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June 13, 2005
Deja Vu
The Trunk and I got our start in pundrity rebutting liberal critiques of the economy of the 1980s. The Democrats, frustrated by the fact that the Reagan administration's policies had restored American economic dominance by slashing inflation and unemployment rates, resorted to income inequality as the basis of their critisism. The data in our article "The Truth About Income Inequality" need to be updated, but the concepts are all there, and what we wrote ten years ago is equally applicable today.
Once again, the Democrats are unable to criticize the economy on the usual grounds, and therefore must fall back on inequality, as Paul Krugman did in the column that appeared in the New York TImes on Friday. As usual, Krugman is hysterical. He writes, "The middle-class society I grew up in no longer exists," "Working families have seen little if any progress over the past 30 years," and "economic security is a thing of the past." Republicans are the chief demons: "Since 1980 in particular, U.S. government policies have consistently favored the wealthy at the expense of working families - and under the current administration, that favoritism has become extreme and relentless." And, as always, those who disagree with Krugman come in for insults, not factual rebuttal: "right-wing partisans try...to discredit anyone who tries to explain to the public what's going on"--that would be Krugman, I suppose; conservatives rely on "shaping, slicing and selectively presenting data in an attempt to mislead," and further engage in "scare tactics" and "name calling." As to scare tactics, I can't recall any conservatives claiming that middle class society no longer exists, or that economic security is extinct. And Krugman's reference to slicing and dicing data is an implicit rebuke to the Times' own Public Editor Daniel Okrent, who criticized Krugman for "the unfair use of statistics, the misleading representation of opposing positions, and the conscious withholding of contrary data."
Underlying the invective, of course, one would usually expect to find some facts. Normally if one were to proclaim the extinction of the middle class--a surprise to the 80% or more of Americans who inhabit it--one would look for some solid data to back up the claim. But Krugman has no such data. His column is almost fact free. Here is the sole statistical basis for his proclamation of the end of economic security:
Adjusted for inflation, the income of the median family doubled between 1947 and 1973. But it rose only 22 percent from 1973 to 2003, and much of that gain was the result of wives' entering the paid labor force or working longer hours, not rising wages.
Troglodyte that he is, Krugman doesn't link to his sources, so it's up to us to track down the data he refers to. In this case, it wasn't hard: he's relying on the historical Census Bureau data on family incomes. His 22% calculation is correct for "all families."
Of course, that's partly an artifact of the dates Krugman arbitrarily chooses. 1973 represented a business cycle peak, while in 2003 the economy was coming off a recession. Competent economists do not do peak-to-trough comparisons. If, to take an example skewed in the opposite direction, we compare median family income in 1982 with the 2000 figure, the growth is 27%, not 22%.
But that's a relatively minor point. Here is a more fundamental problem with Krugman's calculation. When we compare "family income" figures over time, the figures are distorted by the fact that over the past three decades, families have fragmented. There are far more single-parent families now than in the early 1970s. Single-parent families generally have lower incomes than two-parent families, so this trend has depressed family income. If we factor out this demographic change, we find strong and steady income growth. Thus, the Census Bureau data show that for the category "Married-Couple Families," median income went from $46,723 in 1973 to $62,281 in 2003. (All numbers are in constant 2003 dollars.) That's a hefty 33% increase in real income. Meanwhile, incomes of families headed by either a man or a woman increased by 23.4%. But since there was a considerably greater proportion of such families in 2003 than in 1973, the aggregate increase on a "per family" basis was dragged down to 22%. (If you don't think that's possible, do the math.)
This is a solid record of income growth. But Krugman tries to minimize it by comparing the misleading 22% figure to alleged data for the average incomes of the top 1% and top .1% of Americans. There is a basic problem with this approach: the Census Bureau does not keep data on the top 1% or top .1% of families. So Krugman is getting these numbers somewhere else, meaning that he is comparing an apple and an orange. Worse, every calculation I have seen of incomes of the top 1% of wage earners has been a bogus partisan calculation, based on slicing and dicing IRS data. Since Krugman doesn't link to (or otherwise identify) his source for these numbers, there is no way to come up with a fair comparison to the Census Bureau data on median incomes.
As far as data go, that's it. Krugman doesn't offer another fact in support of his claim that middle class society no longer exists. The rest is pure hysteria. Krugman was once trained as an economist, but hardly a vestige of that training survives in his current work.
I can't resist this parting shot: Krugman writes darkly that "Since 1980 in particular, U.S. government policies have consistently favored the wealthy at the expense of working families..." Let's test Krugman's thesis by referring to his apparent gold standard, the Census Bureau's median family income data. Let's refer to the data for "Married Couple-Families" to avoid the demographic distortion described above. Here are the numbers: during the decade from 1970 to 1980, median income rose 13.4% in constant 2003 dollars. During the twenty years beginning in 1980, median income rose an average of 13.5% per decade. Which shows, I guess, how government policies devastated the middle class beginning in the last year of the Carter administration.
Deconstructing Democratic hysteria about "income inequality" promises to be just as much fun this time as it was ten years ago.
Posted by John at 10:44 PM
