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  • "Real" Income

    Brink Linsdey attacks the notion that ordinary people today are no better off than ordinary people 35 years ago.

    The article.

    And the book.

    "The second highlight of the Pew report on economic mobility is the finding that, for men in their thirties, median income has fallen slightly between 1974 and 2004. The implication is that American men today are doing worse than their fathers.

    The most obvious problem with this analysis is that it doesn’t appear to control for the big demographic shift that’s occurred over the past 30 years. Specifically, the share of the total population born in foreign countries has jumped from 5 percent in 1974 to 12 percent in 2004. Relatedly, people of Hispanic origin have climbed from 5 percent of the population in 1974 to 14 percent in 2004.

    The huge wave of Hispanic immigration over the past generation has been good for the immigrants and their families, and good for the country as a whole. But this big influx of relatively low-skilled immigrants has to have depressed median income compared to what it otherwise would have been. Unfortunately, I’m not aware of good studies that quantify the effect.

    But there is a much deeper problem, I think, than the comparison of demographic apples and oranges. And that is the comparison of purchasing power apples and oranges.

    The issue here is the one of calculating “real income” in constant dollars. The problems associated with such calculations are usually framed in terms of correcting for inflation — i.e., for changes in the overall price level. But a far bigger problem, especially when you are comparing incomes over relatively long time periods, is that an increasingly major component of purchasing power in the later time consists of the power to purchase goods that weren’t available at any price in the earlier time.

    (...full article)"
    A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

    "$250,000 a year won't get me to Central Park West."

  • #2
    Re: "Real" Income

    I think this is the book I saw the author promoting on the daily show a few weeks ago. The main point he made in that interview was that modern political clashes are really just small details magnified because there are no big, fundamental things to argue about any more.

    The part you have quoted would seem to be part of the preface to this argument. Personally, I don't need much convincing that people are better off today than 10, 20 or 30 years ago.
    Last edited by RandomGuy; 05-31-2007, 02:59 PM. Reason: grammar

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    • #3
      Re: "Real" Income

      The point the author of the article makes is just as silly as those that only look at the raw numbers. Having more stuff does not equate to a better life. 500 TV channels does not make my life better. In fact it could be argued that it makes it worse. These gizmo's and new services weakens the earning power even more. Maybe personal saving and retirement plans would increase if these things never became available?

      It also disregards the increasing gap between the rich and the middle class/poor. That gap is noticed and it does affect peoples perception of how prosperous this country is. It is a real phenomenon and cannot be ignored.
      I’m not racists, I have republican friends. Radio show host.
      - "The essence of tyranny is the denial of complexity". -Jacob Burkhardt
      - "A foolish consistency is the hobgoblin of little minds" - Emerson
      - "People should not be afraid of it's government, government should be afraid of it's People." - Line from V for Vendetta
      - If software were as unreliable as economic theory, there wouldn't be a plane made of anything other than paper that could get off the ground. Jim Fawcette
      - "Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving." -Friedrich Hayek
      - "Don't waist your time on me your already the voice inside my head." Blink 182 to my wife

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      • #4
        Re: "Real" Income

        So, because we have more stuff, we are less prosperous? I'm not quite sure I follow.

        Certainly more stuff does not always equal more happiness. But no one ever proposed that less stuff equals happiness either. More stuff is one of many factors that can contribute to happiness, and by virtually all measures, we have far more stuff now than 30 years ago. Ergo, we are more prosperous, even if people still find plenty of ways to be unhappy.

        Comment


        • #5
          Re: "Real" Income

          Originally posted by Kerostasis View Post
          So, because we have more stuff, we are less prosperous? I'm not quite sure I follow.

          Certainly more stuff does not always equal more happiness. But no one ever proposed that less stuff equals happiness either. More stuff is one of many factors that can contribute to happiness, and by virtually all measures, we have far more stuff now than 30 years ago. Ergo, we are more prosperous, even if people still find plenty of ways to be unhappy.
          I was thinking of prosperous in line with.

