Faking Real Income
Brian Doherty | May 31, 2007, 12:16pm
Brink Lindsey (author of the great cover story in the July issue of reason, excerpted from his new book The Age of Abundance: How Prosperity Transformed American Life and Culture) questions economic statistics based on "real income," especially those that conclude that median real income has fallen in America since the 1970s. Such stats imply that we are somehow as a nation worse off since then. Lindsey attacks this idea on a couple of fronts. First, the effects of immigration on national income statistics:
The share of the total population born in foreign countries has jumped from 5 percent in 1974 to 12 percent in 2004. Relatedly, people of Hispanic origin have climbed from 5 percent of the population in 1974 to 14 percent in 2004.
The huge wave of Hispanic immigration over the past generation has been good for the immigrants and their families, and good for the country as a whole. But this big influx of relatively low-skilled immigrants has to have depressed median income compared to what it otherwise would have been. Unfortunately, I’m not aware of good studies that quantify the effect.
This is not saying that immigration is "hurting America," unless somehow you think macrostatistics are more important than actual improvements in everyone's circumstances. Assuming immigrants are doing better for themselves in income terms than they would have in their home countries, their presence in America can drag down the nation's median income stats without anyone actually being worse off.
But that's not all that's wrong with statistics seeming to show a worsening in overall American economic circumstances, Lindsey explains:
Do your best job of coming up with a deflator that takes care of changes in the price level, and calculate the dollar income in 1800 that is the “equivalent” of an income of $100,000 in 2007. Then try with a straight face to convince somebody that the earner in 1800 and the earner in 2007 are equal in terms of material well-being.
Now let’s go to the comparison that’s at the heart of the stagnating median incomes argument: incomes today and incomes in the early 1970s. Do what you want as far as adjusting for inflation, but there’s still the problem of all the goods that simply weren’t available back then: personal computers, the World Wide Web, cell phones, cable and satellite TV, DVDs and iPods, airbags, anti-lock brakes, automatic teller machines, aspertame, LASIK surgery, CAT-scans, home pregnancy test, and ibuprofen, just to name a few.
...........
I don’t see how anybody without an ideological axe to grind can maintain seriously that ordinary people in the ’70s had the same material well-being as their counterparts today — yet that’s the implication of saying that median real incomes have been stagnant.
W. Michael Cox and Richard Alm explored all the many improvements in American life that economic stats can miss back in reason's Aug./Sept. 2002 issue.
joe | May 31, 2007, 1:34pm | #
John,
We don't "import" anyone. Please stop refering to immigrants as if they are things.
My solutions have nothing to do with levels of immigration - although the vulneratibility of undocumented immigrants to exploitation is very likely part of the problem. Workers who can bargain without their employers dangling imprisonment and deportation for them and their families tend to command more on the labor market.
As far as overall numbers of immigrantsl, their effect on wages and employment of native-born workers doesn't seem to have been definitively answered one way or the other.
D.A.,
"What is the difference, as a practical matter, between middle class and working class?"
Middle class people make more money. With the old "blue collar/white collar" paradign breaking down, "working class" has pretty much become a synonymn for "lower middle class."
"Also, if they, too, are getting richer (in terms of improving quality of life if not nominal wealth) over time, why does it matter if the richer are getting even richer faster?" See my previous comment.
"Finally, in what sense is income inequality "turning into" political inequality or inequality of opportunity? What I mean is, hasn't that always been the case? What makes right now any different?"
I guess I could have used clearer language there. Read "turning into" as "being converted into," like a currency transaction, not "becoming," as in something new developing.
Yes, it has always been the case that wealth is converted into political influence. That's why those of us who believe in political equality tend to support efforts to promote economic equality and equality of opportunity, and/or incorporate protections into the political system itself which will either make the "conversion" harder, or which boost the capacity of the non-rich to influence the political system in order to provide a check to the political power of the wealthy.
Kwix | May 31, 2007, 2:37pm | #
I will give you credit Kwix at least your honest enough to admit the elitist vitrol behind the support for mass immigration. It really is about screwing America's own underclass in the name of getting cheap labor.
Aaah yes. John the ever so productive military lawyer whipping out his
tried and
true "anti-intellectualism" and "anti-elitist" stance. Since you and I have gone over this before I will spell it out in simple terms that even you can understand.
