« Markets in everything, Eugene Debs edition | Main | She only hinted at Rainier cherries »
My goodness, many of you are jumping on David Brooks
You'll find a lengthy list of criticisms here, read for instance the continuing invective from the usually reasonable Ezra Klein. Brooks for instance wrote:
...after a lag, average wages are rising sharply. Real average wages rose by 2 percent in 2006, the second fastest rise in 30 years.
This met with many screams, not the least because he did not report the median wage. Yet the following shows up as reported in Brooks's own NYT:
The average hourly wage for workers below management level [emphasis added] — everyone from school bus drivers to stockbrokers — rose 2.8 percent from October 2005 to October of this year [2006], after being adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.
The author on that piece is David Leonhardt (with Jeremy Peters), who is usually accorded significant (and deserved) respect by the left-wing side of the blogosphere. Yes there are other ways to read the data, and of course that was December, but read that piece and you will see that Brooks is not way out of line. For instance Leonhardt and Peters report (with caveats):
For now, however, paychecks are growing fatter in nearly every corner of the economy.
A 2007 update shows higher gas prices hurting this trend in real terms; that doesn't change the fact that labor markets have been doing better than in the recent past.
Brooks makes nine claims (or try this link), and to my eyes eight of them check out directly, based on material I am familiar with and yes I mean the original sources, not journalistic summaries of them. (I should note it is not easy to estimate the total gains from globalization, and I wouldn't put much weight on any particular number here; still those gains are likely very large, as Brooks suggests.)
I am busy recording your podcast requests, and haven't had time to check out his claim number two:
The second complicating fact is that according to the Congressional Budget Office, earnings for the poorest fifth of Americans are also on the increase. As Ron Haskins of the Brookings Institution noted recently in The Washington Post, between 1991 and 2005, “the bottom fifth increased its earnings by 80 percent, compared with around 50 percent for the highest-income group and around 20 percent for each of the other three groups.”
Your opinions on this claim are, of course, welcome in the comments. But in the meantime the economy -- however imperfect -- simply isn't as bad as many bloggers are suggesting.
Posted by Tyler Cowen on July 25, 2007 at 01:40 PM in Economics | Permalink
Comments
I've not understood why bloggers in particular seem to have a more dour of the state of the economy than most participants.
Posted by: nelsonal at Jul 25, 2007 1:54:37 PM
Don't you guys know anything? This is the worst economy since Blorg the Caveman was eaten by the sabertooths in 54,083 B.C.
Posted by: Yancey Ward at Jul 25, 2007 1:57:28 PM
Is this a case of the three blind men and the elephant?
There is definitely a mood in the country which is reflected in a feeling of falling behind by people within certain segments.
On the other hand some people are doing quite well and act accordingly. A good place to see this is in retail. Walmart (average shopper earns about $25K) is struggling while Target (average shopper earns about $40K) just reported good growth. The market for the wealthy is doing even better with record prices being reached for things like fine art.
The problem is that pundits seem to belong to a fairly narrow socioeconomic class. In general they are employed in academia or the media and move in a circle of the intelligentsia and the successful. A few have come from modest circumstances and seem to retain their empathy for the less fortunate. Edwards appears to fall into this class.
If the stats are so unambiguous then why is it that how they are viewed tracks so closely with a person's general views on society. Liberals see a problem, conservatives don't.
If groups can't even agree on the data it seems unlikely that they can engage in fruitful discussions free of name calling and cheap shots.
Posted by: robertdfeinman at Jul 25, 2007 2:00:10 PM
"I've not understood why bloggers in particular seem to have a more dour of the state of the economy than most participants."
I'm not sure if this is true of bloggers in general. But for the ones that do, Bryan Caplan suggests the "pessimistic bias" is rooted in human psychology. (pg 46-47 of his new book The Myth of the Rational Voter: Why Democracies Choose Bad Policies)
Posted by: Biomed Tim at Jul 25, 2007 2:04:48 PM
Oh, come on! Really, this is really easy to explain. All one has to know is which party holds the White House. If it is a Republican, leftist bloggers will tell you economic world is coing to an end, and if it is a Democrat, rightist bloggers will tell you the same thing.
Posted by: Yancey Ward at Jul 25, 2007 2:12:32 PM
Yes, who are you going to believe, the economists or your own, lying eyes?
The fact is, for whatever reason, middle class America does not feel like it's doing well. That includes most people in the blogosphere.
