June 07, 2004

Where Are the Salary-Earners Yachts?

Alex Baker of the Century Foundation writes that:

FYI, The Century Foundation has released two new issue briefs in its 'Reality Check' series:

Bernard Wasow analyzes the unequal distribution of recent gains in income and wealth in "The New American Economy: A Rising Tide that Lifts Only Yachts"; and Rick Kahlenberg points out why the No Child Left Behind Act won't get very far towards solving America's public education problems in "Can Separate Be Equal: The Overlooked Flaw at the Center of No Child Left Behind."

You can find PDFs of both reports here: http://www.tcf.org/4L/4LMain.asp?SubjectID=1&ArticleID=441.

About 'Reality Check': Throughout the 2004 campaign, The Century Foundation is publishing a series of short, easy-to-read publications that use graphs and tables to correct widespread misperceptions about crucial issues confronting the country.

Posted by DeLong at June 7, 2004 07:55 PM | TrackBack | | Other weblogs commenting on this post
Comments

Wonder if anyone noticed that the higher court overturned today a lower court ruling requiring an assessment of Bush's 2001 plan to open our southern borders to Mexican truckdrivers. As of tomorrow, ~45,000,000 trips a year will be made by Mexican truckdrivers into the US, and as the regulations allow, they don't have to deadhead back to Mexico, but can pick up return trips, in fact, continue nearly indefinitely within the US.

Absent psycho-social implications of 100,000's of unregistered hispanic aliens plying our nation's super highways in unregulated trucks, someone at Bush's headquarters, *we hope* would have realized this isn't going to play well in California, Arizona, Texas, Oklahoma, Louisiana, Alabama, Georgia and golden state of Florida among the members of the Teamster's Union.

Wonder if that "October Surprise" might instead be John Kerry lashing out at Bush with the firey rhetoric of Jimmy Hoffa for strikes and picket lines at grocery stores and ports of call, gas stations and grain silos, or whether the unions been co-opted by the Neo-Con's already, and this higher court ruling is just another ratchet on the torture rack of life in the American Gulag.

Our nation's misery index just went up a notch.
Hug a trucker. 100,000 more jobs gone expatriate.

Posted by: aaron haffen on June 7, 2004 09:49 PM

____

President Bush is taking a private moment of prayer in the Oval Office over the 4th of July.

"God," he intones, "Give me the strength to chain those things I can change, the courage to massacre those things I cannot change, and the wisdom to know which will change my destiny."

Ronald Reagan appears in the room, a bluish haze with a jaunty halo, evanescent.

"I know you," the cherubic angel quips. "You're that playboy son of the vice president of mine."

"I didn't know you played for the Angels now!" George attempts a clever riposte. Then he gets right to business. "Ronnie Boy, if I may call you that, tell me what can I do to change my destiny and get re-elected in November."

"What year is this?" Angel Ron ponders outloud.

"It's 2004, of course!" Bush snorts, "You just passed on a few weeks ago, don't you recall?!"

"Well, there you go again," the Angel sighs.
"I'll tell you what, here's what we'll do. Take a good snort out of that whiskey bottle you keep in the library, then call a press conference, and announce you've completely forgotten the reasons why you went to war, and are pulling all our troops out of the Middle East."

"My God!" George shudders, "I can't do that, I'd let my base down, the folk's that've elected me. I can't just go out there and act like I forgot, in order to get re-elected!"

Angel Ron shrugged, "Well, it worked for me!"

-%-

Posted by: Tante Aime on June 7, 2004 10:13 PM

____

The yacht essay wrongly implies that the top or bottom quintile is the same group of people each year as it was the previous year.

If you compare segments of the population based on what they SPEND rather than what they EARN, you find much less disparity. A big chunk of the people who are in the bottom quintile or who are"living in poverty" by the official definition are just starting out, are having a bad year, are spending down savings, or have outside help (or off-the-books income) to maintain a decent standard of living despite having little official income.

The top quintile and the bottom quintile are the same families in different years. Most college students are in the bottom quintile a couple years before they graduate, and every salary earner is in the top quintile the year he sells his house. Given the fact that the same family passes through multiple quintiles over time, it is not at all clear that the rising tide doesn't in fact lift most of the boats. If it lifts you a lot when you're doing well, you have extra savings to cover the periods when you doing poorly or to help raise up the neighboring boats when they need help.

Posted by: Glen Raphael on June 7, 2004 11:42 PM

____

"The yacht essay wrongly implies that the top or bottom quintile is the same group of people each year as it was the previous year."

Nope.

