include the sale value of houses in CPI, otherwise its pointless. Just because the vast majority of people buy houses with a mortgage doesn't mean the sale price isn't a real price
For example, in Toronto house prices have seemed to go crazy. Industry reports agree. However housing inflation in Toronto measured by Statistics Canada does not show that.
Has anyone else noticed this or have an explanation? It's very strange.
https://www.reddit.com/r/AskEconomics/comments/9haj6h/does_t...
which is arguably the more accurate way of measuring consumer prices.
You could really replace "Economist" with anything in this statement.
http://www.dof.ca.gov/Forecasting/Economics/Indicators/Infla...
I don't think anyone is all that interested in a bunch of dry statistics. No conspiracy is needed.
https://www.bloomberg.com/opinion/articles/2018-10-24/what-s...
Another way to put it is that housing costs used to calculate inflation will lag market prices, because the cost is often locked in for a while. When prices go up, people often don't immediately start paying the new price.
At a certain point, enough individual incedences of a problem becomes far more than isolated incidents and graduates to a problem for society.
If the price of bread (and only the price of bread) went up 10x in price, then only consumers of bread would really be affected by it. You could argue all the hands that "touch" the bread, yes, but in the end the person paying $40 for a loaf of bread is actually affected by the inflation of it; for them to consider "inflation" in the large sense to have screwed them over.
Similarly, people without student loan debt (or over-burdening student loan debt) couldn't really give two shits about the inflation of SLD.
For me, guitars are a big deal. And I bring that up because there's a regulation now that effectively bans a type of wood used for guitars for centuries. If I were to want to buy a guitar with this type of wood that already exists, the price of it would be super inflated as the remaining safe-to-buy stock are grabbed up. This certainly only affects guitarists who favor a certain kind of tonewood; but is akin to my bread example above in demand/price.
Have a baby and either daycare or one spouse off work for a couple of years. Main bread winner out of work for a year. Sending kids to college. Parents need support or assisted living. Major illness. End of like expenses.
In terms of hours worked, it's about the same, 44 hours although has been trends down since the early 2000's.
[1]http://www.aei.org/publication/update-how-changing-household...
[Edit] Just another thought - that data does not break down the households into percentiles for total household income. I would expect that the fraction of multi and no income households w.r.t. total households has increased more on the lower income side of the spectrum than the middle/upper end. It also doesn't account for how much each earner brings in - which is related to the weekly hours stat in your source - I'd expect this to be even more influenced by accounting for income quintiles (or quartiles).
Once you add the changing rate of marriage, increase in single person households since the 70s, and the fact that real inflation often varies depending on which income quintile you're in, I don't think enough data is available to let you pick it apart meaningfully. So we're left trading anecdotes or stats with gaps. :)
The number of traditionally shaped families, i.e. mum, dad, and 2.2 children has plummeted since the 70s and the number of singles, with or without children has rocketed from both increasing separation and later entry into relationships.
I'm in agreement with your main point, that it's far harder for a single earner family to thrive now than in the past. I doubt I can cite that in any sensible way.
Where in your citation is this claim supported? The /percentage/ has fallen which could either mean that the number has fallen or that the total population increase at a faster pace than the number.
Cooking, cleaning, washing dishes and cloth now are incomparable to 1970. Changing diapers is a lot less work now too.
Micromanaged kids don't need parent at home a lot of it is outsourced to schools and clubs. And parent at home wishing to be needed or useful may be contributing to the perceived need for micromanagement (plus those who want women at home for emotional or ideological reasons want to see all that mecessary).
For the record, I don't actually want to return to 1970 standards. However, I suspect that the extreme micromanagement has multiple reasons, but child's needs are not really the driver.
The reason I ask is that I hear this sentiment from parents a lot, and I got curious so I talked with actual CPS officials who laughed heartily at the things the parents thought.
That as enough to support my mom and 2 children while also saving for retirement.
That standard of living now would require both parents working and being rather successful in their white collar careers. Even as a reasonably successful person in an advantaged field (tech), I can't imagine supporting an entire family.
If you cut out everything we have they didn't - cable TV, Netflix, computers, internet, cafes, restaurants, Kindle, better choices in grocery food and alcohol - and ate the sort of cheap food people lived on, things like meatloaf and crappy ingredient dishes, I reckon it would be entirely possible.
The only thing that is prohibitively expensive today vs 1980 is housing. The reasons for that are multiple, but mostly NIMBYism.
Again in constant dollars, health care has seen a more than fivefold increase since 1970, from under $2000 to over $10,000 per capita. Constant dollars, mind you.
Health care and education costs are more or less fixed and unavoidable. They're more like fees than taxes, flat no matter the income.
Flat if you are lucky enough to be healthy. Enormous once you actually have an issue, like a complicated pregnancy, or something that requires an MRI.
You can't pay less to get the world class care of ten years ago. Name one other sector you can't pay less for lower quality
The cost of activities for children has skyrocketed beyond belief compared to 40 years ago.
But if you're talking about any sort of instruction I'd say the prices have tripled. If you're talking about something like organized hockey? Prices are astronomical.
Kids basketball consists of 1) kid. 2) shoes. 3) ball. And you only need 1 ball per group of kids. Ditto for soccer (futbol) A jersey is optional.
Hockey requires a bunch of pads which will be changed out every year or two as the kid gets bigger. Hopefully they have a sibling that can make use of them otherwise it's a sunk cost. Then there are broken sticks, broken teeth, hockey bags, ice time -- non-trvial -- and it adds up.
Hell, the cost of replacement skate blades -- not including the yearly sharpening -- is more than the cost of a basketball and a cheapo pair of wal-mart athletic shoes: https://www.bladzskateshop.com/product/bauer-lightspeed-repl...
Also Netflix is really, really cheap and my computer cost me approx 800 USD and has lasted 5 years.
Housing (and in the USA, healthcare and college I suppose) are by far the most expensive things for most people and have soared in price.
