The Great Reset (free Facebook won’t make up for this)

by on September 17, 2013 at 3:26 pm in Current Affairs, Data Source, Economics | Permalink

In 2012, real median household income was 8.3% lower than in 2007, the year before the most recent recession.

Here is the link.  There are further details here, which notes that the median family income was higher in 1989.  Ryan Avent has some good charts.

michael September 17, 2013 at 3:58 pm

but how have household compositions changed?

aren’t there many more single-parent households, which are at an inherent disadvantage with regard to earning power?

Tyler Cowen September 17, 2013 at 4:52 pm

Data for individual male laborers do not tell a very different story. A lot of the gains we have had come from more women working.

BC September 17, 2013 at 6:18 pm

I’m not sure how this answers Michael’s question. If you have more, smaller households headed by single women, then (a) it would be a good thing that women are earning more than before and (b) one could have both stagnant household income and increasing per-capita income. One can’t really compare (a) one male earner’s income supporting 1 4.2-person household with (b) one male earner’s and one female earner’s income supporting 3.9 people living in 2 households. On a per household basis (b) can look smaller than (a) because a second and smaller income is supporting a second household, e.g., (b) might correspond to 1.7x income compared to (a) but divided by 2x households. However, the 3.9-person family in (b) might be economically better off than in (a) since there is 1.7 times the income supporting slightly fewer people. (Admittedly, cost-of-living may be higher due to second household, but that is still additional consumption and, in any event, it’s ambiguous as to whether (a) or (b) is economically better off.) This does not even account for possible increases in childless households. Conversely, if college graduates move back in with their parents or seniors move in with their children, then household income goes up, but is that an improvement? Households is the wrong unit.

BC September 17, 2013 at 7:21 pm

I guess another effect is that, if a disproportionate number of divorces occur among lower-income households, then that increases the proportion of lower-income households, pulling median household income down. See [http://cafehayek.com/2012/02/inequality-and-stagnation.html]. (Within that blog post, there is also a link to another blog post in which Tyler and Russ Roberts hash out some of the issues around household income.

Ricardo September 17, 2013 at 10:38 pm

“Households is the wrong unit.”

No, what unit you use depends on the question you are asking. Most Americans are still very much interested in the idea of marrying, having children and living as a household. Household income is very relevant to this desire because it will tell the median couple that is interested in sending their children to a good school and maybe even to college how many children they can afford to have. It is possible to find median income statistics broken down by type of household (e.g. married or single, how many children, etc.) and those statistics tell a similar story. In fact, you can slice and dice the data dozens of ways and you will still not get the sort of steady growth in median incomes that existed 1950-1980.

Thomas September 18, 2013 at 12:26 am

If you marry and have children, you will be counted as a family and as a household. If you get an apartment on your own at 19, you’re a household. Household income isn’t a particularly useful way of getting at what families (in the sense we have both used) are experiencing.

Ricardo September 18, 2013 at 1:44 am

Thomas, again, you can find median income numbers broken down by size and type of household over time precisely to distinguish single 19-year-olds from married couples with children. They do not change the underlying story much at all. See:

http://www.census.gov/hhes/www/income/data/historical/household/
http://www.census.gov/hhes/www/income/data/historical/families/
http://www.census.gov/hhes/www/income/data/historical/people/

What happens in these debates is that some people simply cannot bear the thought that incomes for a large percentage of Americans are stagnant and so try to introduce all sorts of red herrings into the discussion without actually doing the basic research required to see that the stagnationists are basically correct on just about any relevant measure you care to use. To pick one example, let’s look at white married-couple families to move past any concerns about single moms or poor, non-white immigrants skewing the results downward. You can find this in Census Table F-7. You will note that white married-couple families where the wife does not work have experienced almost complete stagnation in real income. Real income among this group was slightly higher in the 1970s than it was in 2007 (the peak over the past 10 years). I challenge you to look at any number of measures and you will see that the gains made in overall family or household income are almost entirely due to more women entering the labor force and earning only slightly higher wages. If you focus solely on per capita income, you miss the fact that people may be marrying less and having fewer children as a consequence of the stagnation in male wages and the need many women feel to work longer hours.