          Originally posted by Webster
          Main Entry: pros·per·ous
          Pronunciation: 'präs-p(&-)r&s
          Function: adjective
          Etymology: Middle English, from Medieval Latin prosperosus, from Latin prosperus
          1 : AUSPICIOUS, FAVORABLE
          2 a : marked by success or economic well-being b : enjoying vigorous and healthy growth : FLOURISHING
          - pros·per·ous·ly adverb
          - pros·per·ous·ness noun
          Also prosperity with regard to the individual.

          So with this definition more stuff <> prosperity.

          *Edit. Specifically "more stuff is neither sufficient nor required for prosperity". At best it can be correlated.
          I’m not racists, I have republican friends. Radio show host.
          - "The essence of tyranny is the denial of complexity". -Jacob Burkhardt
          - "A foolish consistency is the hobgoblin of little minds" - Emerson
          - "People should not be afraid of it's government, government should be afraid of it's People." - Line from V for Vendetta
          - If software were as unreliable as economic theory, there wouldn't be a plane made of anything other than paper that could get off the ground. Jim Fawcette
          - "Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving." -Friedrich Hayek
          - "Don't waist your time on me your already the voice inside my head." Blink 182 to my wife

          Comment


          • #6
            Re: &quot;Real&quot; Income

            Originally posted by xTYBALTx View Post
            The huge wave of Hispanic immigration over the past generation has been good for the immigrants and their families, and good for the country as a whole. But this big influx of relatively low-skilled immigrants has to have depressed median income compared to what it otherwise would have been. Unfortunately, I’m not aware of good studies that quantify the effect.
            First of all, if he has no data to back up this particular analysis, he shouldn't make the claim, unless he himself has a "political axe to grind." Immigration doesn't spontaneously lower income levels any more than the presence of minorities lowers property values. If there is in fact a steady depressing of lower and middle income pay scales, then that's just another example of widening income inequality in this country. Adding immigrants (particulalry illegals) does not create new low-paying jobs out of thin air, it merely allows employers to unethically pay less for the same work.

            Also, did the estimate for real income stagnation include just taxable reported income, or did it take into account the vast unreported wages of illegals and other workers? Knowing that plays a big part in his take on immigration affecting the numbers.

            The issue here is the one of calculating “real income” in constant dollars. The problems associated with such calculations are usually framed in terms of correcting for inflation — i.e., for changes in the overall price level. But a far bigger problem, especially when you are comparing incomes over relatively long time periods, is that an increasingly major component of purchasing power in the later time consists of the power to purchase goods that weren’t available at any price in the earlier time.
            I agree with Gringo that this is a weak argument. It sounds a lot like "rising tide" apologism for income inequality. "Hey, we have the Internet and Viagra now, so why are you complaining just because your boss now makes 500 times what you do, instead of 20?" While I do think that the increase in available material goods effects how we define standards of living, the questions we should be asking are things like, "What proportion of our incomes are going towards luxury items, and what proportions are going to necessities?"

            "Do we require more material 'necessities' to keep up in the new economy?"

            "Do our incomes currently keep pace with our expenditures on said necessities?"

            And the big question -

            "If the economy is a degree of magnitude larger than it was in 1930 or even 1970, why isn't my paycheck larger. Especially when that executive's paycheck IS?"

            I do agree with one thing the author says - you can't meaningfully judge whether or not the median income is stagnant based on simply adjusting for inflation. Inflation figures don't take into account costs such as healthcare/insurance, fuel, or real estate. These are arguably things that will make up a significant portion of your lifetime budget and cannot be ignored as a factor in quality of life.
            In game handle: Steel Scion
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            • #7
              Re: &quot;Real&quot; Income

              Originally posted by El_Gringo_Grande View Post
              I was thinking of prosperous in line with.



              Also prosperity with regard to the individual.

              So with this definition more stuff <> prosperity.

              *Edit. Specifically "more stuff is neither sufficient nor required for prosperity". At best it can be correlated.
              Your definition 2a is the one most commonly used in modern English. And that definition correlates very strongly with increased availability of material goods. If our economy produces more stuff, and we buy more stuff, then we are more prosperous.

              But more on topic: The cost of living today isn't much higher than it was 30 years ago, at least not by the standard that inflation figures would suggest. Cost of living is higher primarily because we expect to have a higher standard of living than people did 30 years ago, and that higher standard of living costs money. If you were content to live on the average standard of living from 30 years ago, you could do it very cheaply. But aside from people so broke that they don't have a choice, people aren't content with that lifestyle anymore. They demand more, and they get more.

