Cafe Hayek: American Consumption

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February 10, 2008

American Consumption

Don Boudreaux

Mike Cox and Richard Alm have an excellent op-ed in today's New York Times. It exposes as (at best) facile the view -- expressed just yesterday by the Gray Lady's columnist Bob Herbert -- that "[t]he middle class is hardly flourishing" -- that America's middle-class is disappearing and needs to be "resuscitated."

Here are some key paragraphs:

Income statistics, however, don’t tell the whole story of Americans’ living standards. Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume, and that the abstract, income-based way in which we measure the so-called poverty rate no longer applies to our society.

The top fifth of American households earned an average of $149,963 a year in 2006. As shown in the first accompanying chart, they spent $69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings.

The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status.

So, bearing this in mind, if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1. A similar narrowing takes place throughout all levels of income distribution. The middle 20 percent of families had incomes more than four times the bottom fifth. Yet their edge in consumption fell to about 2 to 1.

Let’s take the adjustments one step further. Richer households are larger — an average of 3.1 people in the top fifth, compared with 2.5 people in the middle fifth and 1.7 in the bottom fifth. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1. The average person in the middle fifth consumes just 29 percent more than someone living in a bottom-fifth household.

Posted by Don Boudreaux in Inequality, Myths and Fallacies, Standard of Living | Permalink

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Comments

I never understood why anyone would even concern themselves with the 'gap between the rich and poor' statistic.

According to that reasoning, if everyone was poor, but equal, that would be better than everyone being better off, with some people richer than others.

To illustrate, they'd prefer A & B to have $10 & $100 respectively rather than A having $1000 and B having $1,000,000.

This is just people's envy getting the better of their logic.

Posted by: raja_r | Feb 10, 2008 11:14:51 AM

As a professor, in an American University, do you honestly think that a 4 to 1 ratio of consumption of food, clothing, shelter, utilities, transportation, health care and other categories of consumption is something intrinsically better than a 15 to 1 earnings ratio?

Beg your pardon but are you n..s? 15 to 1 ratio in earnings do not have to mean anything but, if the 1 in your 4 to 1 consumption ratio means you can’t make it that means the entire world for that person.

If all had earnings that allowed them to cover their minimum caloric intake needs then it is alright, and actually the one with 15 in earnings might even run a worse risk of obesity, but, if the 1 in consumption does not get the calories he needs…then what?

How on earth can you come up with these kinds of comparisons?

Friends, you better sharpen up, or you will have your little own homegrown gringo-chávez ordering you around at any moment, and at that moment, as many Venezuelans have had to do, is when you realize the real good of what you had…but then it is too late.

Posted by: Per Kurowski | Feb 10, 2008 11:47:30 AM

According to that reasoning, if everyone was poor, but equal, that would be better than everyone being better off, with some people richer than others.

Hardly anyone of flesh and blood reasons this way, but among the scarecrows, support for the proposition skyrockets.

Posted by: Martin Brock | Feb 10, 2008 11:54:59 AM

Here's the "(at best) facile" view expressed in Herbert's article.

The middle class is hardly flourishing. In testimony before a House subcommittee last year, Harley Shaiken, a Berkeley professor who is an expert on labor and employment, remarked: “During a period of robust economic growth, record profits and the fastest sustained productivity increases since the 1950s, only a thin slice at the top of the economic heap is enjoying higher living standards.”

This view addresses change over decades. Cox and Alm address a current snapshot. There is no clash whatsoever. Regarding the Shaiken quote, the chart from Cox and Alm is a non sequitur. Since the seventies, the real, median income of individuals changed little while real output doubled. Higher income percentiles reflect this change. This pattern differs substantially from the decades preceding the seventies, when real, median income doubled along with GDP. The analysis presented here once again ignores the pattern by discussing something else entirely.

The relevance of Cox to Shaiken is facile (at best).

Posted by: Martin Brock | Feb 10, 2008 12:14:11 PM

Statistics can be so far from reality.

I know we're not typical, but for years now we've had zero taxable income as we continue to invest our savings in a growing business, that, while it's growing, just breaks even.

We show up in the statistics as living in absolute poverty while we actually have picked up our children at their private school in our new SUV on the way to our European vacation.

