Wednesday, March 30, 2011

Yes Asshole, the Rich Are Getting Richer

I visited my parents last weekend, and as I once mentioned before, these excursions usually include a lazy Sunday morning with the old home-town news rag. The city of Waterbury is most recently famous for the frightening habits of former mayors, but many years before that (maybe stretching into my early youth) the region I grew up was part of an important industrial hub. It's an urban mix peculiar to the northeastern United States: decades of corporate flight that should, you'd think, have given them some perspective by now on how difficult it is to run a city—whipping up its economy or providing services, depending on which church of ideas you attend—when the local hiring firms keep disappearing and abandoning the tax base. Despite this long trend, the Waterbury paper remains a bastion of conservative opinion, dancing with the one that brought 'em (down) over this timespan, and is currently and constantly worked up about Big Government as well as the scarier, swarthier immigrant population which is no longer from European countries that begin with the letter "I" (and which lacks those erstwhile job prospects). [Although maybe there's something to the Big Government points: no doubt any incentive the city can now offer—tax breaks, loans, industrial sites with all the hookups—is piddling consolation for taking away the freedom to dump all of the tailings you can directly into the Naugatuck river, and that pesky Superfund law clearly did slow down that mall project a few years ago, but those fine, fine minimum wage retail jobs got there anyway, they did.]

Which is not really what I'm getting at, beyond to say that the old local paper grants me a special annoyance. When my wife turns on the news at home or when I drive back listening to All Things Considered, then I only need to marvel about how extreme the mainstream has become, and the distress doesn't last. When I steal time online, I see the accepted conservatives actually subjected to the comments they so richly invite, which sates me enough to not have to write anything about it myself. But when I go to visit Mom and Dad, and the op-eds are framed in official-looking black-and-white, and what letters filter in through the editors are as supportive as they are illiterate, when, it's editorial policy aside, it's a pretty decent paper for its market size, then I find that no one is getting livid here but me. Among the usual inveterate assembly of Malkins and Wills and Krauthammers, the Republican American trucks in your more shameless (and artless) variety of deniers and class warriors for its editorial page. On Sunday, it was some guy named Steven R. Cunningham of the American Institute for Economic Research. (The version I read is behind a subscription wall, but you can find plenty of copies online from other venues.) I don't really know anything about the AIER, other than it's in the most beautiful part of Massachusetts, but if this guy is an example of its alleged mission of objective economics education and not representing concentration of wealth, then its founders are surely spinning in their graves. More likely it's just your standard pro-power think tank. Cunningham is out to skewer "one of the most enduring economic myths" that the rich are getting richer.

"It isn't true. When most people think of the rich, they probably are thinking of people with great wealth. When they think of the poor, they probably are thinking of people with low incomes. While there's obviously a correlation between wealth and income, they're not the same. And we shouldn't confuse them."
I'm going to limit the line-by-lines for this guy—the full FJM thing is not my bag, and I'm not quite making that the central point either—and excessive charts are boring (I'll link for you though), but that article should not pass without comment. From the opening graf, he proceeds from here to thrash, not this alleged myth, but a fairly irrelevant straw person, noting that people who have the most wealth are generally older, which may or may not mean something or other, but certainly leads the reader away from the important distinctions he didn't make between wealth and income, and rich and poor.

Most people consider "rich" or "poor" to be a state of concern about meeting basic necessities, extraneous pleasures, and once those things are taken care of, of attaining status. I suppose it's nice that we weren't treated to the usual false equivalence between modern pleasures (like iPods and TVs) and necessities (like cost of living and, if we wish to outlive our pre-industrial counterparts, medical care, and, of course, the indenture that most people accept to attain those things), but since richness is in part something you feel, then it's not surprising there's some subjectivity in the definitions.

But income and wealth are more quantitative. And yes, it's an important distinction, but as an economics educator (yar har), Mr. Cunningham might understand that the reason people prefer to discuss income distribution is because it's just easier to come by. Most countries keep statistics on this sort of thing, which is handy if you try to make informed economic arguments, comparisons between countries, and other stuff you'd think would be important to economics educators. Wealth assets, meanwhile, are more varied in form, and more likely to be undisclosed and private. Wealth can mean less liquidity than the numbers on your paycheck represent, but lets not kid ourselves that the "wealthy" are exemplified by the old people receiving fixed annuity payments in Cunningham's hypothetical anecdote, or that the very wealthy are in any way not rich. Steve-O is counting on his readers to neglect looking very closely at the wealth distribution he mentions, which in Waterbury is evidently a good bet. When you do look at those numbers, they're far more damning than income distribution when it comes to inequality: the top 1% of the wealthy own about 35% of it, and the top 20% own about half. It's slightly less unequal in terms of net worth (because lots of people have home equity) than it is for financial wealth, but either one is sufficient to roundfile his whole thesis. Yes, based on analysis of wealth, more of it is concentrating in the upper levels and yes, there is less distributed among us proles in the lower 80% as time goes by. The rich are getting richer, and the wealthy are getting wealthier.
"For example, from 2000 to 2009, inflation-adjusted household income fell 4.5 percent, but consumer spending increased 22.4 percent. This raises an obvious question: How did people dramatically increase spending on shrinking paychecks? The answer is: They didn't."
Hey, I wonder if anything else changed in 2000-2009! I won't keep you in suspense. Among other things, household debt increased in this timeframe by about 12% per year, while income fell as stated. I'm sure there's a relationship to spending here somewhere.
"They did increase spending. But paychecks weren't shrinking. Instead, the number of individuals per U.S. household was shrinking, which lowered the average. Real disposable income, which is essentially total after-tax income, rose 25.2 percent from 2000 to 2009. At the same time, however, households got smaller, as more people divorced, or rejected or delayed marriage. So total spending went up, while average household income - due to the larger number of households - went down."
I'm the last person to buy into the idea that economics is a field with engineering precision and scientific understanding, but we can still endeavor to put useful numbers to this sort of thing for the purposes of estimates, and some of these institutional numbers are publicly recorded and pretty easy to come by.