              So where's the argument that we are poorer now than 30 years ago? Is it just based on the perception that someone else is getting richer than you are? Thats a very unhealthy way to look at life. Say for the sake of example, you work at a job where you get paid $10 and your boss gets paid $30. After a while the business is making more money and everyone gets a big raise. You are now making $25, and your boss is making $150. Are you going to be happy with your 150% raise, or are you going to complain because the boss got a 400% raise? Are you going to happy you can afford a bigger house, or are you going to complain that your mortgage payments are higher now that you bought a house twice as big as you used to have? If you want a boss's salary, then you'd better figure out how to become a boss. But if you're gonna sit there being an employee, then be happy that your making more than twice what you used to make.

              Comment


              • #8
                Re: &quot;Real&quot; Income

                I was alive 30 years ago. At that time you could buy a gallon of regular gasoline for about 65 cents. A pack of cigs was about 45 cents. A loaf of bread was about 60 cents. A can of soda was 25 cents. A new home was about $35,000 here in Minnesota. A new family sedan was about $5000. A six pack of beer was about 2 bucks. A gallon of milk was about 85 cents. A Mcdonald's hamburger was 35 cents and a small drink was 25 cents.

                If you worked in construction you made about $10 an hour union, about $6.00 non union. Babysitters made 50 cents an hour. An experienced mechanic made about $5 an hour. Unemployment was fairly high as the economy was still reeling from the oil embargo and gasoline had gone from about 25-30 cents to over 60. I was in high school and worked for $2.45 an hour at a fast food restaurant.

                Now a gallon of gas is $3.30 an increase of 500%.
                A pack of cigs is over $4 I think, an increase of 900%.
                That new house is now about $225,000 here an increase of 640%.
                Soda is $.75 an increase of only 300%.
                The car is about $25,000, up 500%.
                Beer is about $6, for an increase of 300%.
                Milk is $4, up about 470%.
                The burger is a dollar, up 300%.
                The drink is a buck too up 400%.

                The construction worker makes around $22-25, up about 250%.
                The mechanic makes about $20, up about 400%.
                The fast food worker makes about $6.50 up about 265%.
                The babysitter makes around $5 an hour, up almost 1000%.

                Bottom line, unless you are a babysitter you are probably not keeping up with inflation doing what you are doing, getting those 3% raises every year. Who do we thank for this? Not sure, because NAFTA was a huge "bipartisan" victory. The next time you hear about us "competing in the global economy" think about the factory worker in Mexico that is doing the job your neighbor used to do, making $9.00 a day with no benefits.

                Comment


                • #9
                  Re: &quot;Real&quot; Income

                  Originally posted by Kerostasis View Post
                  If our economy produces more stuff, and we buy more stuff, then we are more prosperous.
                  what if ppl just buy more stuff by using their cc and can buy more stuff because they have higher cc limits? does that mean we are more prosperous even though we have more stuff but more debt?

                  Comment


                  • #10
                    Re: &quot;Real&quot; Income

                    Originally posted by Judge_Leo View Post
                    A pack of cigs is over $4 I think, an increase of 900%.
                    That new house is now about $225,000 here an increase of 640%.
                    Soda is $.75 an increase of only 300%.
                    The car is about $25,000, up 500%.
                    The price of cigs has nothing to do with inflation and everything to do with punitive tobacco taxes. The government makes far more money off tobacco than the actual tobacco companies do.

                    That new house is 2 to 3 times as big as the old one, giving a real inflation rate closer to 2 or 3 hundred percent, not 6 hundred. Thats slower than your stated wage growth.

                    I can still get a can of soda for 30 cents as long as I buy them at the grocery store instead of a restaurant. That yields inflation of 50% or less.

                    You can get a new car for $10-12 thousand if you look, not to mention cars today have a dozen different features which were not available on cars 30 years ago. A/C anyone?

                    In short: selective statistics can "prove" whatever you want them to.

