Median expected change in family income

Putting TGS issues aside, this is one reason why many of us do not see today’s macroeconomic problems as exclusively cyclical:

For the pointer I thank @rortybomb.

Comments

Do you remember when you asked us about topics for future discussion?

This.

"How do you see the great stagnation ending for less productive members of society?"

Jail.

Free housing, food, and healthcare on the taxpayer's dime, the consumption of which is deterred not by fees, but primarily by numerous petty indignities and restrictions on your person? Sounds accurate.

In addition to the usual suspects, the less productive members of society includes most lawyers, federal regulators, university administrators, and humanities bachelors graduates.

Those poor bastards who put my iPhone together seem pretty productive, and what has that gotten them?

Many of you seem resigned to increasing transfers from more to less productive members of society. I agree, this is likely, but it doesn't speak to the long run story.

The human condition is the problem. A meritocracy, with all it's societal benefits, favours genetic lottery winners for their intelligence. Address intelligence and people will have a more equitable shot at improving their lot. The societal gain from widespread wholesale increases in intelligence will accrue to everyone, including those who chose to opt out.

Where do we stand today?

Only selective IVF implantation from a high-g male donor is available today to increase the odds of significantly more intelligent offspring. Matched donor eggs from a high-g female further increase those chances, but the whole endeavour isn't socially palatable.

Research interventions in the pipeline and on the market promise some increase in learning, memory, and intelligence. Modafinil appears to modestly increase the IQ of lower performing individuals (initial mean IQ=~100).

What's available to us in the near future?

Transcranial direct current stimulation (2 mA) increases the rate of learning in excess of two fold according to military research, how this equates to intelligence is not yet clear. tDCS devices can be assembled from simple electronic components today. Ampakines, a class of drugs shown to improve learning and memory, are also in development. An over-the-counter supplement, Creatine ethyl ester, appears to offer relatively large increases in IQ to meat-deprived vegetarians and vegans (i.e. already impaired individuals). Omnivores may see small but significant gains in IQ.

There is no known way of increasing intelligence >1 SD in the living, and nothing I'm aware of in development (publicly disclosed). It's doubtful we'll see anything before the end of this decade.

"A meritocracy, with all it’s societal benefits, favours genetic lottery winners for their intelligence."
Disagree - hard work matters.
Otherwise 200+ IQ people would have all the money.

The fact that all the money is not owned by people with the highest IQs shows there is more to success than IQ. But why assume that the difference is hard work? It could be a social network. It could be sheer geography. Maybe risk taking increases the variance of outcomes enough to muddle the graph.

Going straight for hard work is just being religious in your thinking. Get real data.

That's funny, because that graph looks like it was extraordinarily stable for the 25 years leading up to the recession.

Also funny because data does not show expectations after oil supply shocks of mid 1970's. I wonder what they were then?

This is a graph of nominal median expected change in family income. Over the past thirty years, inflation rates have gone from the double-digits to under 2 percent. If today's macroeconomic problems were exclusively cyclical, and wage growth had been roughly constant until a cyclical downturn in 2008, would this graph look any different?

It doesn't directly track inflation, but yes, I think that that's something to take into account. Inflation expectations have plunged since 2008.

I think the term "cyclical" misses the point entirely.

Can we confirm that this is in fact expected changes in nominal income? If so, it would be trivial to simply subtract inflation from these values and get something that is quite a bit flatter.

Also, expected changes in future income seems like a weird, not terribly precise macroeconomic indicator. Is there something these data show that tracking, say, actual changes in median income, doesn't? Or is this graph just cherry picking?

The wording of the question is: "During the next 12 months, do you expect your (family) income to be higher or lower than during the past year?" The followup asks by what percent.

There is another question which asks whether income is expected to increase more or less than prices over the next few years. Real income expectations also dropped in the recession.

Aren't these just expectations, though? What were the actual changes like? Are people good estimators of changes in their income?

Expectations can be pretty powerful. If households don't expect their income to increase, they may not spend more. Less spending could mean less job growth and smaller wage increases. Self fulfilling prophecy.

On average, the income expectations are related to actual income. It's not a perfect correspondence, but the expectations are tied to reality.

If I look at a plot of actual incomes, and do a mental differential process, it doesn't look well correlated with expectations:

http://bit.ly/Incomes_Actual

Maybe the inflation adjustment is the key.

What about this graph of median (real) income?http://blogs.reuters.com/felix-salmon/2011/10/10/chart-of-the-day-median-income-edition/ Still I am not asserting a correlation close to one, but rather an economically meaningful relationship.

I would not jump too quickly to a structural interpretation of the drop (there were some incredible shocks in this cycle), but I don't think this data can dismissed as survey hocus pocus.

I do side with the idea this depression is a structural economic change. However, I believe it is not a worker skills issue (as all sectors are slammed at once) but a supply shock of Chinese and India replacement of US workers. I worked in an office where the people replaced where not ZMP (OK a few were) but they could send to India for half the cost. The housing boom sort of hid this structural change.

However, as Chinese and India skilled wages are fast approaching US wages and our office employees do not feel the threat of Indian replacements as much. So the question will be whether:

1) India and China can avoid the middle income trap. (India short term no, long term yes.)

2) Whether the jobs come back to the US or some other country.

CR

This is a very odd post. Why does a low median expected change in family income indicate a non-cyclical problem with the economy? A high level of unemployment puts downward pressure on wages, and most people expect their nominal wages to increase very little (if at all) in the short run. That's completely consistent with the standard cyclical narrative; I have no idea why you're proposing it as a way to distinguish between "cyclical" and "structural" hypotheses.

