Thursday, October 30, 2008

Not As Bad We've Been Told

Reason's Steve Chapman on Obama's Economic Mythology:

He [Obama] makes a habit of claiming that "wages are shrinking," working families have lost ground, and the country desperately needs his "Rescue Plan for the Middle Class." His economic program rests on the unshakable conviction that everyone except the wealthy is doing worse and worse all the time. If elected, he will find sympathetic ears among Democrats in Congress, where never is heard an encouraging word.

In the midst of alarming headlines, it's easy to persuade people that things are worse than they used to be. The only problem is that aside from the transitory effects of the current turmoil, they aren't.

...

All sorts of products that didn't exist a generation ago are now commonplace even in humble neighborhoods—personal computers, cell phones, high-definition TVs, Polartec jackets, digital cameras, Starbucks coffee, and more. If their incomes are steadily falling, how do Americans cart home so much stuff?

Terry Fitzgerald, a senior economist at the Federal Reserve Bank of Minneapolis, says the answer is simple. Far from declining, he writes, "the economic compensation for work for middle Americans has risen significantly over the past 30 years."

The mistake made by the School of Gloom is looking only at wages, narrowly defined. According to the Bureau of Labor Statistics, average hourly earnings of production and nonsupervisory workers, adjusted for inflation, fell by 4 percent between 1975 and 2005. But those figures deceive because they omit fringe benefits like health insurance, pensions and paid leave, which make up a bigger share of total compensation than before. The numbers also rely on a mismeasure of inflation.

When those flaws are corrected, a very different trend leaps off the page. Median wages, says Fitzgerald, rose 28 percent between 1975 and 2005. Nor were the gains restricted to Bill Gates and Hannah Montana: Significant gains occurred in the middle as well.

The same pattern holds for households. The figures that suggest families are struggling to stay even overlook some types of income, and they don't account for the fact that households have gotten smaller on average. After accounting for such things, Fitzgerald found that "inflation-adjusted median household income for most household types increased by roughly 44 percent to 62 percent from 1976 to 2006."

1 Comments:

Anonymous rose said...

Great piece. So under-reported.

Another imortant FACT that isn't reported is that over the last 8 years, if you compare the US to other developed countries in the world, we are at or near the top in growth, prices, employment, inequality change and just about any other measure affecting the middle class of the world. This has been the place to be compared to France, the UK, Germany etc.

Growth has been slower than the Clinton years, but the internet boom and ensuing .com bust certainly had something to do w/ that.

Investment and CAPEX has remained very strong up until now in the US as well, which no doubt has some root in the Bush tax cuts.

Good piece. Too bad the doom and gloom propaganda is more compelling to people than facts.

2:30 PM  

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