Posted by: KingM at Jul 25, 2007 2:17:00 PM
The question isn't whether the statistics Brooks cited were literally correct as stated, but whether it was intellectually dishonest of him to use the statistics in support of the conclusions he was asserting. Cf.: "In August 2005, New Orleans didn't get any rain at all in 20 of the 31 days; clearly, that was a dry month." Even if the 20/31 statistic is literally correct, it is intellectually dishonest to draw the conclusion asserted.
Posted by: alkali at Jul 25, 2007 2:34:36 PM
Perhaps those who are residents of the east coast, especially in the DC and NYC orbits, see the situation much differently than those in the rest of the country.
DC and NYC are awash in money sent to them by the rest of the country, and both orbits tend to see the world from atop of pile of cash.
There are several lights years of separation between Gucci Gulch and Detroit.
Posted by: save_the_rustbelt at Jul 25, 2007 2:40:32 PM
When I check my data base on y/y gains in real average hourly earnings I get a positive 0.6% gain for the year over year number in 2006 and a 1.8% for the December to December number -- a full percentage point under the number Brooks quotes. As of June the y/y increase is 1.2%. So it seems that both Brooks and Leonhardt are in error.
The number that Brooks uses that is really suspect is his statement that globalization raises each household's income by $10,000 a year. I'm sure he has a source for this but to my mind with median household income at $46,326 that means it boost each household income 21% or about the same as the gains over a full decade. That is just outside the realm of possibility.
Posted by: spencer at Jul 25, 2007 2:41:00 PM
Perhaps those who are residents of the east coast, especially in the DC and NYC orbits, see the situation much differently than those in the rest of the country.
DC and NYC are awash in money sent to them by the rest of the country, and both orbits tend to see the world from atop of pile of cash.
There are several lights years of separation between Gucci Gulch and Detroit.
Posted by: save_the_rustbelt at Jul 25, 2007 2:41:40 PM
What happened to the Nordhaus-inspired debate about the meaninglessness of real wages as a measure of wellbeing in view of the history of lighting?
Why are these stats still being treated seriously? If anything, recent studies have suggested that the Boskin Commission's critique of the CPI's bias was an underestimate...
Posted by: Chris at Jul 25, 2007 2:42:56 PM
Perhaps those who are residents of the east coast, especially in the DC and NYC orbits, see the situation much differently than those in the rest of the country.
DC and NYC are awash in money sent to them by the rest of the country, and both orbits tend to see the world from atop of pile of cash.
There are several lights years of separation between Gucci Gulch and Detroit.
Posted by: save_the_rustbelt at Jul 25, 2007 2:43:00 PM
Anybody want to swap the quarter century 1983-2007 just ending (with its two short, mild recessions), for the quarter century that preceded it (with 6 recessions)?
Or, any other quarter century of your choosing?
Posted by: Patrick R. Sullivan at Jul 25, 2007 2:52:29 PM
robertdfeinman wrote: "If the stats are so unambiguous then why is it that how they are viewed tracks so closely with a person's general views on society. Liberals see a problem, conservatives don't."
Generally speaking, economic pessimism and political ideology do not have a strong relationship (for example, see Table 5 here).
Do you have evidence that this has changed in the last few years?
Posted by: Steve Miller at Jul 25, 2007 3:01:23 PM
Rusty,
What if I found a POOR economist from the mid-west (someone who has a degree in economics but happens to make very little money) to say that the economy isn't so bad?
What would you say then?
Posted by: Biomed Tim at Jul 25, 2007 3:08:08 PM
Leonhardt actually uses the correct data. The article you linked to was written during the year, and the latest data when he wrote the article was 2.8%. But it is not the December to December data or the y/y comparison Brooks should be using now when he refers to 2006.
Posted by: spencer at Jul 25, 2007 3:27:12 PM
Steve Miller:
I read your paper, but I have some reservations. First there has been a problem with economists doing research that should be done with the aid of sociologists. A troubled history of opinion sampling has shown how easy it is for questionnaires to go awry. Simple things like the order of questions or whether the question requires a positive or negative response to express a certain opinion can have an effect.
Also the wording can be problematic. Many people will say they are against welfare (or foreign aid) but when the question is reworded in terms of helping the poor they express an opposite sentiment.
I can't judge whether any of these factors are present in your survey, so I'm just raising a general caution. How the sample is collected and even the expectations of the experimenter have also been shown to produce unintended (or perhaps intended) results. Why do "Republican" and "Democratic" pollsters exist? Shouldn't they get the same results?
A quick glance at the intellectual landscape will show that conservative economists and liberal economists view the world differently. I'm not just talking about their ideas of what is to be done, but also their interpretation of current conditions and even their take on what policies in the past caused what results.
Did tax cuts at time X cause a growth in the economy at time Y? There is no consensus. So if the bias isn't related to their social outlook then what is it related to?