All the other things are negligible in comparison - it's like the people going on about avocado toast.
Assume $120 annually for Netflix. A cost almost everyone assumes now, and most people have (58M subscribers in the US/~120M households in the US). $120 compounded yearly at an 8% rate over 18 years is almost ~$5k. Depending on the year attended that's anywhere between 2/3 years of a degree and half of a semester at a public institution (in today's dollars).
Point is, it all adds up. And taking your example; the most expensive things we spend money on are also inflating at an abnormally high rate. The money has to come from somewhere, and when it's leaking out $10/month at a time, it's sometimes hard to find and easy to overlook.
However, it's housing - in the bay area in particular - that makes it look very impossible. For a relatively modest 1 BR apartment in SF, I'm paying close to half my after tax, after-401(k) take home, as a senior engineer doing relatively well.
If I'd need to pay 50% more to have a 2BR (at a minimum) for a wife and a child or two, that leaves a very small amount (for what's now twice as many people) to live on; roughly 10% of my base salary. It looks nearly impossible.
If you are extremely frugal (no restaurants, no vacations), if you get really lucky in finding housing, and most of all if there are no big surprise expenses (e.g. medical ones), MAYBE.
But none of those caveats applied in the case of my father; his standard of living was higher than mine is now.
Of course, if I were to move to another market, it's quite possible. I might take a 20% pay cut but if real estate is a third the cost than suddenly it doesn't seem like an impossible scaling issue that it currently is. I might even be able to afford a car.
If everyone in America was in a single-income household, and then we all became, for instance, two-income households, wouldn't it make sense for individual incomes to drop by half?
In the 1970s, a single income household could more or less make ends meet when the primary bread winner couldn't work. The other spouse would find a job, the household would consume however much less, and life continued.
Nowadays, it's not unheard of for non-discretionary spending (mortgage or rent, other loans, taxes, health insurance, etc.) to constitute over half of a household's spending. If either of the two spouses can't work, things can rapidly go to hell.
All the rest, about "fringe benefits" and the conclusion that everything's not perfect because we still have excessive occupational licensing and minimum wages is just garbage hand-waving.
edit: I re-read it, and the panel data that shows the same income gains per cohort is not clear on how the data was gathered, but the Pew and Brookings data is CLEARLY household data, NOT individual data.
edit2: the Splinter data also appears to be household-level: http://www.davidsplinter.com/Splinter-Mobility_and_Inequalit...
Splinter mentions "Some reasons for increased household-level income inequality include skill- biased technological change (Acemoglu, 2002), decreased marriage and employment rates (Larrimore, 2014), and the exclusion of employee benefits and government trans- fers from most income definitions (Burkhauser, Larrimore, and Simon, 2012; Auten and Splinter, 2018)."
So, he's discussing how decreased marriage rates might drive down household wages (increasing inequality, particularly among the poorer groups), but a quick command-F is not finding any mention of how the impact of these decreased marriage rates may be counterbalanced (and possibly/likely?) outweighed by increased total number of wage earners per household.
It goes on!
I'm fine with that stance, too. He's welcome to argue that the average household is "better off" as long as he's willing to subtract the added costs this situation creates. Or you can calculate doing the reverse; calculate the value generated with a greater number of stay-at-home parents in the 70s, so that this opportunity cost is reflected in the numbers when a second earner enters the formal workforce. Then at least we're comparing apples to apples and we can see where we end up. It's totally possible those lower-income cohorts are better off now, but he hasn't attempted to prove it.
Also, it's a lie to present this as individuals earning more money unless you acknowledge that you're averaging individuals across households, and not comparing ACTUAL working individuals.. And admit that you're factoring in some number of individuals in the 70s earning $0 and some other number of individuals today earning $0.
Here he presents a few studies that go against general economic consensus popularized mainly by Piketty in "Capital in the 21st century" and through papers/writing by Krugman, Saez, Zucman, Stiglitz, etc. that most of the economic gains in the past 100 years have gone to a concentrated few owners of capital.
Roberts highlights a few studies that use panel data (same people tracked over time) instead of cross-section data (snapshots of different populations at different times) and show that 70% of children from low-income households generally earn more than their parents, and usually end up with about 2x more income (only 33% of high-income children earn more than their parents.)
Another study looks at people age 35-40 in 1987 and then how they did when they were 55-60 in 2007. Median income was down for the top 5%, middle quintile was up 27%, and bottom quintile median income rose 100%.
Basically - absolute mobility (how much people gain over time) is still decently healthy today in percentage terms in the US, but relative mobility (how easy it is to move between classes) is widening and the wealthy in 1980 still have a much higher income on average than the poor in 1980.
Also, the poor in 2014 were actually worse off than the poor in the 1980s which Roberts attributes to poor people reporting less income in 2014, that there could be more poor immigrants in 2014 with less education, and that 2014 could be an unrepresentative year.
Personally I don't buy Robert's "glass half full" argument, but I appreciate him bringing some panel data into the discussion to temper the prevailing economic narrative.
I think if he looked at studies that include wealth and net worth panel data, not just income, that account for assets such as homes, the results would be much much different.
Which is to say, that his articles must be taken independently. His opinions on other issues are not discussed, so it's easy to build a strawman about his other opinions.
That also means that we must point out the fact that this article is only a small subset of data, that really tells us only what the data was collected on.
Of all the academic types at rightwing think tanks like AEI, Heritage, Cato, Russ Roberts is probably the best. I like him. But this issue - wealth inequality- is core to rightwing interests.
> Basically - absolute mobility (how much people gain over time) is still decently healthy today in percentage terms in the US, but relative mobility (how easy it is to move between classes) is widening and the wealthy in 1980 still have a much higher income on average than the poor in 1980.
These are not at all in conflict. As you say, the studies he discusses are not related to, much less undermine, any of the arguments that Krugman/Saez/Zucman/Piketty are making. I don't see any reason why individual characteristics like absolute mobility should be used to measure the health or inequality of an overall economy. Income mobility is a different thing from concentration of wealth or inequality.
