Tuesday, February 14, 2012

Same as it ever was?

There is some interesting stuff in the Winter 2012 issue of National Affairs. One of the President's re-election gambits is to tell a story about an America that once was in which middle class people have far more than they do. It is sometimes buttressed by selective uses of statistics but mostly simply asserted.

I find it a curious claim because I was, of course, present in that distance past and, as far as I can tell, teachers, cops, firefighters, nurses and other so called "mid level" workers don't seem to enjoy a lower standards of living that we did back then. In fact, their homes are bigger, their cars are better (and they generally have two; we never did), and the houses are full of lots of gadgets that we never could have dreamed of. It does seem to be true that there is a greater need to learn a skill - you can't do as well by low skill work at a factory - but people seem to be acquiring those skills. To be sure, the recent economic downturn was bad but it would be a mistake to suggest that it characterizes the recent past or that it was different in kind from post-Great Depression downturns. By some measures, it was the worst but not by such a margin to suggest some fundamental change in the nature of the economy. Indeed, it's worst aspect may prove to be the boom and bust in housing prices which have proven to be devastating to those who either bought or leveraged at the wrong time.

Scott Winship of the Brookings Institute looks at the numbers. He finds that average Americans today do not face a materially greater risk of income reduction, unemployment, loss of health insurance or retirement insecurity than they did in the past. To be sure, there are ways in which the economy has changed for the worse (and for the better) but the dire tale told by the President turns out to be wrong.

In the same issue, Ryan Messmore looks at the issue of income inequality finding that inequality among income quintiles is less than commonly supposed (when one takes into account things such as all sources of income and the size of households) and cites the work of Cornell University economists who have found that the rise in income inequality has actually been slower over the past twenty years than in the twenty year period before that.

I don't claim that these two articles end the debate but they track a lot of other stuff that I read and are worth taking a look at.

This may be why we see so much emphasis on "the 1%) (of which, in case you were wondering, I am not a member). They have done much better over the recent past although their share on the national income dropped precipitously from 2007 to 2009 without making anyone else noticeably better off.

This is something of a parlor trick.  As well as those fortunate few have done, we can't expect to close the deficit or make anyone else materially better off by taking their stuff. Perhaps we should let the Bush tax cuts expire for people over a certain limit, end the capital gains treatment for carried interest for a handful of hedge fund managers or impose an alternative minimum tax (now that has a great history!) on people who report too much tax advantaged income.

But it will hardly make the world anew or even be much reason to prefer Barack Obama over Romney or Santorum.

1 comment:

S said...

See also this interview with UChicago economist Bruce Meyer. As you say of the studies you cite, it doesn't end the debate, but I really enjoyed the way he illustrated the complexity of even defining the question, let alone testing it properly.

I think he even misses one point: adjusting for inflation by using one number across the board isn't quite right -- if the goods that rich people buy go up in price faster than the goods poor people buy, nominal (or CPI-U adjusted) numbers will overstate increases in inequality. I think that was the case for most of the last few decades, though food and energy prices have jumped in the last few years.