Creative Destruction

September 8, 2006

Data not bad anymore, but misleading none the less

Filed under: Economics,Statistical Method — Adam Gurri @ 6:09 pm

Yes, I’m surprised I still exist, too.

Anyway, saw Ampersand’s correction, and had me a look at the Kevin Drum Analysis.

It’s misleading, and I will tell you why: look at the census data he’s drawing on.  We are not talking about the Median Income levels for all citizens of the United States.  We’re talking about Median Income…for each household.

I’m not splitting hairs.  There are a number of reasons why the average income for a household might decline that would in no way suggest a decline in the standard of living.  If the proportion of low-income people who are buying their own houses increases, then the average might decrease, but the people who already owned homes are not any worse off than they were before.

It could also be that more single people are buying their own homes.  If you have fewer income earners in each house, then naturally the average “per house” goes down, but comparing a house owned by a twenty-something single IT student with a house occupied by a family of five would be rather unproductive if you’re attempting to get a sense of general standard of living.

But enough talk.  Let’s look at some information.

First source: Historic Table of Homeownership.  This one goes back even farther than the Median Income table, beginning at 1965.  But even in the window Drum is looking at, (1984 to the present) there is clearly a slow, but steady, long term trend towards a higher general rate of homeownership.

Unfortunately, the table doesn’t break it down by state, but rather by region.  Gotta work with the info I have on hand.

So here it is:

First Quarter of 1984:

Northeast             61.1
Midwest               69.0
South                 67.2
West                  58.3
United States         64.6

Second Quarter of 2006:

Northeast             64.7
Midwest               72.5
South                 70.4
West                  64.4
United States         68.5

As you can see, that is a net increase in every region.

Mind you, this isn’t just an increase in the number of people who own homes, it’s an increase in the percentage of the total population, which has itself grown.

Anyway, if you want to look at median income, then just look at it.  Don’t talk about things like “households”, which are variable in the number of people that live in any given one as well as the stage in life the householder is.

Though this table only goes to 2004, I think you can forgive me a year.

In exchange, I’ll start earlier: we’ll go from 1980 to 2004, looking at the average per capita income of the US.

Calculated in 2004 dollars, average per capita income went from $16,908 in 1980 to $23,848 in 2004.  At the same time that the rate was increasing, our population also grew by about 29% (from roughtly 225 million to roughly 291 million).

Once again, if you calculate by household, you will not be presenting evidence having anything to do with the income of the average American.  For all we know, people of certain income levels are more willing to go into debt in order to buy a home than they used to be.  For all we know, there are lots of crazy people who prefer to live in their car even though they’re making hundreds of thousands of dollars a year.  Though the last scenario is presented in jest, I merely wish to make the case that relying on the household as a standard unit leaves out information that is far too important to ignore.

I’m not going to make any grand arguments about whether or not Americans as a whole are better off, though the information I’ve provided would seem to suggest that.  But I would need some far more refined information in order to make a decent case, and I simply haven’t the time to do that kind of research.

I do think that in light of what I’ve said, the Kevin Drum analysis can be considered entirely irrelevant to the point he was trying to make.

7 Comments »

  1. I think Drum’s point was that typical Americans are worse off than they were in 1999. While Gurri correctly note the pitfalls of Drum’s analysis, he also cite the Census Bureau data saying that median per capita income has declined since 2000 (at least through 2004).

    So, in contrast to Alexander Pope, Gurri appears to praise with faint damns.

    Comment by nobody.really — September 8, 2006 @ 7:30 pm | Reply

  2. While Gurri correctly note the pitfalls of Drum’s analysis, he also cite the Census Bureau data saying that median per capita income has declined since 2000 (at least through 2004).

    I won’t deny it. However, short-term information of this nature isn’t particularly useful. You always want to take the trends as far back as they go–I limited myself to 1984 since that was the time that Drum’s information started at, but if you follow the trend from when it begins in 1967 to when it ends in 2004, it is definately upward in the long-term.

    And that is all that really matters. There will always be short-term pitfalls, but they can never give you an accurate picture of the whole by themselves.

    Comment by Adam Gurri — September 8, 2006 @ 7:44 pm | Reply

  3. There will always be short-term pitfalls, but they can never give you an accurate picture of the whole by themselves.

    Although they will certainly be used for political ammunition.