Makes me wonder if he had an alternative agenda with this piece and question his economic analysis in general.
I think this deserves a "man on the street" survey to see which income most people would prefer...
The thing one needs to understand about economics is that it's field where analysis and advocacy have never been separate. It's not just Marx and von Mises that were strong advocates of policy. Smith, Ricardo and Keynes had the favored policy and thus favored world view.
So being a respected economic commentator by itself isn't by itself a testament to objectivity.
The article is worth a glance but others here have to pointed to the serious methodological problems - following individuals falls victim to regression to mean, some poor can become wealth and some wealthy can become poor says nothing about the average gulf between the groups. Even more, if we have a society where the whole population is divided between wealthy and poor randomly, with each having a 1% of becoming wealthy and otherwise barely surviving, we might have a fair society but it would also be an extremely dysfunctional society (but know such fairness really could exist, so we're just left with the income inequality).
Have conversations with difficult people, sure, but have a conversation, don't just let stuff like that slide by! Not sure how long I'll be subscribed if those attitudes keep receiving clear air.
I am starting to wonder if there is such a thing. I can respect an academic who writes scientific papers for their peers to review. I can respect an academic who has opinions of the state of the world. I can't respect someone who mixes the two. If you write something for an audience that can't asses the validity of your statement you are deliberately deceiving people. I can't respect that.
There is a reason why Piketty's book is 700 pages and certainly enough, both good and bad, have been said about it already. He isn't adding anything apparently noteworthy here. How does a normal person begin to explore all the "facts and figures" presented in the article. and how do you figure out if it is even valid to the overall discussion? The answer is that you don't, and the author knows this. It is dishonest.
When Neil Degrasse Tyson says that we should explore space his argument isn't a bunch of statistics on how it would benefit humanity 23.95%, even though I am sure he could come up with some. That is because he has made a career out of teaching people about space and hoping they will share his excitement, rather than being a politician telling people what to think.
So no, I really don't understand why I should listen to Russ Roberts.
I also would add as I did in the essay, that I am not claiming that everything is OK in the economy. I am trying to respond to the relentless claim that the rich got all the gains of the last few decades. It's simply not true. That doesn't mean everything is fine. But just figuring out what actually happened is surprisingly complicated. The people who claim that the economy is only helping the rich should be more nuanced.
Do you have any plans to explore wealth concentration in future essays?
That is why there is so much pushback on this piece of yours: because it appears to be attacking a strawman unrelated to real inequality in the system.
That's interesting data.
However, one income supporting one person is very different from one income supporting 4+ people. Is there any reason why we shouldn't just use division (# earners/household size) here?
I don't believe anyone has made the claim that the poor have gotten nothing; only that they have gotten a grossly disproportionate share of growth. Nothing in your article refutes that premise. Indeed, you seem to go out of your way to avoid actually addressing it directly.
This absurd amount is not reflected in a paycheck and one may think "my job pays for it" but that is still your money.
$2200 is monthly rent on a luxury condominium in Honolulu.
I asked the agent on the phone if he had children, and if he could afford such a plan. He replied that he could not.
So... While your employer may pony up 50% of the cost, you get stuck with the other half on your tax return.
But wages are still stagnant here.
AFAICT US employers cover healthcare because that's how it's historically set up, and that's now the expectation. So if they tried to pull back on paying it, even with the crazy increases, employees would walk.
Whereas here, health insurance has nothing to do with employment.
But in both our cases, there's little providing upward pressure on "direct" wages.
I do not have numbers for comparison of pension vs 401k/self-funded pension. Though I'd love to see what either gets you in similar contributions.
Anyway, I'm pretty sure there are bond and cash options in most retirement accounts, if the stock market isn't your thing.
And my original comment wasn't really saying I'm happy about the rising costs of health care, just pointing out a small silver lining to it, or maybe just an idea of how to make it hurt less.
A few examples:
* Student loan industry / higher education debt
* Unaffordable housing and exploitative renting due to NIMBY building practices
* Police ticketing as a revenue stream for municipal tax authorities
All of this either didn't exist for their parents, or were not as severe. All of this adds up to a middle class which has significantly less than their parents.
Using this as a counterpoint to accusations of the rich taking all the gains is like pointing out that a wealthy duke could only pass his whole dukedom to one of his children, and the others would have to make do with much less.
It is simultaneously true that the gains of the last few decades have largely gone to "those who are rich", and that the identities of "those who are rich" are not completely stable.
And yet, for the US at least, it's become more stable than it was.
The author directly addresses this further down in the article. Regression to the mean is a possible explanation of the numbers he cites, but it doesn't refute the main point he's making, which is that some numbers suggest poor people capture more of the gains from economic growth than is widely thought.
> some numbers suggest poor people capture more of the gains from economic growth than is widely thought.
Some individual poor persons will, yes. "The poor", as a class, will not.
I like how it frames the economy as this independent entity that we just sort of observe and hope for the best. Oh our divining rod produced these arbitrary statistics so the glass is half full guys!
In reality, though, the forces of human nature driving the economy don't change. Since the dawn of the surplus, there have always been a handful of kings and many serfs, and there probably always will be.
One thing is different though: the thralls of today possess costly devices that simultaneously entertain and surveil them, among other things. Past kings would never even have dreamed about that.
Many huge American companies have done super well as we move to a global economy - tech is a great example. There's more money to be made when you can start selling more iPhones to India and the development costs stay the same.
Whether this new global revenue wealth goes workers vs corporate pockets depends on the supply of labor. Does Apple mostly want to employ Americans? If so, these rich global companies need to compete for a limited supply of American workers - our salaries rise. Tech workers in the USA make much more money than other countries - we have many successful companies here all wanting American tech labor.
On the flip side , not all American labor falls under this category. If companies don't care if the labor is domestic or outsourced or immigration is easy (flexible supply), then American workers don't see much gain from these global companies making more global money - the new wealth is split between top American executives and developing countries..