Likewise, we are surrounded in the neighborhood by young professionals who make big dollars but, because they are starting from scratch and have student loans to pay along with high taxes, don't live near as well as we do. We own what we own, they are often making payments on everything.

Posted by: Tom | Feb 10, 2008 12:16:18 PM

Mr Boudreaux,

"The middle class has disappeared" seems to become a very popular theme among intellectuals. What is the explanation behind all these allegations? Is it political activism? Did these journalists just convinced one another in their closed circle without really thinking it through? Is it voluntary fear mongering to sell paper? Or could it be that the middle class has become so rich that it is sometimes misidentified, and I mean "on the street", as higher class?

Posted by: Mathieu Bédard | Feb 10, 2008 1:15:27 PM

This view addresses change over decades. Cox and Alm address a current snapshot. There is no clash whatsoever.

It's more than a claim about change over decades insofar as he talks about the need to "resusitate the American dream."

Since the seventies, the real, median income of individuals changed little while real output doubled. Higher income percentiles reflect this change. This pattern differs substantially from the decades preceding the seventies, when real, median income doubled along with GDP. The analysis presented here once again ignores the pattern by discussing something else entirely.

It doesn't ignore the patter, it just suggests that something else compensates for it.

Posted by: GuyF | Feb 10, 2008 1:33:27 PM

Like any average of huge populations there is much here that is misleading.

I don't have masses of data to crunch, but after 30 years of tax and financial planning this doesn't ring completely true.

Why do I think these folks came to a conclusion and then selected data to prove the conclusion? Am I cynical about economists?

(Probably the gratuitous praise for increased trade tossed on to the end of the article.)

Posted by: save_the_rustbelt | Feb 10, 2008 1:47:30 PM

By the way, I don;t think the middle class is collapsing.

There are trends however (destruction of earned pension benefits, compression of blue collar wages) that do no bode well for the future.

Interestingly, it appears that college professors, of all middle class categories, are doing better than average, perhaps because of an ability to minimize competition.

Posted by: save_the_rustbelt | Feb 10, 2008 1:50:48 PM

You aswell as the rest of the people in your society have 10 dollars each which barely lets you eat enough to survive. You come up with an ingenious idea that put you at 5000 dollars while the rest of society end up on 500 dollars each, letting all of you eat great food and spend lots of money on entertainment. Well, congratulations jackass - you just brought poverty to your society! Shame on you!

Posted by: Erik | Feb 10, 2008 1:54:53 PM

Is the point only relevant to the public discourse and what to do about.

Let's grant for the sake of argument that most everyone is doing OK.

Now consider all the wealth our government spreads around the world to maintain the empire.

Wouldn't we all be even better off without that expenditure? Not to mention the morality of propping up dictatorships in the name of democracy and the many innocents lost as 'collateral damage'.

I recall that the Peace and Freedom party wanted to legislate a 30 hour work week at the same weekly pay in order to have full employment.

Their 'fiat economy' is just simple-minded (doing my best to be polite), but there is a gem in there, which is that, sans the sheer waste of much of what the government does, we should be able to have our current standard of living with a shorter workweek.

Posted by: Sam Grove | Feb 10, 2008 2:01:40 PM

Amazing!! Some one from the Fed telling us how the working poor spending all of their reserves is a better indicator of how well the working poor and middle class are doing. All while he pushes more new money at lower rates for the lending class to further the true difference in wealth.

COME ON professor! There's nothing to support liberal economics here.

I have to ask, does one support liberal economic policy out of self-interest or out of interest in what's best for society. And again I often don't find your positions inconsistent with what I know of classic liberal economics.

Posted by: muirgeo | Feb 10, 2008 2:24:32 PM

correction, should be; consistent instead of inconsistent.

Posted by: muirgeo | Feb 10, 2008 2:33:36 PM

The key to this post being "what I know of ~~classic liberal~~ economics"

Posted by: Mathieu Bédard | Feb 10, 2008 2:40:28 PM

Muirgeo,

"...does one support liberal economic policy out of self-interest or out of interest in what's best for society."

I can only speak for myself, but self-interest, of course. First, because I don't believe in "society". Second, because it is my experience that those who claim to be acting in the interest of "society" are actaully acting in their own self-interest, and that they are very often scoundrels of the very worst sort. Finally, I don't see anything whatsoever wrong with acting in my own self interest so long as I'm not doing any harm to anyone else in the process. I'll take a person who deals with me fairly in mutual self-interest over a sanctimonious thief anyday.