The yacht essay implies that whoever is in the bottom quintile today is not richer than whoever was in the bottom quintile in 1980.

The yacht essay implies that whoever is in the top quintile today is much richer than whoever was in the top quintile in 1980.

The yacht essay implies that whoever is in the top quintile in the US is richer than whoever is in the top quintile in Canada.

The yacht essay implies that whoever is in the bottom quintile in the US is not richer in terms of purchasing power than whoever is in the bottom quintile in Canada.

It is often claimed that any statement about quintiles in invalid because people can change quintiles.

But the only context I ever see the poorest or richest x percent referenced is in relation to that x percent at another time or in another place. So the effect of people moving between x percents would seem to cancel out since it is happening on both sides of the comparison.

Posted by: anon on June 8, 2004 12:41 AM

____

For honesty's sake, they should just call it "no yacht left behind (after the rapture)"

Posted by: non economist on June 8, 2004 01:12 AM

____

Illustrating Glen Raphael's point: As a married graduate student with a child, we lived on $200 a month. Later I became a high paid professional. I've been in all 5 percentiles, as was my father before me.

The NCLB report sounds to me like feeble excuses for educational failure. I went to elementary school in the Bronx, which is the inner city. Our school looked like a factory, with no amenities such as swimming pools. We didn't even have bit of lawn. Nevertheless, my schoolmates were educated quite adequately. Educators today are doing a worse job than they did 50 years ago.

It's bogus to complain that federal NCLB money is inadeqate. NCLB money is a tiny percentage of a school system's income. If it were doubled, it would still be a tiny percentage of school system income. Education spending today dwarfs what it was 50 years ago. The problem isn't money.

Also, it doesn't necessarily follow that publiic schools with good results are doing a good job. E.g., my daughter was in a lovely elementary school in a nice suburb, but her school did a second rate job of educating students. Fortunately, my wife and I had the educational background and the time and incentive to teach her what the school didn't. Many poor families don't have the same resources. That's why they're particularly hurt by ineffective schools.

Posted by: David on June 8, 2004 04:42 AM

____

You'll have to forgive me, but after your recent diatribe ("diatribe's" probably a bit too strong) regarding the use of "it's" as a possessive, I had to point out that the title of this post should be "Where Are the Salary-Earners' Yachts?," rather than "Where Are the Salary-Earners Yachts?"

;-)

Posted by: Stefan Keydel on June 8, 2004 06:06 AM

____

Glen Raphael: Are you trying to say that in reality, as opposed to the fantasy world of left-leaning writings, there are not any really poor people? Dude, open your eyes. There is quite a number of people whose lives consist of many consecutive "bad years". How big is your "big chunk" of people in various categories?

David (and Glen): What you say holds (in principle) for college graduates who after graduating "make it" (as a highly paid professional). What about those who go from school directly into the cleaning, retail store assistant, Walmart "associate", etc. professions? Presumably because their parents, working in similar occupations, cannot afford college?

Also don't be fooled into thinking that you know a representative sample of the population. People tend to associate with others who live in similar circumstances (that's how people meet to begin with).

Posted by: cm on June 8, 2004 09:21 AM

____

Glen Raphael: Are you trying to say that in reality, as opposed to the fantasy world of left-leaning writings, there are not any really poor people? Dude, open your eyes. There is quite a number of people whose lives consist of many consecutive "bad years". How big is your "big chunk" of people in various categories?

David (and Glen): What you say holds (in principle) for college graduates who after graduating "make it" (as a highly paid professional). What about those who go from school directly into the cleaning, retail store assistant, Walmart "associate", etc. professions? Presumably because their parents, working in similar occupations, cannot afford college?

Also don't be fooled into thinking that you know a representative sample of the population. People tend to associate with others who live in similar circumstances (that's how people meet to begin with).

Posted by: cm on June 8, 2004 09:21 AM

____

while it is true that a percentage of people do move around through the quintiles, it's disingenuous to imply that *everyone* has that kind of mobility. some folks live their entire lives in the top tier, and others are doing well if they can manage to move themselves to the next-highest rung--or to avoid slippig downward.

anyway, the point of the essay is that, though average American income is the highest in the world, that average is based on the increasing wealth of the top tier, not on the increasing wealth of all or even most American familes.

Posted by: rebecca blood on June 8, 2004 09:27 AM

____

Would the US poor be still that poor relative to other developed countries if the calculations were done on the PPP basis?