Households only shrank a little in this time period, but there's definitely been a downward trend since the 1960s. Cunningham is probably tooting some social dogwhistles here, but the down-slope has correlated pretty strongly with decreased fertility rate, and the smaller households are largely a result of there being fewer children in all, and more people living alone (e.g.). We can look at this a little more objectively using useful variables such as the dependency ratio, which is the ratio of the too-young and/or too-old (depending on how it is broken down; the latter usually trotted out for Social Security scare stories, but the former is more relevant to household size) compared to people of working age, and this has also declined in the cited time frame, most of the decline coming from, again, fewer children. We can also look at the participation rate, which is the number of people of working age that are in fact working. Eyeballing the graphs and applying some simple math gives relevant ratios:

2000: 1.1 children per worker
2010: 1.3 children per worker

So people are, on average, supporting more kids, contrary to Cunningham's statement, but hold the phone for a minute here... The trend since the sixties has been fewer children. If you click on the chart for participation rate, you'll note another awesome economic revolution that happened in about 2000, when the bubble burst: all of a sudden there turned out to be a lot more people than jobs. Household size shrunk slightly, but the fact that the number of available jobs dried up affected the number more.

[Most of the post-1960 growth in the participation rate is due to women entering the workforce, which no doubt has contributed to the decreasing fertility rate as well. But these two trends before 2000 (not to mention extant retirement schemes since 1935 or so) have overall been to drastically reduce the number of dependents per worker. Cunningham is, of course, prevaricating here in a general sense, even if he's picked out a little patch on which he can daub on some bullshit. Fewer dependents from 1960-2000 probably did help people feel richer though, but I don't think the increased participation rate did. Are you richer when you need two incomes to do what your dad managede with one? (If you are a woman, you may indeed be freer.) This is a reason that household income is relevant.]
"The problem is that we are not told that the top 20 percent of households includes four times as many workers as the bottom 20 percent, and nearly six times as many full-time, year-round workers. Knowing this makes a lot of difference in interpreting the original statement."
People in lower quintiles have fewer earners per household, but they also have fewer children to support. The ratios of earners per household are pretty shocking, really. The summaries in the Wiki article are consistent with all of the above figures. And what exactly do they prove? Rich households, we are pretty sure from experience and data, do not tend to have six earners in them, not without some hefty violations of child labor laws, nor are they comprised of sprawling complexes filled with in-laws and cousins, or at least that's not the sort of arrangement that pops up on the lifestyle shows. Rich households (obviously) top out at a little less than two earners per home. You have to conclude that poorer households have not only a significant fraction of zero income people, but to approach four-to-one, over half of them need to have no earners in them at all. And among those working in the bottom 20%, most of them are only doing it part time. This seems to be a horrifying reason that they're poor, and not really a point in favor of the awesomeness of the rich. I mean, it's another way of looking unemployment—of course the lowest income group is going to include all the people who have zero income—but these numbers are telling us that that comprises a hell of a lot of people. Is this sinecured fucker really ginning up contempt for all those lucky duckies with no jobs at all? (Yes.) And it's clear from the same data that working part time isn't going to do a damned thing for you either.

And needless to say, the income that the quintiles receive is well-published, and only the top two really have made gains, before or after taxes, in forty years. The fact that the lowest quintile is largely unemployed does not refute this.
"Yet, economic mobility is a characteristic that helps differentiate the United States from many other countries. Between 2004 and 2007, for example, roughly a third of the households in the lowest income group moved up to a higher income group, according to the Census Bureau, while roughly a third of the households in the highest income group moved down."
Sure, income mobility is a great thing in this country. The fact that it's less great than it used to be, or is less great than in other countries (even historically aristocratic ones), well, we peasants should shut up and be thankful for what we've got.