I worked for over a decade in the food-service and construction industres as a "low skilled", run of the mill laborer. Wait, let me spell this out in detail so you can understand. I have been a dishwasher, a cook, a dietary aide(cook's bitch), a handy-man, a house painter, a computer cable installer, an air conditioning duct worker, a pizza delivery-guy and a ditch digger. I have worked with both native Americans and immigrants of both flavors of legality. While your ass was sitting in law school, gaining its Intellectualism-Elitist cred, mine was helping to build those McMansions and I am damned proud of it and of the wages I earned doing it.
I used those wages to increase my status, put myself through school and got out of the industry into something more to my tastes. I got tired of dealing with jobs that hired 10pt IQs and drunks, where the only hard workers were the ones trying to better themselves, like me and my newly arrived immigrant friends. I have no contempt or "vitrol"(sic) for people in the "labor class". Indeed, I have great respect for those who thrive in it. The guy who mows my lawn, white, dumb as a sack of rocks. His boss on the other hand is a smart immigrant from Guatemala, come over illegally and eventually secured citizenship. I have great respect for the guy who leveraged a life of nothing into a business that affords him a good living and paying wages for other folks.
As Joshua Corning stated above, there are people who like doing what they do, and if that is the case they figure out how to make a good living doing it. If they are not smart enough to figure that out, it isn't my place to hand it to them. That is the socialist wealth-redistribution model, and I'm sorry, it just ain't my cup of tea.
Neu Mejican | May 31, 2007, 5:47pm | #
Joe,
"Can one income earner bring in enough money to support a household at the material level of a 1972 household?
And let's say they can: the cheaper-but-less-desireable stuff that people were living with in 1973 laregely isn't available anymore, even for those who would prefer to purchase it instead of modern stuff."
I know a bloke that pretty much lives in a world of tech from 1973, it is quite available and affordable. He is a single income household working full-time and makes far below the median for 2007. How he would compare to the median in 1973 is tough for me to judge (I was only 8 and lived far above the median at the time), but I would bet he is below the 1973 median.
This idea of comparing value across available technology seems problematic to me. My 1965 Volkswagon provided me with the same amount of transportation utility as my friends 1982 Honda did (in 1982), and now (and forever, likely) would be worth more money on the market. A 2007 Prius might provide enough fuel savings to make it more valuable in terms of transportation utility (but only by a smidge). So how much more material wealth does the Prius represent? Who gives a shit if there were no hybrids available in 1973... there were gas efficient cars. Does an ipod represent more material wealth than a portable cassette deck from the 80's or 90's? Not sure how? My listening utility has not really improved (poor sound quality on the ipod), and the difference in size is negligible. To claim the ipod is more valuable seems dubious (of course, they do beat cassette decks in the market, so there ya go).
New classes of technology, unavailable previously, may be a different case, but I think there is a problem...
Housing, food, easier to compare.
I think the concept of material wealth is too ambiguously defined, perhaps, to allow for such comparisons.
Just rambling at this point
Neu Mejican | June 1, 2007, 10:01am | #
Joe,
"Still, I daresay the 82 Civic did provide more transportation value than the 63 Bug. For one thing, the Civic contained all sort of safety and environmental features. While those don't get you to work any sooner, they do add value to the product overall."
My 65 Volkwagon Van had extremely low emissions (always got comments from the guys at the test center)and great gas milage, but you have a point about the safety... things were death traps... who puts the driver in front of the front wheel?
"Music on an ipod is clearer and sounds better than a cassette."
Nah, just not true. The only real advantages are size and the fact that you don't have to carry around the tapes. I have a very nice portable cassette deck.
But either way, it seems that "best available" car/music player in 1970 = "best available" car/music player in 2007 when you are formulating a metric of material well being.
SIV
"What is this "individual" crap anyways?
We are a Nation of "working families" not individuals.
"Individuals" is libertarian crazy-talk."
It is only relevant if, as I suspect and the PEW report suggests, individuals (single earners) aren't as likely to be at the median as they were back in the day. If it takes two earners, on average, to maintain the median, then material wealth is higher more as a result of more hours worked than anything else.
My main objection is still that the concept of material wealth needs to be quantified somehow and the authors do provide a better solution than the "real income" metric that they criticize.