BC September 18, 2013 at 6:32 am

Table P-1 shows the standard, plain vanilla income per capita, which basically follows an upward trend from 1967 to 2000 over which per capita income basically doubles. That seems consistent with 2-3% growth in real incomes, which would imply doubling every 23-35 years. Income has indeed been basically stagnant from 2000-2012, actually declining.

I know some people object to looking at average rather than median income. Table P-7 shows median (person, not household) and mean income for people over 14-15 years from 1974-2012. Graphing median income allows one to see that it declined from 1974-1981, grew from 1981 to 2007, and has declined from 2007 to present. Over 1981 to 2007, median income increased by about 40%.

So, the average person’s economic well being has been improving until 2000, and the median adult’s economic well being was steadily improving throughout the 80s, 90s, and oughts through 2007. There were declines in the late 70s and since 2007. I have no doubt that one can tell a different story by grouping people into various sub-groups, households, households led by left-handed women with right-handed children, etc.

Anonymous coward September 17, 2013 at 4:53 pm

+1. Graphs and studies which don’t take into account changes in household composition are worthless.

Paul September 17, 2013 at 4:54 pm

Had the same thought but doesn’t seem to be the driving factor, see here: http://www.census.gov/compendia/statab/2012/tables/12s0061.pdf

Bigger question: what has the trend been in real AFTER TAX median household income been? Maybe the same, maybe not, but have to think take home pay (rather than pre-tax income) is a far more accurate assessment of what households are making.

JWatts September 17, 2013 at 7:38 pm

Bigger question: what has the trend been in real AFTER TAX median household income been?

An even Bigger question: What has the trend been After Tax and After Government transfer payments? If they aren’t factoring in Government transfer payments, then the numbers are significantly off.

Emily September 17, 2013 at 5:00 pm

It’s median income, which is not going to be highly sensitive to that, and we’re only talking about the last 5 years. But they provide some data broken down by type of household, so you could look only at specific household types and see if income is still going down.

George September 17, 2013 at 5:09 pm

So if median income is down since 1989 the median family must be consuming less than they were in 1989, right? That’s the definition of “real income”. So what are we consuming less of? Are our houses smaller? No. Do we own fewer vehicles on average? No. Are our vehicles of lower quality? No, they’re far more comfortable, safe and efficient. Are we eating out less, taking fewer vacations? Has the median household become more or less likely to send their kids to college since 1989? Studies like this have become so ubiquitous that nobody ever stops to think about this anymore. But all these studies prove is that measuring inflation over long time periods is basically impossible because quality changes and changes in the composition of consumption overwhelm price changes. And if you can’t properly measure how much prices have changed you can’t measure real income.

BC September 17, 2013 at 6:33 pm

The median family could also be smaller or living in 2 households due to divorce, or 2 median families could be living in 3 households (1 Brady Bunch household and 2 ex’s living as singles). That could also explain why living standards have clearly gone up even though per-household income stats have not.

Harold Lloyd September 17, 2013 at 6:45 pm
Benny Lava September 17, 2013 at 7:04 pm

People cut back in consuming the most costly item a household can have:

http://money.cnn.com/2013/09/06/news/economy/birth-rate-low/index.html

Urso September 18, 2013 at 1:26 pm

In a certain light, that reflects a shift from investment spending into consumption spending.

Brian Donohue September 17, 2013 at 8:37 pm

Well said. Satchell Paige used to say “How old would you be if you didn’t know how old you was?”

Nowadays, how do we know how poor we are until these reports come around and tell us?

Bob Knaus September 17, 2013 at 9:30 pm

You’re arguing that income, measured numerically, has little meaning over the long run. You may find economists resistive to this notion :-)

Gabe September 17, 2013 at 10:34 pm

Debt has gone up. Middle and lower classes will all be slaves to bankers in another couple generations, which has been the main goal for awhile now.

Brian Donohue September 18, 2013 at 8:26 am

Great story. The evil puppetmasters will no doubt find the following trend discouraging:

http://en.wikipedia.org/wiki/File:U.S._Household_Debt_Relative_to_Disposable_Income_and_GDP.png

Now, if you’re REALLY worried about debt and enslavement: http://www.usdebtclock.org/

I’m thinking of a $17 trillion party this fall- come dressed in chains!

Frederic Mari September 18, 2013 at 3:58 am

Quite apart from the various answers you’ve received before me, I also think it is cheating to try and hide behind technological progress… The fact that we got more stuff is nice but it does not mean we should accept stagnating wages. Besides which, we did lose some stuff (affordable health-care, free higher education, job safety… along the way).