Posted by: Randy | Feb 10, 2008 3:12:41 PM

I never understood why anyone would even concern themselves with the 'gap between the rich and poor' statistic.

Posted by: raja_r

Raja,

I would say out of fairness. In my opinion most of the difference is policy related. Policy in the great expansion of the 50's lead to a faster growing economy shared by all while present policy transfers all the wealth of the new prosperity to those with close ties to the fed...the money lenders. Or in actuality the wealth is being made on loans that will be repaid by our children.

FDR's speech on the issue is a must read.

FDR's Rendezvous with Destiny audio version.

Posted by: muirgeo | Feb 10, 2008 5:06:30 PM

Randy at least you are honest. In your world view then why would anyone become a teacher or a nurse. Why would some one like myself become a Pediatrician when I could have made 3 X as much being a Radiologist?

I think you don't understand but some peoples lives revolve around things other then just money. Money makes them feel good but so does doing something good for "society".

The idea that you don't believe in society is bogus. In fact you live and take advantage of it everyday. If you don't believe in society then the presumption is you'd do just as well living in North Korea as here in the U.S. But you and I know you won't be moving to North Korea because of "society issues". Bottom line is you are being dishonest with yourself. You think you only have to deal with honest people... the whole purpose of society is to protect ourselves for the dishonest ones. Society does that for you and me to the degree that we set up the rules as fairly and efficiently as possible.

Posted by: muirgeo | Feb 10, 2008 5:20:37 PM

Martin:

When every Democreep politician gets up to the dais and spouts about "growing inequality", it's not just a straw man. You lose again. Go to Daily Kos to know what most liberals consider important:

1. Get out of Iraq now
2. Stop income inequality

Posted by: FreedomLover | Feb 10, 2008 5:51:17 PM

I think it is really telling when someone is presented with evidence that the plight of the poor might not be as bad as thought.

People who really care about the poor should be just as happy as the person in the emergency room who is told he has heart burn instead of a heart attack.

Posted by: dave smith | Feb 10, 2008 5:59:11 PM

Muirgeo,

"In your world view then why would anyone become a teacher or a nurse."

That's a great question. I'd say they do it for the same reason that I do what I do - to make money by helping people. That's what all jobs are about.

"In fact you live and take advantage of it everyday."

Actually, what you call "society" takes advantage of me nearly every day. I pay rent, but what your "society" offers in return is of questionable value at best.

"...the whole purpose of society is to protect ourselves for the dishonest ones."

Then it doesn't work. The only people who have actually ripped me off are the people you propose that I should trust.

Posted by: Randy | Feb 10, 2008 6:44:22 PM

In your world view then why would anyone become a teacher or a nurse.

Strawman aside, because most everyone knows that the best job is one that you enjoy doing...for whatever reason. Monetary income is but a necessary though insufficient reason for a career choice. I could make more money as a dental assistant, but there are mouths that I just wouldn't want to work in.

Posted by: Sam Grove | Feb 10, 2008 8:42:23 PM

Bets on her consumption?

http://www.youtube.com/watch?v=THyTnt00b5I

Posted by: Martin Brock | Feb 10, 2008 8:47:14 PM

"Or could it be that the middle class has become so rich that it is sometimes misidentified, and I mean "on the street", as higher class?"

Perhaps a variation on 'there's no such as society' is who cares about the inequality as long the inequality reflects the unequal inputs of the various people? So what if middle class people are increasingly productive such that they're not really middle class any more? Or should we really care if those who have failed to keep up society are falling behind? Or what if society is constantly moving forward in a way that those who produce the same each year are actually slowing falling behind overall?

Posted by: Gil | Feb 10, 2008 10:15:58 PM

Gil:

Why should those people who never advance their skills NOT fall behind relative to everyone else and purchasing power because they can't get raises beyond the bare inflation? Look, not everyone is intelligent enough to get science, engineering, law and medical degrees. Not everyone is daring and intelligent enough to start their own business and succeed. That leaves the rest of the poor schleps to rot away in retail and other menial jobs. That's always been the way of the world.

Posted by: FreedomLover | Feb 11, 2008 1:50:52 AM

That last question of mine should have went "Or -so- what if society . . . "

Does that make you feel a better then FL?