Most companies fall into the latter category - which is why we've seen the income divide grow, the average American worker's wage stagnate, and developing countries wages grow.
And even though the median income of the top 1% went from $189,000 to $843,000 in that sime timeframe, that's not important because in our sample, the average income of those in the top QUINTILE actually FELL $7k. Guess you couldn't find any 1%ers for your study?
Bottom line - if the economy can't support a living wage for the working class, it's not doing all that great.
[1] https://cdn-images-1.medium.com/max/2000/1*Z5rBoco1CtNVHYZdh...
Well this is an important part of his argument. The people's wages are not stagnant, but rather they went up an 30K (including inflation). That fact this their wages went up is not trivial.
Imagine this: at one high school, there's a 80% literacy rate in the 2008 class. Then it drops to a 60% rate for the 2018 class.
Even if the 2008 cohort may now have a 90% literacy rate, that doesn't change the fact that the school is declining in literacy, and trying to argue otherwise verges on duplicitous.
By analogy, if you're trying to choose effective dietary policy, a study that shows people got taller over the past twenty years isn't helpful if you measure the same people. All it shows you is that children grow larger as they become adults.
I wouldn't take it for granted that the older you are the more you make.
Not once does he mention of any correction for the obvious bias that people make different amounts at different points in their careers.
Using his exact same process, you could also show that the average height of Americans has increased significantly in the past thirty years, possibly up to a foot! Because, duh, people are shorter when they're kids.
If you're trying to measure how the economy is doing over time, you don't want panels, you want to compare equivalent people at different points in time. Comparing a 20 year old in 1980 to a 50 year old in 2010 confounds the differences between 1980 and 2010 with the differences between being 20 and being 50.
There are reasonable criticisms that identifying representative "equal" people over time is hard, but the author's solution seems dramatically worse than all of them.
The article is very poorly framed and argued.
Never attribute to malice that which is adequately explained by stupidity
You can still have regression to the mean among individuals while society itself is becoming horrifyingly unequal.
> society itself is becoming horrifyingly unequal
Edit:
I was really hopeful for this Stanford resource, but I'm not even sure these "are facts that everyone should know".
> 10. Residential Segregation
tldr: Rich people and poor people don't live in the same areas.
> 13. Bad Jobs
tldr: Some people have bad jobs, and if you don't work full-time somewhere you're more likely to have a bad job.
This just seems like common sense. Was anyone surprised by this?
Certainly not horrified.
Horrifying: When you misplace a $20 bill and now you can't pay your rent.
It's really simple to understand.
Take an extreme example - out of a population of 1000 people you have 1 person owning 99% of the wealth, with the other 1% distributed to the other 999. Does that seem like an efficient, properly operating economy to you?
Obviously there is some balancing needs to happen, the trick is figuring out where the fulcrum should sit for the most efficiency.
But doesn't this claim in itself refute the thesis that all the income gains are going to the top? If we find people at the bottom gaining income far faster than people at the top, which is what my quote claims, isn't that evidence that we live in a just society, not an unjust one?
Even just from the numbers presented imagine the lower percentile person who was making say 10k in constant dollars in the 80s. They're making 20k (100% increase) in same dollars in 2014.
Imagining the person in top was making 1,000,000 dollars in constant dollars they dropped 29% so they're now "only" making 750kish.
I know which group I'd rather be in.
When you actually follow the same people, the poor see the greater increase in income than the most wealthy. You may poo-poo a $30K inflation-adjusted increase in pay, but that moves someone from the lower class to the middle class.
Isn't that the goal?
It's akin to arguing that wage growth is looking at income of a person that was flipping burgers while in school 10 years ago now leads an engineering team.
It's not the same job, not the adequate comparison.
I presume you work in IT related field, so imagine you decided to take a break and be a parking lot attendant... You cannot then quote your own example as an instance of falling wages for IT workers.
And it doesn't matter if it's not the same job. The argument has always been about opportunity and the key point of this article is for people who start out in the lowest income quintile, the average wages doubles over time.
That's opportunity.
Except that wage growth debate isn't about opportunity. He's trying to argue about oranges, when the initial issue is about apples.
Arguments about wage growth are about costs, productivity and compensation.
As in - if you're 2x more productive at doing the same job, then the gains are deposited somewhere.
The argument in the end is that productivity gains are not distributed at a fair level. Equal isn't ever a requirement for a stable society, fair is enough.
And the folks tracked in this study were from 40 to retirement, so I don't see a change in career being a major driver for the income growth.
Here's bernie sanders talking about how open boarders is pushed by the koch brothers to give them cheap labor
https://www.youtube.com/watch?v=vf-k6qOfXz0
We're rapidly heading towards feudalism 2.0. You can already see it in the Bay Area(and essentially any major urban area) where only the wealthy can afford a home. The majority pay a large chunk of their income to their landlord
If it was actually about getting talent and not driving down wages we would be giving these people citizenship.
Immigration is hardly the issue. Low-wage jobs exist because of the lack of labor protections for workers resulting in companies looking for the cheapest and most efficient labor they can, even if it means tapping desperate people who have no other options.
If you want to fix the problem, you start by increasing the minimum wage and having proper healthcare. Any other complaints about illegal immigration driving down wages is in my opinion deflection. Because if you remove illegal immigration, they'll just move to exploiting the next most vulnerable population (prison labor, people with disabilities etc)
You're making a claim in face of evidence. YOU back it up.
Choose an urban area at random... https://www.payscale.com/cost-of-living-calculator/Washingto... https://www.payscale.com/cost-of-living-calculator/New-York-...
etc - Go wild.
Also effectively telling people to just find the results themselves is not an argument either.
Saying you believe something in spite of the data, isn't how arguments work. You have the burden. I await your next deflection.
Hasn't the standard of living risen for the working class over the 30 years?
