Subject: Jim Blair and a rising tide Date: 27 Feb 1999 15:07:39 PST From: TCP Newsgroups: alt.politics.economics As I read Jim's posts, growing inequality is nothing to worry about, since the poor are getting richer just as the rich are getting richer, even if the poor aren't getting richer as fast as are the rich. He cites statistics of rising incomes at http://www.census.gov/pub/hhes/income/histinc/f01.html and I have haphazardly extracted a handful of years (I didn't have time to write down all the years or numbers; the reader may use other years or numbers if desired) which I will post here: [constant 1997 dollars] Lower limit year upper limit of quintile of top 5% Bottom 4th 3rd 2nd 1997 20,586 36,000 53,616 80,000 137,080 1987 14,598 25,182 36,801 53,330 86,949 1986 14,000 24,100 35,120 50,570 83,400 1984 12,575 21,874 31,684 45,563 74,600 1981 11,015 18,750 26,758 37,800 59,992 1977 7,505 12,499 17,386 24,012 37,740 1973 6,081 10,034 14,000 19,253 30,015 Now, I appeal specifically to single heterosexual male readers (if you're married, for this exercise imagine being single as you once were; if you're not a heterosexual male, enjoy the thread or not, as you prefer), and ask, would you rather be living in 1984 with an annual income of $31,684 or in 1997 with an income of 36,000...in 1977 with an income of $24,012 or in 1987 with an income of $25,182...in 1973 with an income of $19,253 or in 1997 with an income of $20,586...heck, in 1973 with an income of $30,015 or in 1997 with an income of $36,000? Anybody out there prefer the higher of an income pair? Anyone care to suggest that relative incomes are not relevant to a single male's sex life? What do you think, Jim? REPLY: Hi, Well, of course I would prefer the higher income. Combined with the more things that it can buy, the later the year. Interesting figures, and I'll have to add this to my web page. But even this 'rising tide' misses a major point: individual people tend to move up through the income quintiles with time. So even if the QUINTILES had stayed the same, the PEOPLE would be doing better. That is, even if the properties in a MONOLOPY game are not upgraded, a player moves to better ones as he advances from Baltic Avenue to Park Place. For more on this, see: http://www.geocities.com/capitolhill/4834/motel.txt ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) jim blair (jeblair@facstaff.wisc.edu) Madison Wisconsin USA. This message was brought to you using biodegradable binary bits, and 100% recycled bandwidth. AND: ARE THE BOTTOM 20% FALLING BEHIND? Ian St. John wrote: (on is everyone better off?) > >Not for the bottom 20% at least, according to Scientific American May, 2001 >page 26. > >Apparently the 'rising American income' as measured in 'adjusted dollars', >was an effect of a government adjustment to CPI figures. After 'asdjusting' >the CPI in 1999, the lowering of the income for the bottom 20% turned into >an 'increase'. What was that bit about 'figures never lie, but liars sure >can figure'? mwitte@merle.acns.nwu.edu (Mark Patrick Witte) Well, I don't know that I'd go throwing the word "liars" around here. The five members of the Boskin Commission all agreed that certain factors caused the CPI to overstate inflation by slightly over 1% per year. (They each had other suggestions why the CPI might be biased upward but did not include in their recommendation factors that the other members had doubts about.) The adjustment of the CPI has made it more consistent with measurements like the GDP Deflator and also with consumption spending data by the poorest fifth, which really does seem to be higher by many reasonable measures (# of phones, cars, consumer electronics, travel, etc.) than it was 25 years ago. The consumer expenditure data on the poorest shows increases in ownership of an array of consumer durables including (just plain) phones, cars, TVs, air-conditioners, etc. The paradox here was how could this be if inflation adjusted income were not rising. The solution to the paradox, per the Boskin Commission, is that real incomes of this group were rising (on the average) but this was missed due to biases in the CPI. >'income' in adjusted dollars for those that basically work for food and >shelter, by adding factors that only affect the high income earners. It is >therefore a distortion to say that in 'adjusted dollars', the income of the >poorest 40% of the population is rising. In reality, it fell, while real >income for the rich increased significantly ( top 20% took 20% more in >Canada). The changes in the CPI in no way reduce measured spreads in income inequality...obviously since all groups get the same adjustment. >Whether this was a deliberate distortion to 'hide' the problem of >diminishing income for the poor, I leave as a problem for the reader. Or whether it is the work of honest scholars and policy makers trying their best to access and treat a problem.... AND: FROM suspply@midnsprings.com "Mark Patrick Witte" wrote in message news:9chpfu$bqb$1@news.acns.nwu.edu.. > The consumer expenditure data on the poorest shows increases in > ownership of an array of consumer durables including (just plain) phones, > cars, TVs, air-conditioners, etc. The paradox here was how could this be if > inflation adjusted income were not rising. The solution to the paradox, per > the Boskin Commission, is that real incomes of this group were rising (on > the average) but this was missed due to biases in the CPI. Stop me if you've heard this before, but from last August: Virginia Postrel reviews Fogel's latest in the New York Times at: http://www.nytimes.com/library/financial/columns/081000econ-scene.html Excerpts: << In his new book, "The Fourth Great Awakening and the Future of Egalitarianism" (University of Chicago Press), [snip] << What he finds is good news indeed: a century of stunning material progress and improved physical well-being in the United States and the rest of the industrialized world. Poorer people have been the big winners. "In every measure that we have bearing on the standard of living, such as real income, homelessness, life expectancy, and height, the gains of the lower classes have been far greater than those experienced by the population as a whole, whose overall standard of living has also improved," Professor Fogel writes. [snip] << Nowadays, the basics cost very little time. In 1880, for instance, covering a typical household's annual food bills cost 1,405 hours of labor, or about a half-year's wages back then, and those hours didn't include substantial unpaid time in the kitchen. A year's worth of food now costs a mere 260 hours of labor, and that price buys much greater variety and convenience, including a lot of restaurant meals. [snip] << In an appendix to Professor Fogel's book, Chulhee Lee, a former research associate at the University of Chicago and now an assistant professor at Seoul National University, presents evidence [snip] << You might think these are signs of widespread, permanent unemployment among lower-income people. But Professor Lee found evidence to the contrary. As of 1994, 80 percent of those in the bottom 10 percent of incomes were spending more than they earned, an increase from about 53 percent in 1972-73. And the amount that 80 percent spent was about twice their incomes. Incomes look more lopsided, but the ratio of spending between the richest and poorest deciles has barely budged over time. << How can poor people spend significantly more than they earn? "You don't go to a bank and say, 'I'm very poor but worthy -- please give me some money,' " Professor Fogel said in an interview. Most likely, he said, they are using savings to finance either transient unemployment, which may be voluntary, or early retirement. Only a few of the poorest people stay poor over time, and the same is true for the richest, who tend to be at the peak of their earning years. >> And Lee provides evidence that it's the beleaguered self-employed who draw down the average income of the bottom decile. Their greater income volatility explains a lot of the paradox, pace the permanent income hypothesis. Patrick