    It’s become oddly amusing for me, because I remember from boyhood being warned by Democrats that the economy was collapsing and people were starving and the dogs were gnawing the bones of the poor etc etc. Although the warnings occasionally faded back when a Democrat was in office, the overall trend of increasing prosperity and wealth hasn’t faded yet. Capitalism works.

    Comment by Robert — September 8, 2006 @ 8:15 pm | Reply

  4. Although they will certainly be used for political ammunition.

    I had a history professor who once made the case that the economy is to American Presidents what the Mandate of Heaven was for Chinese Emperors–where dynasties could be considered illegitimate just because there happened to be a particularly bad string of natural disastors.

    Comment by Adam Gurri — September 8, 2006 @ 8:20 pm | Reply

  5. Adam, in the past you’ve been a good sport when you’ve said things that reveal that you don’t know what you’re talking about, and I’ve admired that.

    I mention that because I’m afraid that you don’t know what you’re talking about.

    If it has a door to the outside, or to a shared hallway; and if people sleep and eat inside it; then it’s a household. I’m sure the official census definition would give you a more detailed list of requirements, but that’s what it boils down to.

    I can tell you this: What a “household” is has absolutely nothing to do with home ownership. Therefore, virtually all of your analysis in this post is completely without basis.

    Anyway, if you want to look at median income, then just look at it. […] Though this table only goes to 2004, I think you can forgive me a year.

    The table you linked so contains per capita income, which is not at all the same thing as the income of the median worker. If I recall correctly, the per capital income of the US is the total amount of money income earned in the US divided by the total number of Americans alive (including Americans who don’t work).

    This table is what you should have linked to. It shows that the the median income of Americans has gone up over the last 30 years (but it has gone down a bit since 1999, so there’s no contradiction between this table and Kevin Drum’s post).

    So does that mean that median income has been going up? Yes, but the rise has been modest at best. What increase there has been, is almost entirely due to the change in women’s median income. In contrast, men’s wages have been pretty much flat since 1972; if you look at men’s median wages from the 50s to the 70s, you can see how fast income can rises when the economy is really doing well.

    So I guess if “women slowly work towards wage equality, while men’s wages stay flat for 35 years” is the best you think the US economy is capable of, then yes, things are gong great.

    By the way, household income matters a hell of a lot, and it’s perfectly legitimate to look at household income, especially as a measure of economic well-being. Here’s a very simple example: Imagine that Charlie and Lucy earn $50,000 a year each. Then Charlie and Lucy shack up together, so their household income is now $100,000. Charlie and Lucy have significantly increased what they can afford – bigger TV, bigger house, etc – which means their economic well-being has gone up. But the median income, measured by individuals, hasn’t changed at all.

    Updated to add: Official census definition of “household.”

    Comment by Ampersand — September 9, 2006 @ 12:53 am | Reply

  6. However, short-term information of this nature isn’t particularly useful. You always want to take the trends as far back as they go–I limited myself to 1984 since that was the time that Drum’s information started at, but if you follow the trend from when it begins in 1967 to when it ends in 2004, it is definately upward in the long-term.

    And that is all that really matters. There will always be short-term pitfalls, but they can never give you an accurate picture of the whole by themselves.

    To be sure, big deviations from the norm matter more than small ones. But at what point does a deviation become big? The census data Gurri cites reveals that for the first time in the past 40 years, real per capita median income has declined for four straight years (and maybe more; the data ends at 2004). If people react to a phenomenon that arises once every 40 years, I wouldn’t characterize them as being too excitable.

    We call it a recession when the GDP declines for two quarters. The data suggests that most of the US has experienced the equivalent of a recession for 4+ years.

    Comment by nobody.really — September 9, 2006 @ 6:50 pm | Reply

  7. […] Adam Gurri of Creative Destruction looks at whether Americans have the money to be conquering the universe: Data not bad anymore, but misleading none the less. I’ll be quite honest: the whole thing is way over my head. I am most assuredly not an economist. […]

    Pingback by First Carnival » Carnival of the Vanities #208 — September 13, 2006 @ 12:12 am | Reply


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