Posted by: Gil | Feb 11, 2008 1:57:07 AM

Gil,

"Or [so] what if society is constantly moving forward in a way that those who produce the same each year are actually slowing falling behind overall?"

I think you nailed it. That seems to me to be precisely what is happening. My personal answer is that it isn't my concern. I didn't create the world, and I have better things to do with my time than trying to modify it to suit my preferences. But there is good news in the fact that being poor doesn't mean what it used to mean. And no, I don't give the credit to altruism. The creation of wealth made possible by the freedom to pursue self interest is the primary reason that poverty has become much less deadly. Altruism is a luxury made possible by wealth.

Posted by: Randy | Feb 11, 2008 7:23:07 AM

But you and I know you won't be moving to North Korea because of "society issues". Bottom line is you are being dishonest with yourself. You think you only have to deal with honest people... the whole purpose of society is to protect ourselves for the dishonest ones. Society does that for you and me to the degree that we set up the rules as fairly and efficiently as possible.

This statement is so odd. North Korea is hardly a society. I see society as including some type of voluntary association between individuals. A free market can be a society (the Forex market is a good example). North Korea tries to block most types of economic voluntary association, though associations still occur in the black market – or should it really be called the white market.

"In your world view then why would anyone become a teacher or a nurse."
Here in this country you are free to pursue whatever career you would like (voluntary association). Heck you can even pursue illegal careers such as dealing drugs, which is a voluntary association that exists despite government’s rules (black market white market thing). Government is an extension of different societies, which people often try to use to prevent voluntary associations from occurring. Not all cases of Government, but many. I am for a certain level of government for certain things, but when it prevents voluntary associations from occurring then we begin to look more like North Korea.

Posted by: Mcwop | Feb 11, 2008 8:46:18 AM

It's more than a claim about change over decades insofar as he talks about the need to "resusitate the American dream."

If the rise in real, median income over decades is Herbert's "American dream", then it does need resuscitating, because it existed in the past but hasn't existed for decades.

I'm less interested in the dream than in understanding the change. Roberts alludes earlier to immigration and other factors with little specification, but he does so while similarly ignoring stagnant median income by focusing on small rises in family income attributable almost exclusively to women's increased participation in the workforce. These increases are partly an illusion anyway. Median income women can pay half or more of their wages for childcare. The division of labor may be useful, but much of the increased income is an accounting artifact.

It doesn't ignore the patter, it just suggests that something else compensates for it.

It doesn't suggest any compensation. Cox and Alm don't say a word about change over time. They don't indicate any rise in median income or consumption. They don't even discuss median consumption. They discuss the consumption of people with median income, which is something else by their own reckoning.

The juxtaposition of these two articles is pure politics, a cheap rhetorical trick and not any sort of economic science. It simply ignores the point of the first article by changing the subject to the second. This tactic is effective when preaching to a choir, but no one else is fooled.

Posted by: Martin Brock | Feb 11, 2008 9:22:56 AM

I suggest that the focus on income and consumption is misplaced, even in explaining changes in income and consumption. We need to focus on what we produce, who organizes the production and why they organize it as they do. We've obviously spent the last seven years dramatically increasing the "production" of whatever the Federal government is buying, and we've seen a Cato study indicating that Federal employees receive substantially higher incomes than other employees on the average, and the disparity is increasing, never mind the multi-million dollar (even tens of millions) annual compensation of CEOs in the state-industrial complex raking in the incredible rises in Federal expenditure. There's a word for this sort of economic development, and it starts with a "f".

Who are the former socialists howling for massive increases in state spending and authority to institute an aggressive, militaristic campaign of nation building while "simulating" the economy with incredibly excessive socialization of risk that "privatizes" profits? The "liberals"? "Neo-liberals"? Only a blindfolded fool think so today.

Posted by: Martin Brock | Feb 11, 2008 9:40:21 AM

It doesn't suggest any compensation. Cox and Alm don't say a word about change over time. They don't indicate any rise in median income or consumption.

Look at the second graph in the Cox and Alm article that shows how consumption has spread over time. It challenges the claim that "since the 1950s, only a thin slice at the top of the economic heap is enjoying higher living standards." I wish I understood stagnant median income as well but I think the Cox and Alm article provides nice perspective.