Posted by: walons on June 8, 2004 11:08 AM

____

Glen Raphael makes the same argument that Glenn Hubbard often makes. As I read the argument, it is a call for the analyst to compare lifetime incomes across households. While this is a harder task, I wonder if anyone has ever attempted such a comparison. I suspect that variations across lifetime incomes is still quite high, but has anyone seen any evidence on this?

Posted by: Harold McClure on June 8, 2004 11:59 AM

____

I believe that there have been several studies that compare lifetime earning, including the total returns to higher education. Fact is if you are born in the bottom, you have a good chance of staying there. Born in the middle- same thing. Total mobility is a myth- and to use the example illustrating the poor as dirt graduate student is to buy into the Horatio Alger mythology. Truth is that the rich are different- most of them are born there and will- barring utter stupidity- will stay there. High income does not correlate with wealth. Sorry, but it literally is one in a million for some of the kids born to the poorest. I see them waiting at the bus stops daily, and going to free food three blocks from this office. Let me tell you, it ain't just one bad year that gets you sitting under the overpass with a 40 in your hand- it's a lifetime. I live in Phoenix, where 78% of the population has high school or less in terms of education. Hard work may get you ahead, but relative to what? Where you started.

Posted by: AllenM on June 8, 2004 02:07 PM

____

Of course, no mentions the salary earners who BUILD the yachts.

Posted by: Patrick R. Sullivan on June 8, 2004 02:10 PM

____

Pat:

There is no mention of the folks who build the yachts because that would be redundant. The income generated by the yacht building is included in the income distribution being discussed.

Dave:

Try the next 95 percentiles. You may enjoy them.


Glen:

The upward/downward social mobility you discuss is a pleasant thought and a nice objective. Were it true, the tension between economic freedom and equality would be less troubling.

But it just ain't true. Not many people send their kids to PS 117 for a couple years and then straighten out and pack them off to Exeter.
I suppose there is that heart warming story about how Bill Gates dropped out of college, but it was Harvard College which kind of weakens the moral of the story.

I suggest you do some empirical research. Get in your car and drive into the poorer neighbourhood of your town. Find a down and outer and ask him to tell you about his old life at the top of corporate America. If you survive, you will have learned something. Either way, the relevant average will have gone up.

Posted by: Gerard MacDonell on June 8, 2004 06:50 PM

____

Gerard et al: The article writer assumes that it is a BAD thing that America has a higher variance - the difference between the top and the bottom of the distribution at any given time - than do many European countries. My chief point is that this is not a self-evident claim. You'd need to look deeper into the stats to give meaning to them than this writer has done in order to convince a skeptic like me that there's something fundamentally wrong here.

I'm not claiming there aren't any poor people in the US or that they all have secret trust funds and never suffer or anything like that.

What I am claiming is that SOME percentage of the poverty that makes us look "worse" than Europe is highly beneficial to the poor people in question. Without establishing how MUCH of it fits into that category, you can't make a straight comparison and say whether our society is better or worse or in need of change in any particular direction.

There are two categories of "beneficial poverty" that leap to mind. First off, there's the "ski bum" category of poverty I hinted at before. Second, there's recent immigrants for whom poverty in america is wealth by their former standard of living.

More on ski bums: America is SO rich that middle-class-or-better americans have the luxury of being able to take a year or more off to write a novel, get a degree, travel around the world, "find themselves", start a business or what have you, living off savings for a while, relying on family, friends, loans and perhaps the possibility of an emergency backup job for support. Will you grant me that SOME americans are in this category? I thought so. Followup point: The richer we get, the MORE Americans will be financially secure enough to do this. If you KNOW you're employable at a job with salary to spare or have sufficient savings, there's less downside in taking time off to do something fun or experimental. The ideal american economy as far as I'm concerned would be one where nobody is poor involuntarily but many are poor by choice for a while because they like being a ski bum or pursuing a phd or whatever. But that society would show up as "bad" to the sort of person who does quintile comparisons.

More on immigrants: Every immigrant who comes here from central america to work in our fields and restaurants and dry cleaning establishments, starts out with a miserable standard of living but one that is vastly better than what they had in, say, Mexico. They are experiencing upward mobility moving from "poor in Mexico" to "poor in the US", and that's only the beginning. Any effort to prevent such people from showing up in our poverty statistics via redistribution would probably generate a huge political backlash against immigration in general. We'd close the borders tighter than they already are, making all the new immigrants WORSE off than they are by denying them the option of coming here and improving their life. Far better to allow open immigration, and allow them to be "poor" by our standards for a while, even if it does makes our numbers look worse than those of Finland for a while. It's worth it.