This is an absolute position, has it ever been better the case in the past?
First of all, the population has increased from around 200M to 325M. The inflation-adjusted economic output would have to increase by that same factor just to say the same per capita.
If a child (or couple) in Britain earns three times as much, in "real" terms, that their parent (or parents) did at that stage of life, they will probably have to live in a smaller house, further from the center of town, with a worse commute.
Pretty much the biggest QoL improvements knocked out. The fact they can buy a few more toys or nicer food is not really that consequential.
Inflation statistics are almost useless in calculating quality of life for this reason.
They calculate an average over a population. An example of why this is silly, is that the average 40 year old both has lower personal inflation _and_ can weather inflation much more readily than the average 20 year old.
But the eye opener is this. This is the change in the size of each economic group between 1979 and 2014 as a percent of the total population:
- Rich: 0.1% -> 1.8%
- Upper Middle Class: 12.9% -> 29.4%
- Middle Class: 38.8% -> 32%
- Lower Middle Class: 23.9% -> 17.1%
- Poor or Near-Poor: 24.3% -> 19.8%
Statistics like this are certainly subject to biased interpretation and 'massaging'. If one is curious about the source, wiki has a section on the political stance of the Urban Institute [2]. Though the paper itself is very transparent in their methodology and extremely readable. I found it all eye opening to the point that it literally changed my worldview. This change is only since 1979! We are doing something incredibly right from an economic point of view. I don't understand the media motivations in choosing to omit these crucial, and greatly encouraging, data when writing on this topic.
[1] - https://www.urban.org/research/publication/growing-size-and-...
[2] - https://en.wikipedia.org/wiki/Urban_Institute#Political_stan...
Surely you do understand them, though, right?
Then aren't your numbers a positive sign? The size of the poor, lower middle class and middle class have shrank and the upper middle and rich have grown.
Doesn't that suggest that people are generally moving up in economic class?
I mean... Read this bullshit! Washington DC is 3x more populous that Des Moines, even in 2016. "However, inaccurately placing people from Washington, DC, as upper middle class because they have incomes just above $100,000, even though they have high local costs and would not generally be considered as being upper middle class in that location, is offset by categorizing Des Moines, IA, families with incomes just below $100,000 as being middle class, even though those families could be considered upper middle class because costs in their area are low."
If you are swayed by facts and data, it's probably right up your alley.
First, let's look at how they define the income brackets:
-Poor and near-poor $0 $29,999
-Lower middle class $30,000 $49,999
-Middle class $50,000 $99,999
-Upper middle class $100,000 $349,999
-Rich $350,000 None
A quote from the publication: "The study did not adjust for regional differences in the cost of living, the underreporting and exclusion of certain sources of material support, or taxes."
As with all statistics it is incredibly easy to look at one and yell out 'The economy is doing FINE!' while ignoring the economic realities for many people. Income levels may rise, but the average costs for middle-class workers has skyrocketed as well. Someone living in SF earning over 100k would count as upper-middle despite likely barely being able to survive.
So why would they use such an ostensibly broad metric in the first place? The paper also goes into this. The reason is that on a micro level there are often extreme quality of living differences that are not accurately reflected by any data. For instance the CPI inflation rate of San Francisco, according to California, is only 11% higher than the US average. By any metric you'll be able to point to various little bubbles throughout the nation and indicate, accurately, that the macro level data does not hold true.
So you need to try to pick aggregate data that most likely balances out the biases so much as possible. Do you think this fails to do so?
And why are those fringe benefits increasingly important, eh?
Where are the numbers on average expected spend, including spending expectations for disposable income. so that we get a reasonable idea of someones saving power. and compare this to various income levels. We don't live in a vacuum and we all have to be living up to the expectations of those around us.
Also looking at social mobility, security to find a job etc. numbers are irrelevant freedoms are relevant.
If the poor earn lots more than the rich (in comparison to previous generations) do these days but rich people living expenses have not gone up and tax evasion has increased and the spending expectations on the poor have increased then I would still say the benefits have gone to the rich.
if the poor are still working 40 hour weeks and a few people are becoming so rich that if they reduced their income to millions per year that they could reduce average working hours to 30 hours per week i would still be hard pushed to say that the benefits were not being hoarded by the rich.
I don't know.. there are many ways to look at this but these numbers seem among the least relevant - like they have absolutely no causal link with the concerns that people have.
Are there any articles that go attempt to put numbers on some of these vaguer but more relevant things? i feel like even data with huge error bars could be very damning - or am i just naive and jealous of my parents :)?
- Income levels indicate practical income that market is willing to pay, therefore claiming that unreported income boosts poor people's income is bogus. Unreported income going into poor peoples pockets will not exceed median levels. It may shift what is considered median, but I absolutely disagree that all of that money drastically changes the state of poorer people.
- Adding up poorer people gains and saying that their gains are 70%, while rich people's gain are 33% is also misleading. Wealth transfer and accumulation is totally ignored by this.
Wages have stagnated is a technically incorrect statement. If you take wealth accumulation, you'll have to change the tune... Wealthy people become wealthier, at a rate considerably higher than the average individual.
Just mere tax "optimization" options are way more readily available for rich people, than to poor people. According to Warren Buffet - his taxes are lower even in relative terms, than his own secretary's. Which makes an employee's wage growth of 70% not even close to 33% of a rich person's.
Two more factors come into play. US working class stagnation started in the early 1970s and got going in the 1980s. The study starts in 1968, which means some of the growth pointed to for the children is actually what is kept from late 1960s and early 1970s growth, not now. If the study had started five years later, the results would look worse.
Also the politically influenced Boskin commission revised historical inflation estimates in the mid 1990s, also making things look rosier. If you believe, as I do, that inflation estimates were correct in 1996 and that Boskin was wrong, then things look bleaker in that light as well.
Although 4 in 10 sons doing worse than their fathers (from the Pew report he cites) is bleak enough.