Posted by: GuyF | Feb 11, 2008 11:39:24 AM

Look at the second graph in the Cox and Alm article that shows how consumption has spread over time. It challenges the claim that "since the 1950s, only a thin slice at the top of the economic heap is enjoying higher living standards."

I looked at it earlier, and I'm looking at it now, and it doesn't contradict anything very persuasively. Compare comparables. Look at radio in the twenties, and compare it with color TV, VCRs and the internet later. The chart omits black and white TV for some reason. Radio adoption in the twenties was nearly as rapid as internet adoption, and the depression only slowed it. Radio adoption rose throughout the depression. Compare clothes washer adoption to dishwasher adoption.

Do you have a radio in your living room? I don't. I don't watch television at all anymore, but color television replaced radio in most living rooms, rather than adding something, and people adopted both rapidly. I suppose television was an improvement, but this fact doesn't explain why real median income rose with real GDP early in the century and stopped rising with real GDP later in the century.

Apparently, more and more people produce what fewer and fewer consume. If per capita GDP rises, no one's consumption must drop for this change to occur. More and more productive resources are organized to produce what fewer and fewer consume.

Or maybe no one much consumes what we produce. Maybe we send it overseas and blow it up. Or maybe we "produce" lots of additional money changing hands, and maybe this money buys lots of Asian goods, because other producers peg their currency to ours for increasingly dubious reasons. Or maybe the reasons aren't so dubious from their perspective. Maybe they're buying rights to produce for our consumption. Maybe we're selling these rights to fuel our consumption. It is possible to burn the furniture for firewood for a while. You can stay warm this way for a while.

I wish I understood stagnant median income as well but I think the Cox and Alm article provides nice perspective.

It's a perspective, but it's not a perspective on stagnant median income.

Posted by: Martin Brock | Feb 11, 2008 1:31:05 PM

Martin,

That's a lot of maybes. Let me add one more... Maybe people just aren't as driven as they once were. Why should we not expect people to achieve a comfortable balance between work and leisure and then just relax. Maybe the only thing that hasn't kept up with the times is the length of the standard work week.

Posted by: Randy | Feb 11, 2008 1:56:18 PM

Capitalism and our government is based on comsumption. People need to spend and to buy things to keep it all flourshing. This is also a vulnerability. What happens when world population growth is so large that there are not enough resources to produce what everyone wants, much less needs?

Posted by: Wayne Pruner | Feb 11, 2008 2:20:18 PM

Martin,

I think the bit that you have missed is that the CPI isn't a very accurate measure. This is the point of comparing tv and internet and computational power and quality of appliances, furniture and transportation between now and various times in the past.

You have accepted that (somewhat) but then asked "why real median income rose with real GDP early in the century and stopped rising with real GDP later in the century."

But the answer to that question is contained in the earlier set of comparisons.

The way that we compare median incomes (and GDP) between two time periods is using a measure we call CPI. But CPI determines the value of the nominal wages in each period using a basket of goods that does not necessarily take all of those above comparisons into account. Real median income rose with GDP then perhaps because the comparison was better then.

Today's median wage can buy an awful lot more than the median wage (or even the top 5% wage) of decades past. Median income has been rising an awful lot faster than our statistics are illustrating.

Posted by: liberty | Feb 11, 2008 2:20:55 PM

That's a lot of maybes. Let me add one more... Maybe people just aren't as driven as they once were. Why should we not expect people to achieve a comfortable balance between work and leisure and then just relax. Maybe the only thing that hasn't kept up with the times is the length of the standard work week.

Work week differences don't account for increased production for the consumption of a few. It's not like the median income earner works fewer and fewer hours in recent decades while the 95th percentile earner works more. Again (and again), look at the Cato study linked earlier in another thread. I'll link it again if you want. Are telling me that Federal employees work longer hours than other employees? That's your theory? I can only suppose that you've never worked for the Federal government.

I suppose the hours worked to earn the median income, entirely from wage labor, has risen in recent decades. How much will you wager that I'm mistaken? We love to talk about Julian Simon putting his money where his mouth is. Will you?

Posted by: Martin Brock | Feb 11, 2008 3:57:13 PM

Martin:

The world marches on and leaves unskilled labor behind. You either hop on the high-skill train or get left behind. Whoever said that the world wasn't cruel?

