Tuesday, March 11, 2008

Measuring inequality -- nothing new here 

As I mentioned below, Ed Morrissey of Hot Air., part of the NARN and erstwhile local broadcast partner, wants to talk about Brad Schiller's article in the WSJ yesterday. (UPDATE: Ed reminds me he wants to talk about sovereign wealth funds -- I've just skimmed this piece by Tim Swanson, but it looks in line with what I think.)

Part of Schiller's piece is a "no-duh-moment" for those of us with gray hair, who have argued these points with progressives for years now. There was Michael Cox and Richard Alm's Myths of Rich and Poor about ten years ago. The entire life of Julian Simon was devoted to combating the notion that vast parts of the world were worse off for development.

Thomas Sowell
observed in 2000 what he called "perennial economic fallacies",
EVERY TIME some new income statistics come out, two predictable fallacies follow in their wake. The first is that the rich are getting richer, while the poor are falling behind. The second is that the real income of American families has not risen significantly for years.
Nothing seems to have changed, says Schiller:
The Democratic candidates are railing against the "tax cuts for the rich," lamenting the stagnation of middle-class incomes, and decrying the deepening woes of the poor. In her January response to President Bush's State of the Union address, Hillary Clinton cited "seven years of stagnant wages, declining incomes and increasing inequality." Barack Obama echoes this theme by referring repeatedly to the "middle-class squeeze."
Careful analysis provided by Schiller shows, however, that most of the data shown here is influenced mostly by demographics. Mark Perry, for example, focuses on the relationship between household size and median income: "the average household size has declined by 21% from 1967 to 2006, while real, median household income increased by 31% over the same period." Schiller notes that the number of one-person households since 1970 has risen from 17% to 27%. Ironman points us in Perry's comments to his analysis of income distribution by age; an aging population will cause major changes in inequality measures that are not due to changes in income opportunities for younger workers. (Ironman has a summary of his findings here.) Indeed, that jump in households with one person would indicate increased affluence of Generation X, says Schiller. By focusing on households, and by describing snapshots at a point in time as if they were movies of families at different points in time, the progressives have completely mischaracterized the Census surveys.

To get the right measure, it would appear we should at least use per capita GDP rather than household. And in this regard the United States, in real per capita GDP (PPP dollars) has done well, moving from $14,420 in 1960 to $29,620 in 1990, $36,225 in 2000 and $39,682 in 2006. Real per capita incomes have risen 1.5% per year in the Bush years, approximately equal to the growth of average labor productivity. Just as it should be.

UPDATE: I should link what Ed's written. I didn't emphasize the story regarding immigrants, and I need to think through Ed's point that the survey shows it shows "that people move up the economic ladder at a pace that at least keeps up with immigration." I'm not convinced that you can conclude that from the data, though it's consistent with it. We'll see.