If Ohio's steel industry grows by 500% who reaps the benefits? Me? The guy writing code in Portland, Oregon?
No... its pretty clear that a specific subset of people receive the benefits. The people who own the steel mill. The people who receive employment from the steel mill. The governments which tax the steel mill. But not me.
Economic growth isn't uniform. Its an uneven field that benefits some and not others. That's why people move and change jobs. That's why societies abandon old interests and embrace new interests.
I don't know why anyone should feel entitled to economic growth if they didn't participate in it in any way.
You directly benefit from countless federal programs and indirectly benefit from even more.
The world has become what it is because of the way we treat other people. People learn from people in power that -that is the way to treat others.
What about the communities that are unable to afford these services?
It’s very easy to imagine that in your scenario that the very wealthy segment themselves off to pay for private services while everyone else suffers.
Government is the system where everyone expects to live at everyone elses expense. I ask you, if you believe nobody wants to pay for it, why do you think people want it at all?
> What about the communities that are unable to afford these services?
Government does not make it affordable. Government does not pay for it: someone pays for it, the government takes a cut, and gives it to someone else.
As I understand it, looking at the numbers for the country as a whole is more meant as a way to observe overall trends. I don't think its meant to say that literally everyone across the country should benefit from any gains in any part of the country (or similarly gains in industries that they are not a part of),
And of course your argument is on the side of the people that risked everything to start a steel mill. So yeah, it's a complex system - but that doesn't mean we have to shit on everyone else.
In other words, as I understand it, economic rules aren't arbitrary--it's not like some cabal of mean rich guys is preventing us from flipping the switch that would make everyone obscenely rich (which is distinct from a cabal of mean rich guys _interfering_ with an economy to make themselves wealthy at the expense of the efficiency of the economy).
2. This is a different argument than the one to which I was responding (which seemed to be something like, "it's mean to have the opinion that economic systems reward productivity").
"Productivity" cannot be re-defined so that those that do the actual labor are removed from the equation. If a company or firm produces more revenue, than it's a simple value judgement as to how that revenue is distributed, and, right now, those at the top of company management and investors are the only people making that decision. Organizations like unions simply change how that decision is made by re-balancing the power involved with the decision. You may want to keep all of the revenue gains from your automation to yourself and your investors, but you may not be able to if it means that most of your workforce walks off the job. Likewise, you can automate your entire operations with robots and computers, but good luck trying to sell whatever it is you're producing when everyone is (effectively) unemployed.
> You may want to keep all of the revenue gains from your automation to yourself and your investors, but you may not be able to if it means that most of your workforce walks off the job.
Which isn’t to say that it’s not a value judgment, but rather that an economy is made up of a sea of value judgments interoperating, though not all value judgments are sustainable or well-calculated.
In your example, all the steel mill owners have to do to make more money is to passively own the steel mill while their employees work to improve it. If "efficient economics" works by compensating the people who create value, why are the passive owners getting most of the compensation? They're not creating any value. By your logic they probably should get less than the janitors and assembly line workers, who at least create some value.
That's not really an answer. You're just saying their entitled to the passive returns from ownership because they owned something else. It's circular. Anyone could take a risk with the funds if given access to them, even the janitors and line workers.
> You're just saying their entitled to the passive returns from ownership because they owned something else.
Not sure what you mean here, but I agree that investors are entitled to the returns stipulated in the investment agreement. Hopefully this isn't a controversial position.
> Anyone could take a risk with the funds if given access to them, even the janitors and line workers.
Yes, janitors and line workers can (and regularly do) invest their finances as well, frequently for the very company for which they work (although they are very likely not investing enough to be principal owners, because even very small companies tend to be very expensive relative to the average salary of a janitor or line worker).
You said "...(efficient) economics [means y]ou don't earn more money unless you're producing more value." However, an owner can be nearly completely idle yet still profit handsomely, by simply paying others a modest fee to increase her fortune, so your statement isn't really true.
If you think employees should get returns on investment, then you're necessarily advocating for forcing them to take home less money and risking the difference on the performance of their company.
The good news is that many employees do invest in their own company or in other companies, and they're free to choose their investments such that they can tune the knobs of 'amount' and 'risk' to suit their personal goals.
I understand investment, I'm just telling you that your original statement is wrong. If you're an owner, you don't have to create any value to get paid. Mere ownership gets owners paid. Sure, they can actively invest if they want to, and they may be better off for it, but that kind of activity is strictly optional.
I'm ... not sure you do...
> If you're an owner, you don't have to create any value to get paid. Mere ownership gets owners paid. Sure, they can actively invest if they want to, and they may be better off for it, but that kind of activity is strictly optional.
This isn't true. Owners are investors by definition; owners are the sole investors in their companies. Like all investors, owners don't "get paid" unless they sell their shares at a higher price than they bought them. I'm not sure if you take issue with those definitions or if you're trying to nit-pick what it means to 'create value', but I'm pretty sure I've simplified this as much as I can. Good luck.
And it is exactly that creation of a new steel mill that is where the value is going to be created - by the steel mill producing it.
No one said they built it, just that they owned it. It's totally possible (and common!) to own something that you didn't build and have never had a hand in operating.
But lets say a new steel plant was built. Who actually built it? Was it the the owner, or the project managers, engineers, architects, construction crews, etc.? Which of these groups contributed more value to the enterprise?
And the owner has to have at least a reasonable chance of getting paid back for their investment. They're not building a steel mill as a charity. So if you don't let the owners make money off of their steel mills, then you don't get any steel mills. Whose life does that make better?
[Edit: And letting the owner make as much as the janitor isn't going to cut it. The owner is putting in hundreds of millions of dollars; letting them get back $15/hour is a completely inadequate return for the level of risk they are taking.]
But if they did, they'd still be investors (i.e., employee-owners) and everything I said would still apply :).
More seriously, employee-owned businesses aren't uncommon, but still, the investors/employees are profiting from the company's increased producitivity _as investors_--their wages don't increase, the value of their shares increases. Just like owners in sole-proprieter businesses like our hypothetical steel mill.