Posted by: FreedomLover | Feb 11, 2008 4:17:51 PM

Martin,

"It's not like the median income earner works fewer and fewer hours in recent decades while the 95th percentile earner works more."

Actually, that is exactly what I suspect. Not that the number of hours on the job has changed, just the number of hours during which actual work is done. My evidence is entirely personal and anecdotal, but I've been in the workforce for about 40 years now, and I don't think people work as hard on average these days. I see no reason why this should not be reflected in a less rapid growth in median income. As for federal workers, I suspect that the work patterns are changing just as they are elsewhere, but that they are better insulated from the wage impacts by being members of the "progressive" team, if you know what I mean. Then again, outsourcing may soon eliminate that advantage.

Posted by: Randy | Feb 11, 2008 4:24:59 PM

I think the bit that you have missed is that the CPI isn't a very accurate measure. This is the point of comparing tv and internet and computational power and quality of appliances, furniture and transportation between now and various times in the past.

It's the same measure that Cox and Alms use to measure income and consumption, and it's the same measure that shows incomes at higher percentiles rising with rising GDP while the median income is flat for decades. It's the same measure that Williams uses to discuss individual incomes rising over time (tracking the income of the same individuals over time, not a fixed percentile of individual income). It's the same measure that Roberts uses to show rising family income.

I hardly missed the bit about comparing radio to TV and the net. See above. I've acknowledge this point repeatedly. It's irrelevant. People at the 95th percentile also buy the nicer TVs, and they buy a lot more Treasury notes and equivalents.

These comparisons don't explain the income divergence at all. They're completely irrelevant. The Cato study showing the income of Federal employees diverging from the income of other employees (already far lower than the income of Federal employees) comes closer. I'm not saying that it explains everything, but it's in the right ballpark.

You have accepted that (somewhat) but then asked "why real median income rose with real GDP early in the century and stopped rising with real GDP later in the century."
But the answer to that question is contained in the earlier set of comparisons.

No, it isn't. Higher income percentiles do track GDP growth. It's not like technological improvement affects consumption only at the median and below. The idea is absurd. Improvement presumably affects consumption higher in the income distribution earlier. If so, your analysis implies that inflation adjustments understate growth at higher income levels more than it understands growth at the median, so the divergence is even greater than it appears to be.

The way that we compare median incomes (and GDP) between two time periods is using a measure we call CPI. But CPI determines the value of the nominal wages in each period using a basket of goods that does not necessarily take all of those above comparisons into account. Real median income rose with GDP then perhaps because the comparison was better then.

I know all about the CPI and how it weights housing and replaces various items in the index from time to time. It's a standard measure. We use the same standard to correct median income that we use to correct income at the 95th percentile. The latter rises with rising per capita GDP and the former doesn't.

Today's median wage can buy an awful lot more than the median wage (or even the top 5% wage) of decades past. Median income has been rising an awful lot faster than our statistics are illustrating.

No. That's really not true. Median income buys different things, and the differences correspond to improvements, but "an awful lot more" is misleading.

The median income measurement uses the same inflation adjustment that the 95th percentile (5% below the top) measurement uses. The latter grows with GDP, and the former does not. That's the fact, and the analysts here don't even attempt to explain it. They obfuscate it instead.

Posted by: Martin Brock | Feb 11, 2008 4:26:18 PM

Actually, that is exactly what I suspect.

So put your money where your mouth is.

Not that the number of hours on the job has changed, just the number of hours during which actual work is done.

That's conveniently difficult to measure.

I see no reason why this should not be reflected in a less rapid growth in median income.

Why is it not reflected in less rapid growth in per capita GDP? Per capita GDP grows. Income at the 95th percentile grows. Somehow, only the median income earner suddenly lost interest in rising income in the seventies.

As for federal workers, I suspect that the work patterns are changing just as they are elsewhere, but that they are better insulated from the wage impacts by being members of the "progressive" team, if you know what I mean. Then again, outsourcing may soon eliminate that advantage.

You're saying here that Federal employees' rising income, compared with other workers, is more nearly a matter of entitlement. That's precisely my point.

If you want to define "progressive" this way, you may, but the political labeling is irrelevant. Federal spending rose much faster in the Bush II administration than in the Clinton administration. You may choose to call the Bushniks "progressives" if this labeling suits you, but most people call them what they call themselves, "conservatives".