As I mentioned before, Louis the XIV couldn’t have a computer even if he was the Sun King. Nowadays, almost anyone can have a computer. That doesn’t mean that almost anyone is richer than Louis the XIV…

http://theredbanker.blogspot.com/2013/06/why-elysium-is-not-best-rich-can-do.html

So… how does the already-rich, who are benefiting immensely from the status-quo, would benefit even more from a more egalitarian, more socially mobile society?

In two words: Technological advances.

Brian Donohue September 18, 2013 at 8:12 am

Are you asking for health care circa 1989? I think it’s different now.

Frederic Mari September 18, 2013 at 9:46 am

Sorry, maybe I am being thick, but I do not see how this post relates to mine?

BTW, another post on a similar topic, except it was Donald Boudreaux and Mark Perry saying that stagnating wages were a myth: http://theredbanker.blogspot.com/2013/01/stagnation-in-eye-of-beholder.html

Pete September 18, 2013 at 5:54 am

The value of houses, and sometimes rent, has gone down: lower consumption. “Miles driven” has gone down. “Cars purchased” has gone down, so the average age of the cars being driven has gone up slightly.

Urso September 18, 2013 at 1:28 pm

““Cars purchased” has gone down, so the average age of the cars being driven has gone up slightly.”

Doesn’t this fact actually cut in the other direction?

Marie September 18, 2013 at 10:46 pm

My house is smaller — 2900 to 1600 square feet, and no more garage. Own one less car, will own two less (and have only one) if the one about to break breaks. One of our vehicles, the breaking one, is lower quality because we’ve been driving it for two years instead of it being our backup vehicle. We are eating out far less, and taking no vacations. We’ll probably send our kids to college, but don’t consider at all expensive private ones.

I know lots of people like us. You don’t?

KenF September 17, 2013 at 5:42 pm

It’s obviously a problem of too high taxes on rich people. They just need lower taxes so they have more incentive to be more productive. That will surely solve the problem.

Doug September 17, 2013 at 7:08 pm

It’s obviously a problem of too low taxes on rich people. If only we spent more money on exorbitant pensions for unionized government administrators, unlimited healthcare of dubious efficacy for seniors and widespread electronic surveillance in the name of anti-terrorism. Well then surely that would magically reverse long-term secular shifts in the economy. How all of this would help the median private sector worker is completely unjustified by logic or evidence, but trust us.

See, the other side can play “mood affiliation” too.

Skip Intro September 17, 2013 at 7:37 pm

I suspect your sarcasm meter might need tweaking.

Careless September 17, 2013 at 8:02 pm

It appears to have been perfectly calibrated.

GuyS September 17, 2013 at 6:11 pm

Household composition adjusted data from the Census Bureau can be found on pgs 16-17 in this document: http://www.census.gov/newsroom/releases/pdf/20130917_ip_slides_with_plotpoints.pdf

This has been a total wipeout of income potential for the lowest quintile households in the US.

Doug September 17, 2013 at 7:15 pm

I see nothing about income potential specifically in those slides, only average household income. A large share of the drop in low-quintile labor is due to a large drop in their labor force participation rate. It’s not so much a question of unskilled labor not earning enough money at work, but unskilled labor choosing not to work at all.

Occam’s razor would suggest that means tested subsidies to low income households would greatly disincentive those with already low income potential from working in the first place. Welfare spending accounts for $60,000 per year per person under the poverty line. If your income potential is near the poverty line and you game the system correctly you can make $2-3 in government benefits for every $1 you forego from working.

http://www.weeklystandard.com/blogs/over-60000-welfare-spentper-household-poverty_657889.html

KLO September 17, 2013 at 9:11 pm

A distortion of a distortion. The highly dubious “fact” to which you link is based on spending per household, not spending per person as you claim.

Thomas September 18, 2013 at 12:30 am

Given the demographic realities, it isn’t much of an exaggeration to say that it’s per adult.

BC September 17, 2013 at 7:50 pm

Slide 15 shows the poverty rate from 1959 to present. It declined significantly from 1959 to 1964-1966 or so, when we started our War on Poverty. Since the start of the War on Poverty, the poverty rate has fluctuated between 10-15%, but has not seemed to have any downward trend. Is that because the War on Poverty basically had no effect (other than perhaps to stop the pre-War decline in poverty that was already happening) or has the definition of poverty changed over the years so that poverty in 2012 is different from poverty in 1965?