You can read much argumentation from different economists across the ages about this topic. Hating interest is a very natural endeavor: it has been banned for long periods of time after all.
But economics has clarified that interests is just what you pay for opportunity cost. If you build a hammer, you can use it or loan it. And you can loan it for another new hammer in the future, plus, some value extra for not having it. You could then, in the next period, loan the new hammer again. And so on, forever, without causing anyone harm, you can "passively" gain an income from your original investment. This is Bastiat's explanation of interest from the 1850's
There is no natural law that says things have to be that way. The economy is man made and when you look a different countries you'll see that there is a lot variation. There is no natural reason that for example investment income should be taxed lower than employment income. You could come up with a law that requires a certain share of the company's profits to be distributed to employees instead everything going to shareholders.
There are lot of things that can be tweaked.
In general I object to the idea that people who have a lot of money (earned or inherited) create more value than the people working for them. Both sides play a role in this economy and deserve to be respected as value creator.
Right. Efficient economies do reward people according to the value they create. I'm pushing you toward one of the following arguments:
1. Returns on investment are artificially high (relative to wages) because of an inefficiency in the economy 2. We should introduce inefficiency in the economy in order to keep RoIs artificially low (relative to wages)
If (1), then please describe the inefficiencies (you mentioned one possibility--taxes on investment income). If (2), what good could come of this?
* The primacy of shareholders. Workers should be recognized as stakeholders in a company * Preferential tax treatment of investment income * Inheritance tax * Health care * Retirement options
In general I would like to see the balance of power shifted back a little towards workers.
No, it's how this economy works. There is natural law saying we have to do it this way.
If not, doesn't that suggest that it would be virtually impossible for average people to meaningfully improve their economic condition since any meaningful increases in productivity are almost certainly going to be a result of advances in technology?
Unfortunately, it is quite difficult to make your way into a technical career without a significant investment in education and (I would argue) a certain personality type. So we aren't seeing thousands of people moving away from low-skill jobs into technical careers. The supply of labor for jobs like "warehouse worker" simply hasn't declined enough to offset the decline in demand (due to increased automation, outsourcing, structural changes, or whatever). The result is that those workers see lower wages. At the same time, compensation in technical careers seems a bit ridiculous: $200k to write Python for 35 hours a week? I've heard numbers like that thrown around - but companies still complain of a lack of qualified workers for those roles.
This is all just to say that the owners of capital aren't going to pass excess profits on to labor out of the goodness of their hearts, just as labor isn't going to work harder than the bare minimum required to keep getting their paycheck. But they might be forced to pay higher wages if they can't find good workers. If the structure of the economy changes so that some sectors are more productive, then the supply and demand of labor should shift to keep things from getting out of whack. That hasn't been happening in recent decades.
> No... its pretty clear that a specific subset of people receive the benefits
No, that's actually incorrect. You do benefit (usually), in the form of cheaper steel prices reducing the cost of many of the goods you buy.
Is steel cheaper as a result of the growth? If so, then you benefit.
Did you own stock in the company? Perhaps your 401k grew as a result of the growth?
Maybe that's the real question then - what prevents people from participating in the economic growth?
The economy has seen strong growth for about a decade now, yet stock ownership in the broader population remains low. Unemployment is low, but incomes also remain low outside the top 10% of earners. Overall savings across the population is very low, with by some studies approx 36% having _no_ retirement savings.
So - I agree with your statement about economic growth not being uniform, but it does lead one to question what's preventing greater participation.
It seems as if capitalism is designed to concentrate wealth in the hands of owners and shareholders. Employees were never intended to participate beyond the means granted them by their wages, and the incentives behind the financial systems with which they could tend to fleece anyone but the wealthy.
Somehow we've convinced ourselves that capitalism is supposed to be more egalitarian than it is. I think solutions begin with recognizing that the inequities we see in society are not a flaw in the system, but the system working as intended.
Can we use this entitlement argument elsewhere? Would that be fair?
So, how would you feel if I restated this as:
>I don't know why anyone should feel entitled to economic benefits, if they don't contribute to the pool of economic benefits
Two issues I take with this:
1. Those incapable of contributing, such as the psychologically or physically unwell, must I guess just die
2. I could restate this further as "Returns from entitlement should correlate linearly with input to entitlement," that is, the more taxes in real dollars you pay, the more benefits you should get from the system, which I think is awful for many reasons.
It is a very different society, one where the top 90% give to the bottom 10%, to one where the middle 80% take from the top 10%, eat most and give scraps to the bottom 10%. A society that cares for the weak does not need to fund it with taxes, it can subsist on charity. You will see that in practice, always a middle class person takes the money first before it goes to the person that needs it.
Tangentially related point:
The problem occurs when advances in technology make it so the vast majority of humans are literally _unable_, not to be mistaken for _unwilling_, to participate in economic growth.
In this scenario inequality shoots through the roof and that reasonably leads to instability and violence. At a certain point the wealth has to be shared in order to maintain a stable and high-quality society. A pragmatic wealthy person in this scenario should see wealth redistribution as a wise investment, not a cost, seeing as the "let them eat cake" alternative is less desirable if you like to keep your head.
This seems like a false dichotomy in that (for the foreseeable future) we have other options, like retraining people whose jobs have been automated away. This is strictly better (read "less invasive" and "more economically efficient") than wealth redistribution programs [^1].
[^1]: To avoid the motte and bailey fallacies that accompany poorly-defined or otherwise ambiguous terms such as "redistribution", I'm referring to the typical redistribution programs which take wealth from one group and give it to another group with no net increase in economic productivity. These are the kinds of programs which are controversial and objectionable.
I think the way I would define fair (and obviously this is somewhat a value judgement rather than objective fact) is that: I don't think its unjust that a CEO gets payed more than a line worker, but when the company succeeds then I think the increase in profits should be divided up such that the ratio of their incomes stays about the same.