Posted by: Martin Brock | Feb 11, 2008 4:38:16 PM

Martin,

"Why is it not reflected in less rapid growth in per capita GDP?"

Imagine that a worker is given a new tool, say a new software package. It makes his job easier. So what does he do with the free time? Well, part of it he employs for the company, and part of it he spends commenting on blogs or BS'ing with coworkers. So better tools means both higher productivity (and higher GDP) and less time spent actually working (and lower median wages). Again, this is entirely anecdotal, but if you work in an office environment as many of us now do, just take a look around...

P.S. I do include the Republicans when I use the term Progressive. I judge politicians by what they do, not what they say.

Posted by: Randy | Feb 11, 2008 5:01:41 PM

Imagine that a worker is given a new tool, say a new software package. It makes his job easier. So what does he do with the free time? Well, part of it he employs for the company, and part of it he spends commenting on blogs or BS'ing with coworkers.

This could well be true, but it doesn't explain the divergence. You're telling me that higher income earners don't have computers? Federal employees don't have computers? In reality, median wage earners probably have less access to this sort of thing.

So better tools means both higher productivity (and higher GDP) and less time spent actually working (and lower median wages).

The question is: why doesn't the higher productivity translate into higher median income as it translates into higher income at higher percentiles? Your theory is not remotely unique to the 50th percentile. Why the 50th percentile and not the 95th percentile?

Again, this is entirely anecdotal, but if you work in an office environment as many of us now do, just take a look around...

What makes you think that most median income earners work in an office environment? How many of your coworkers in your office earn $30k?

P.S. I do include the Republicans when I use the term Progressive. I judge politicians by what they do, not what they say.

And you don't like the word "progressive", but this linguistic preference isn't very informative.

Posted by: Martin Brock | Feb 11, 2008 5:33:22 PM

Martin,

Your theory is not remotely unique to the 50th percentile. Why the 50th percentile and not the 95th percentile?"

Personality type. Not everyone is driven.

"How many of your coworkers in your office earn $30k?"

The average in my office is low $30s. I suspect you live on a coast. Jobs here in the heartland don't pay nearly as much - but then housing is a lot cheaper...

"And you don't like the word "progressive", but this linguistic preference isn't very informative."

There's method to the madness. Google Mencius Moldbug. Start with the April archives.

Posted by: Randy | Feb 11, 2008 5:47:19 PM

Personality type. Not everyone is driven.

And the distribution of personality types suddenly changed in the 1970s ...

The average in my office is low $30s. I suspect you live on a coast. Jobs here in the heartland don't pay nearly as much - but then housing is a lot cheaper...

I live in Alabama. We're 11th from the bottom in per capita income.

Posted by: Martin Brock | Feb 11, 2008 8:42:51 PM

"And the distribution of personality types suddenly changed in the 1970s ..."

No, but technological advances created opportunities for some (many) to assume a more relaxed attitude about the job.

Posted by: Randy | Feb 11, 2008 9:08:05 PM

No, but technological advances created opportunities for some (many) to assume a more relaxed attitude about the job.

So George W. Bush earns $400,000 per year because he loafs less than other Federal employees? And Bill Clinton too?

"Per capita hours fell during 1970-2002 for most OECD countries and by over 20% in France; but they rose in several countries, and by fully 20% in the United States..."

http://econlog.econlib.org/archives/2004/07/hours_worked_in.html

So per capita hours worked rose 20% during this period, but people in the middle of the distribution loaf so much that the increase amounts to nothing, even as per capita output doubles. You're free to believe whatever you like, of course, but you're making it up as you go along and don't have a shred of evidence for it.

Posted by: Martin Brock | Feb 11, 2008 9:20:39 PM

Skilled workers are doing fine. Unskilled workers are the problem. And that is why we need to control immigration and reform primary and secondary education.

Posted by: jorod | Feb 11, 2008 9:31:54 PM

Martin:

Did you imply the President doesn't work hard?

Posted by: FreedomLover | Feb 11, 2008 10:02:24 PM

jorod:

We agree that unskilled workers are the problem. I think we can also agree that they lack the ability to get engineering and science educations at this late stage. The real question is how do we fix the American "educational" system to stop teaching bullshit, and start teaching math and reasoning skills?

Posted by: FreedomLover | Feb 11, 2008 10:10:04 PM