And look, I'm sorry, but that had to be exorcised. It used to be even longer. If I am so motivated, I'll take out the hyperbole and send it as a letter to the editor to be unpublished. Here's the part that's getting me though, the actual point if you want to call it that. I can understand why people employed by the AIER write and publish this sort of crap—they're paid to, directly, by people who have the wealth and power they're apologizing for—but I'm disgusted by people who continue, despite evidence, to lap it up and sell it on the retail market. You'd think that anyone above drinking age might have noticed some general economic trends by this point, and yet the entire News-o-verse has already let go of Two Thousand Eight. I don't expect Truth to be folded up and handed to me, but a little more than a thin gruel of shallow marketing disguised as evidence would be okay. Hell, just losing the certitude would be a plus, especially when you're peddling the same crap you were two decades ago, during which time the wealth community has gotten pretty much everything it's asked for. At least this Cunningham guy's an obvious whore, obviously shilling for interests that aren't mine. What the hell is the editor's excuse? What power is he speaking the truth to?

The game I usually see played with things like this (and that I am playing here too) is one of competing narratives, of different takes on the same data. Commenters like me don't usually angle straight for the lie, and call it. We like to see the twists of truth instead, different takes on it, and target a rebuttal that harvests the seeds of refutation that the writer himself sowed, and there's plenty of that here. (Maybe this thought would be better spared for the next someone who is inclined to fact-check a Megan McArdle column or something, but whatever.) But Steven Cunningham is doing more than misleading with statistics. When he poses the idea that the rich are getting richer and leads with "it isn't true," it's baldfaced.


Aaron said...
This comment has been removed by the author.
Aaron said...


Russ Roberts, whom I otherwise like listening to, is also keen on hauling out the old saw that households are smaller than before, so the household income numbers don't matter. (He also tends to act as if data over time for individuals is non-existent, so he never has to see if it would support that his hypothesis.) But Roberts is more forthcoming with blaming a rising rate of divorce for the increased number of households. I do think that one of his EconTalk guests said that the numbers hold up for single people, which would work against divorce being the culprit, but Roberts clings to his "skepticism" of the numbers. On the other hand, he does acknowledge that he has prejudices, even if he's pretty bad about facing up to them directly at times (he's someone I don't expect to directly challenge his own assumptions, even when he's aware that he's assuming).

Michael said...

Back in November and December the Republicans were bogging down every last bit of proposed legislation because they wanted their Bush Tax Cuts extended. 9/11 First Responders health care fund, Don't Ask Don't Tell, Emergency Unemployment Benefits Extensions....all for their damned tax cuts. And they got their deal.

And so, the IRS announced that people who had planned to file their 2010 taxes electronically should wait until Feb 14 to allow them time to reprogram the great big IRS computer.

Doesn't take an Econ Degree from U of Chicago to deduce that something like 100% of those were planned on filing Jan 2 were the old 10-40 short form, no deductions, poorer, less wealthy, lower income, just give me my $748 refund type of taxpayer, and those who were the beneficiaries of the Bush Tax Cut extension were probably less likely to be filing on the first possible filing date.

No, the poor folk were the ones who were told to wait 6 weeks so the IRS can make sure Warren Buffett gets a few extra dozen million in tax breaks.

Keifus said...

I didn't even realize it was an old saw, and it took a bit to notice it was a pro-marriage argument. I guess I'm not surprised.

I guess what bugs me about this sort of thing is that this isn't really even lying with statistics, so much as it's presenting ones that don't support or refute the thesis, and then drawing false conclusions. (The tax argument goes this way too...) It's hard to imagine these people believe it themselves, or are even trying very hard. The article was just 800 vaguely argument-shaped words, not even creative. Insults my intelligence a bit.

I didn't send a letter to the editor. Couldn't get it down to 250 words.

Michael said...

Timely read.

Cindy said...

Oh man. Oh man. Oh man.

I'm out the door - have a thing to do from 9-1. But I had to stop and say
that I love reading you even when I hate what I'm reading and I'm glad I have really good blood pressure and did you know I live in Florida where our Governor is the king of this kind of shell game with numbers and statistics and you know he's a 'bidness man' so he's like a god or something.


Keifus said...

Cindy, I'm not even sure that Rick Scott is a human being. Looks like he slithered out of an egg from the same nest that hatched James Carville. Ick. The northeast may have some belligerent poserism going on (boy howdy, do we), but thankfully we have historically exported a big fraction of it to your fine state, just when it's really starting to settle in.

Smutty, that was a pretty concise and powerful article. I personally find Mr. (Nobel-prize-winning-economist) Stiglitz's argument a bit better at explaining observed reality than most of the other popular ones. "Imagine what the world might look like if the rules were designed instead to encourage competition among countries for workers," he says, although that doesn't take much imagination at all. It's how things are always marketed, if not how they are delivered.

rundeep said...

What CIndy Said.

Keifus said...

Thanks, you guys are the best.