                    Comment


                    • #11
                      Re: &quot;Real&quot; Income

                      You lot should try buying a house in California...
                      Do or do not, there is no try....
                      -- Yoda, Dagobah

                      Comment


                      • #12
                        Re: &quot;Real&quot; Income

                        Originally posted by Judge_Leo View Post
                        I was alive 30 years ago. At that time you could buy a gallon of regular gasoline for about 65 cents. A pack of cigs was about 45 cents. A loaf of bread was about 60 cents. A can of soda was 25 cents. A new home was about $35,000 here in Minnesota. A new family sedan was about $5000. A six pack of beer was about 2 bucks. A gallon of milk was about 85 cents. A Mcdonald's hamburger was 35 cents and a small drink was 25 cents.

                        If you worked in construction you made about $10 an hour union, about $6.00 non union. Babysitters made 50 cents an hour. An experienced mechanic made about $5 an hour. Unemployment was fairly high as the economy was still reeling from the oil embargo and gasoline had gone from about 25-30 cents to over 60. I was in high school and worked for $2.45 an hour at a fast food restaurant.

                        Now a gallon of gas is $3.30 an increase of 500%.
                        A pack of cigs is over $4 I think, an increase of 900%.
                        That new house is now about $225,000 here an increase of 640%.
                        Soda is $.75 an increase of only 300%.
                        The car is about $25,000, up 500%.
                        Beer is about $6, for an increase of 300%.
                        Milk is $4, up about 470%.
                        The burger is a dollar, up 300%.
                        The drink is a buck too up 400%.

                        The construction worker makes around $22-25, up about 250%.
                        The mechanic makes about $20, up about 400%.
                        The fast food worker makes about $6.50 up about 265%.
                        The babysitter makes around $5 an hour, up almost 1000%.

                        Bottom line, unless you are a babysitter you are probably not keeping up with inflation doing what you are doing, getting those 3% raises every year. Who do we thank for this? Not sure, because NAFTA was a huge "bipartisan" victory. The next time you hear about us "competing in the global economy" think about the factory worker in Mexico that is doing the job your neighbor used to do, making $9.00 a day with no benefits.
                        Excellent post.

                        The argument you make is precisely the one which the author attempts to refute: that people today make no more money than 30 years ago. The author's refutation centers on the fact that a 2007 car is far superior to a 1970 car. And that a new 2007 house is far superior to a 1970 car; the author argues, amongst other things, that the "average" or "median" consumer items of today are far superior to the average or median consumer items of 1970.
                        A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

                        "$250,000 a year won't get me to Central Park West."

                        Comment


                        • #13
                          Re: &quot;Real&quot; Income

                          I lived in California for a few years. That was fun. We bought a very roomy house (I think around 2800 Sq ft) for about $208,000 and held on to it for 3 years. Then we sold it for $380,000 and moved to Florida, and the profit was enough that we didn't even have to take out a mortgage for the new house. We just bought it outright. :)

                          Comment


                          • #14
                            Re: &quot;Real&quot; Income

                            The surgeon makes about $200,000/year, up around 2%.

                            It's not like they're hurting with that kind of salary, but physicians are getting screwed significantly for the amount of skill and education required for their field. Keep in mind that living comfortably today is about living in debt. Unless you have a six figure income, luxuries involve debt spending. The banks are all too thrilled with credit cards and home equity loans.

                            Increased living costs are also related to an increased demand for a higher quality of living. Safety, environmental considerations, advanced technologies, and labor laws have driven up both the quality and the cost of everyday items. 30 years ago, manufacturing, agriculture, and general industry focused on the cheapest alternatives. Today, corporations adhere to much stricter regulations. Although the cost of an automobile, for example, has skyrocketed, it is far safer, more comfortable, and more fuel efficient than anything produced in the past.

                            Location is also a major factor. While it may be nearly impossible to live well in Tokyo, even as a skilled worker, rural America offers relative luxury and affordable amenities.

                            Comment


                            • #15
                              Re: &quot;Real&quot; Income

                              Originally posted by Aspie View Post
                              While it may be nearly impossible to live well in Tokyo, even as a skilled worker, rural America offers relative luxury and affordable amenities.
                              Are you saying that people in Tokyo don't "live well"?
                              A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

                              "$250,000 a year won't get me to Central Park West."

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