Posted by: Glen Raphael on June 9, 2004 03:21 AM

____

Glen is correct that there is social mobility and that to some extent people move through the various income groups as they age. This does create a bias in the research. What I can not understand why hasn't somebody tried to answer exactly what the bias is, it ought to be a question that could be answered. Moreover, I seriously doubt it would change the main thrust of Brads point.

But Glen's argument that some income inequality is desirable is a good point in economic theory.
Studies across time and across countries have generally found that greater income inequality leads to greater savings. Consequently, the society can finance greater investment and growth to improve the standard of living of everyone. This is basis econ 101. However, it has not worked in the US over the last 25 years. We have had a great increase in income inequality accompanied by a severe decline in national savings and except during the bubble in the 1990s weaker investment and lower growth.

Despite all the talk you are now hearing about the great things Reagonomics did for the economy, business fixed investment peaked at 14% of GDP in the 4th Q of 1981 and fell to 9.5% of GDP in the 1st Q of 1992. After rebounding in the 1990s it is now back to 10% of GDP. Glen I accept your argument that income inequality is generally a good thing. But why has the great increase in income inequality in the US over the last quarter century not generated more savings and investment and made the US better off? Can you answer that question?

Posted by: spencer on June 9, 2004 05:24 AM

____

Studies over time and across countries have also shown that there is a direct correlation between social inequality and crime, anti-social behaviour, political extremism and other undesirable things. The correlation is much stronger between inequality of income and crime than it is between poverty rates and crime. This isn't a prescription for communist style equality of income - there are also costs associated with excessive equality of income, but it is an argument that inequality is not something that should be left unchecked. And as has been pointed out above, the American dream of social mobility is exactly that for most people - a dream. And it's gotten worse - a recent study, I'm sure one of the economists on here has seen it, showed that social mobility has declined steadily since the end of the seventies and is at its lowest for 40 years.

Posted by: Ginger Yellow on June 9, 2004 06:17 AM

____

There is income inequality everywhere, always has been, even in the golden time and place of Stalin's Russia. Saying that some income inequality is beneficial says nothing about the extent of income inequality necessary to engender benefits. If the US has more extreme income inequality than other advanced post-industrial sorts of economies, isn't that reason to question the extent of inequality? Are other measures of welfare equally skewed in the US, less so elsewhere? No need to stick with blunt instrument comparisons.

Posted by: kharris on June 9, 2004 08:19 AM

____

Somebody please explain to the foreigner at the table what a "ski bum" is. Somebody who is "poor by choice" and prefers to go skiing instead of looking for a job? Some Google links seem to point in that direction.

Glen: I think nobody disputes that what you say holds for, in your own words, "some" people. I submit, however, that the proportions are not quite what you seem to imply. There are always "some" people in any category. I don't know that many people who quit their jobs to write novels or take a timeout.

Posted by: cm on June 9, 2004 09:18 AM

____

A "ski bum" is somebody who only earns enough money at odd jobs to support their skiing habit. You can't have a real career and also take full advantage of the best snow conditions all winter; you've got to make a choice whether skiing or earning lots of money is more important to your quality of life. A ski bum might work as a ski instructor or professional ski patroller all winter, or might work some menial job all summer and take the winter off.

In addition to the "ski bum" there is the "beach bum", who makes a similar lifestyle choice that surfing or otherwise hanging out at the beach is the most important thing for them to do at this point in their life. They might get a job as a lifeguard or surfing instructor that pays next to nothing, or they might sponge of friends and neighbors and odd part-time jobs during the winter to have their summer free.

To some extent it's a California thing; it works best for people who are young and live where the weather is fantastic most of the time.

My sister was a ski bum for a while. She lived well below her potential income in exchange for the flexibility to enjoy life a bit more.

I'm not as carefree as my sister was, but I did something of the sort a couple of times in my life too. Once, I quit my steady job to be an "independent Newton software developer". Another time, when my dot-com tanked, I took 6 months or so off and worked as an "extra" in the filming of the Matrix sequels (I drove a car on the freeway in Matrix 2) and in various commercials rather than try to find a "real" job right away. Both times that I did this - took a sort of unofficial sabbattical - my declared income for the year plummetted below what it had been and bounced right back when the experiment was over. Both times, it was a hugely enjoyable and valuable experience.

Posted by: Glen Raphael on June 9, 2004 10:48 AM

____

Middle class people have credit cards. One of the ways they survive bad times is to run up credit card debt and go bankrupt. Death, divorce, and disease are common reasons for this.

Posted by: walter willis on June 10, 2004 01:06 AM

____

Post a comment
















__