Andrew' September 18, 2013 at 5:13 am

Poverty must have adopted guerrilla tactics.

Mogden September 17, 2013 at 7:25 pm

Corrected for non-wage benefits? Corrected for after-tax effects? Corrected for changes in household makeup? There are probably hundreds of different ways to skew the results. Just choose the set of facts that justifies your priors, and away you go.

mjaz September 17, 2013 at 9:58 pm

So if this (http://www.nbcnews.com/health/health-insurance-now-costs-16-000-average-family-6C10960584) is to be believed, the average family’s insurance is $16,000 a year. This (http://news.ehealthinsurance.com/news/how-much-does-health-insurance-218305) article makes it out to be more like $5k a year which seems more believable but still. If these are paid by employers (who are obviously not paying quite that between quantity discounts and tax breaks), the total compensation has likely climbed considerably.

Does that mean the median earning family is better off? Not necessarily, but to properly answer this we should be looking at a lot more… what that perfect measure would be, I’m not sure but this just doesn’t tell us as much as we want it to.

Turkey Vulture September 18, 2013 at 12:24 am

As a single data point, the yearly premium for whichever category my employer is in will be about $18k over the next year for an HMO Blue Family Plan in Massachusetts.

Jar Jar Binks September 18, 2013 at 12:37 am

In this vein, I’ve heard that compensation has increased over time, but that take-home-pay has stagnated because of costs associated with health care.

kebko September 17, 2013 at 9:59 pm

I disaggregated some of the basic data:

http://idiosyncraticwhisk.blogspot.com/2013/09/median-incomes.html

The mystery, to me, is: with non-cash benefits becoming an increasing portion of compensation, why is so much of the stagnation coming from having fewer earners per household? You would think that the median household would prefer to add a second income that consisted more of cash. But, instead, we are seeing an increasing number of no or one earner households. The number of non-earners per household is about the same as it was 25 years ago, but the number of earners per household appears to be in a secular decline.

The Anti-Gnostic September 17, 2013 at 10:51 pm

Probably because they realize the lower of the two incomes is just working to pay the taxes and the children’s daycare.

Thomas September 18, 2013 at 12:32 am

If people increasingly form one-person households–because they can afford to–doesn’t that explain it?

kebko September 18, 2013 at 12:43 am

I updated the post I reference above. The drag on median incomes is largely the result of fewer earners per household. I added a chart showing the relationship between 65+ households and “No Earner” households.
65+ households will continue to grow for another 15 years or so. I expect these median household income figures to continue to lag as a result.
I really wish pundits would get in the habit of adjusting for demographics. With millions of baby boomers making a regime shift from the highest earning period of their lives to being retired, living off of savings and social security, these statistics are very unreliable without accounting for it.

Alan September 17, 2013 at 10:25 pm

Many commenters here are saying “Yeah, but what is really happening… ” Why? Are you worried some people might think declining living standards are a feature, not a bug?

Marie September 18, 2013 at 10:52 pm

I read these comments thread and am pretty astonished — it’s like most of the people here are surprised at the idea that times are rough and when there’s some study showing it they want to explain it away. Weird.

liberalarts September 17, 2013 at 10:42 pm

At the end of the day, is this Samuelson’s Factor Price Equalization theorem at work?

Willitts September 18, 2013 at 2:08 am

Yeah, because the majority of jobs we’ve added in the past five years have been below the prior median – duh!

This is not necessarily a bad thing; wages are resetting lower in order to eliminate unemployment. Also, low wage jobs in retail and restaurants are returning, a sign of growing confidence.

Andrew' September 18, 2013 at 5:16 am

Obviously we just need more divorces and unplanned children. So whatever we’ve been doing for marriage do it even more.

Andrew' September 18, 2013 at 5:19 am

Well, ironically, housing should be cheaper.

Sal September 18, 2013 at 9:36 am

American absorbed way too many immigrants during the cheap-credit-driven boom years who have nothing to provide in the emerging automated economy.

http://maruta.be/revafinland/5 October 17, 2013 at 8:59 am

The Great Reset (free Facebook won’t make up for this)

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