Maybe the feature of the graph that you care about is the apparent long-term decline. In that case, you're simply misinterpreting it, because the graph indicates expectations of nominal income; indeed, the expected growth in income has fallen by _less_ than trend inflation has fallen, suggesting that expectations for the trajectory of real income have actually risen. In any case, I don't know why you ascribe any special significance to an imprecise survey item as opposed to, say, actual income measurement in the national accounts.

What's significant is not the direction (never reason from a price change) but the fact that the graph has flat-lined since 2008. That expectations appear to get stuck at the zero bound with no freedom to fall further (and no reason to rise) is compelling evidence that sticky wages are a large part of the unemployment problem.

What is the original source of this information?

Michigan Surveys of Consumers .... same survey that provides the Index of Consumer Sentiment http://www.sca.isr.umich.edu/

not exclusively, clearly, but given the nice illustration of downward nominal wage rigidity preventing market clearing, it's presumably also why 'some of you' think it's *primarily* cyclical, right?

I wonder what the chart looks like for the median expected income

of the top 1% for the same period.

Any guess on which way that chart is pointing?

Chart of Median Household Income Index (Sentier Research) is available at http://www.sentierresearch.com/Charts/HouseholdIncomeIndex_UnemploymentRate_04_2012.jpg
Looks pretty ugly to me.

huh. I wonder what happened around 2008 that caused that huge decrease in expectations?

What is expected median income? Expected by whom? Is that something that is traded on an exchange or is it a survey or what? I ask mainly because I could completely believe that Tyler has recorded his own personal expectations of macroeconomic variables at a daily frequency for the last twenty years.

Sorry, I don't get this post.

I know what median family income is. I don't know what expected median family income is. I've never heard of that data series.

Aha! The sticky problem is that we are stuck at the zero bound!

Median cash wages peaked in 1973 but median family incomes continued to increase because the fraction that had two earner increased and the second earner earned more. http://visualizingeconomics.com/2006/10/29/income-by-number-of-earners/#.T90_zbUV2gw

The number of cars per head in the US is falling at about two percent a year, similarly the amount of meat consumed. There is also a shift to cheaper cuts of meat.

This suggests that GDP is falling despite official statistics showing it is rising, the discrepancy being in the optimistic way inflation is calculated.

Perhaps the GDP numbers are fine, but the capita ones aren't?

Not sure what you are saying.

If people are buying fewer cars, owning fewer cars, eating less meat, and eating cheaper cuts of meat, they are poorer. Statistics say they are richer. Something is wrong with those statistics. Not sure how "per capita" could fix it. Inflation is a judgment call. Supposedly cars have become cheaper not because they have become cheaper, but because modern cars are so much much better than older cars that you get more car your money, even though you get considerably fewer cars for your money. I suggest that that judgment call is wrong, and indeed any statistic that rests on judgment calls likely to be wrong.

Probably the biggest pushback about the Great Stagnation on this blog was from people who believe that consumption is higher because of technology. So they would tell you that people are buying more music and cellphones and netflix movies and therefore consumption is higher, and therefore people are richer.

I myself don't buy it, but I thought that point of view should be out there.

GDP can be measured approximately as wages plus interest income plus rental income plus corporate profits. If wages stagnate but the others continue to rise, you could see certain types of consumer spending fall with GDP still rising.

The problem may not be with the GDP statistics. Rather, if you want to measure the living standard of the median American, you should do so directly rather than use a proxy like GDP per capita. Indeed, one of the main features of the U.S. economy in the past 30 years has been the decoupling between median wage growth and GDP per capita growth.

Which is a direct consequence of keysian economics.
In economics whatever variables are targeted will become less important. GDP was targeted, so now GDP is decoupling from median wage income.

This is what happens when food and energy prises rise.

More likely that reflects deleveraging after the disastrous housing debt bubble.

http://www.earth-policy.org/data_highlights/2012/highlights25

What does triglycine sulfate median family income?

What does triglycine sulfate have to do with median family income?

Looks like social mood to me. This is why Fed policy will fail no matter what happens: the public is literally depressed. To the extent psychology is even in the model, it probably assumes economic policy can affect mood, rather than the other way around: mood affects social policy. The policy makers do not even understand the environment they are creating policy in, which is why everything they do is bound to completely fail.

Yes, but some people are depressed because they realize there is literally no hope, the way things are going.
The future elite skill demands means that more and more people will become obsolete.
I personally expect the absolute worst possible future imaginable, but I'm sure many others will be doing fine for now.

Food and energy prices may be important for the median household that has an income of less than $50,000, but GDP gains are mostly concentrated elsewhere. So I am pretty sure that the tipping point between real GDP growth or contraction does not hinge on the cuts of meat people are buying.

Charts like this are one reason I've reluctantly come around to Scott Sumner's view on NGDPLT. Even during stagflation, people were getting richer faster. I think there are some as-yet-poorly-understood mechanisms at work there.

OTOH, I wonder if part of TGS is simply a flawed assumption that growth necessarily should be exponential rather than absolute. Ceteris paribus, it's probably harder to add $1K PPP GDP per capita to a economy that is twice as productive as an economy that added $500K PPP GDP per capita.

Great news...affordable wages!

What is "cyclical" about observing persistent failure of monetary policy to stabilize ngdp?

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