Also, when I say "just" I don't mean that in an extreme way where if profits aren't divided up 100% fairly then employees are oppressed wage slaves. Even if my ideal system where implemented things would still be subjective. For example, what if my employer implemented very generous benefits but didn't pay quite as well?
I'm already on board with eliminating poverty! Don't tell me "hiking the minimum wage is the right thing to do and the economics will work itself out", show me the math that says we can do it without inadvertently creating more poverty.
In the scenario I am describing, this is not possible.
Yes I am aware of the luddites. I also strongly believe that a threshold exists where technology can outperform humans in every conceivable way, and we will cross that line one day. FWIW, complete collapse of our (current) economic system would occur well before we reach that line anyways. If even 50% of humans were displaced by technology you would likely see violent revolution. Consider the impact of the US great depression, where just under 25% of people were unemployed...
Ok, I wasn't sure how you meant your comment, so I addressed the more plausible (although less literal) interpretation. Thanks for clarifying though. I imagine your scenario is theoretically possible, but it's science fiction for the foreseeable future, so I'm not very concerned about it. That said, it's interesting and I often think about it; I'd be really interested to hear economists opinions.
I think a lot of people who have employment there don't feel like they are getting benefits. When I look at my company we just got an E-mail how great the company is doing but during my performance review I was told "sorry, no raises or promotions". So I don't feel like I am benefiting from the company doing well.
That is such an important thing to note. It's so important to make an even playing field. Equal opportunities allow people to climb that ladders. The economy does much better when people are able to take risks,like start businesses. Also business opportunities open up when the big incumbents fail. To me, the financial bailouts are the worst thing to happen to the economy in a long time. Risks were taken by investment companies and they shifted the burden of those risks not working out on to the tax payer, that is so wrong.
But there is even a greater factor: the inflation-adjusted GDP per capita! In 1968 it was $24k; in 2008 it was $50k. Is the author really surprised that a lot of households make more than their parents?
In fact, he claims that the worst and most pernicious oppression of the poor is done by the measures and people that claim to do it in their aid.
Simple question to ask yourself and anyone you know: would you rather be alive in your income bracket (inflation adjusted, etc.) today or 30 years ago?
I keep asking this question to people I've met and have yet to have any takers for the 30 years ago option. Clearly these types of economic measurements are missing something important. Deflationary technology improvements not being properly taken into account? Something else?
This has been the drum beat for well over two decades. Conservatives revised CPI and CPI markers to their liking in the mid 1990s with the Boskin commission. Yet if you look at inflation over the past two decades and see idle class heirs enriched and the workers creating the wealth stagnant, it's back to the old inflation-is-overstated argument. I mean, Trump is saying it this week in criticizing the Fed chair.
An odd counterpart to German conservative bankers, who seem more obsessed with low inflation and currency stability.
The question is, what percentage of people are gaining? One success story can significantly affect the mean when you’re starting from a small number.
A secured, non-recourse loan is not a personal liability. In terms of accounting, it's its own thing, like a limited liability company. That's how you need to think of it. For better or worse there's no place in a cut-throat capitalist society for people who can't wrap their heads around that.
It seems the trickle down economics approach taken since the 70s from both Democrats and Republicans hasn’t really helped anyone but the rich.
I think that 1970 is used as a starting point because that's also when real wages started dropping relative to production output.
I'm don't think it's fair to blame US politics. I bet this is a universal phenomenon.
It’s not hard to find a chart and it was OK and exploded since the 70s, perhaps coincidentally with trickle down economics and neoliberalism.
https://static-ssl.businessinsider.com/image/54610db56da8113...
That probably contributes, however the reality is that most Americans (particularly below-average earners) are living paycheck to paycheck and therefore don't have opportunities to significantly contribute to savings. I suspect that the average American is far more affected by compound debt rather than compound savings.
Rather, I think that there are 2 main factors driving upward mobility of low-skill/replaceable/disposable workers: 1. Over time, some are able to break into industries where they can build a career instead of working dead-end minimum-wage jobs. 2. Many busted their asses so that their kids could get a good education. Their kids saw how hard their parents struggled and were motivated to pursue stable careers.
If the world gets richer, we should expect that the richest will be wealthiest with the passage of time, due to the compounding effect of wealth itself, but thats not really a problem for anyone..
First, purchasing power is not considered. If wages are stagnant, but most consumer goods have gotten cheaper, then the bottom 50% with stagnant wages is capturing productivity gains.
Second, there’s no account for economic mobility. Wages for the bottom 50% are stagnant but most people don’t stay the same income all their life. There’s no account of economic mobility.
From the article: “As in the other panel studies, when you follow the same people, the biggest gains go to the poorest people. “
Nothing in this is about inflation or prices of consumer goods. And in fact, inflation metrics take that into account.
I thought TL;DR was supposed to be FOR people who didn't read it, not FROM people who didn't read it.
I'm skeptical of how much economic mobility mitigates the fact that the top 1% controls so much wealth. If you randomly assigned every bank account to a different person you could also say that the poorest people had the most to gain by this, but things are just as unequal as before.
Should probably just burn them for fuel, right?
> And many of the most pessimistic studies about the fate of the American middle class ignore the fall in marriage and the increase in divorce since the 1970s and the effects that demographic change has had on the way we measure changes in household income
The right wing culture warrior says that if people got and stayed married they'd be better off. The left wing materialist says that if people were better off they'd be getting married more and staying together longer. Which is more likely: every young person got brain worms at the same time that made them want to not do monogamy/family things, or the stratum of society that has always tried to capture as much of its productivity as possible has made gains in its project?
As to the rest of it: I don't particularly care if the same exact individuals have effected a greater capture of the economic output of this country, I do care that as a whole the top Xtile captures a larger slice. That does, in fact, matter materially to me even though I'm imminently comfortable. I'll leave it to the real stats nerds to punch holes in the math.