Posted by: robertdfeinman at Jul 25, 2007 3:43:24 PM
The second complicating fact is that according to the Congressional Budget Office, earnings for the poorest fifth of Americans are also on the increase. As Ron Haskins of the Brookings Institution noted recently in The Washington Post, between 1991 and 2005, “the bottom fifth increased its earnings by 80 percent, compared with around 50 percent for the highest-income group and around 20 percent for each of the other three groups.”
Selective quoting is always to be suspect. If you look at the actual data you see that all those gains occurred in the 1990s and that 2000 was the peak year. The real income of the bottom fifth has fallen every years since 2000.
Posted by: spencer at Jul 25, 2007 3:43:59 PM
I really don't understand it. Most of the blogs I read are financial and technical and have a pretty good mix of political beliefs (libertarianism is over represented but aside from that there's a pretty even divide between left and right). There's even a pretty good spread in ages (from college kids to retirees).
The one thing I've noticed in excess is much higher than average concern about the economy both nationally and on a personal level. I'm not sure if it's due to over representation in the internet bubble or what exactly, but I've found it odd for some time. The odd thing is I haven't noticed an undue pessimism in other outlooks. Sure they're generally cynics, but it's only financially that I notice the width of the divergence.
Posted by: nelsonal at Jul 25, 2007 3:50:07 PM
Also, I'm sure that the more one reads the MSM, the more likely one is to think the economy sucks, simply because it sucks for the MSM. Nearly every big newspaper and many news TV shows are bleeding red ink and having big layoffs, and this can't help but color their reporting on the economy.
Posted by: Foobarista at Jul 25, 2007 3:55:15 PM
Also, I'm sure that the more one reads the MSM, the more likely one is to think the economy sucks, simply because it sucks for the MSM. Nearly every big newspaper and many news TV shows are bleeding red ink and having big layoffs, and this can't help but color their reporting on the economy.
Posted by: Foobarista at Jul 25, 2007 3:57:44 PM
Would be interested in your reactions to this piece at Tigerhawk, which argues that high federal funds rate, spiking corporate rates, bank stocks off 10%-15%, real estate slowdown (especially at the margin), and several large financings cratering are all leading indicators of a credit crunch that could put the economy into recession.
Posted by: Timothy at Jul 25, 2007 4:05:52 PM
Delong, the walking caricature of Smug and Stuid want the editors of the NYT to call Brooks and tell him: “this was too stupid to print”, continuing to write “Helloooo? Anybody in there? If you want to talk about the middle class, you talk about medians rather than averages”
First of all let us note that according to the BLS:
“Median weekly earnings of the nation’s 106.9 million full-time wage and
salary workers were $690 in the second quarter of 2007, the Bureau of Labor
Statistics of the U.S. Department of Labor reported today. This was 4.7
percent higher than a year earlier compared with a gain of 2.7 percent in
the Consumer Price Index for All Urban Consumers (CPI-U) over the same
period.”
http://www.bls.gov/news.release/wkyeng.nr0.htm
So much for that. 2% increase in the median weekly wage.
But just as an illustration, let’s spend 5 minutes exploring the stupidity of Brad Delong, shall we?
The average hourly or weekly wage reported by the BLS (that Brooks presumably used) already excludes the Goldman Sachs CEO Lloyd Blankfein that Delong is ranting about. It mainly consists of the wages of the lower and middle classes. If I remember correctly it only includes about 80% of workers and 53% of the wage sum.
As an example only one out of 20 of this type of worker earn more than 41 dollars per hour, or 80k per year for full time work.
Secondly the median is not a suitable definition of the middle class. The middle household or the median wage earner include too many teenagers, illegal migrant workers, part time students etc.
The M E D I A N income of a Married-couple family in 2005 was 66.070 dollars, or 71.000 for a two earner household. The mean for the later war 88.000
http://pubdb3.census.gov/macro/032006/hhinc/new01_001.htm
This is a much better representation of an the household than the census definition. Similarly the median income of full time year-round male workers is around 45.000, not quite a lot higher than the 16,50 hourly wage data indicate.
This is not to dispute that the figures could have been higher still with better policy, such as less immigration of unskilled immigrants, as Champion of American Workers Brad Delong is demanding.
http://delong.typepad.com/sdj/2007/06/ottoviano-peri-.html.
PS. "decline in 2000-2001" =
Decline that STARTED in 2000-2001.
Posted by: Tino at Jul 25, 2007 4:17:51 PM
"I don’t waste my time with the opinions of someone like Ezra Klein who is clearly quite ignorant about economics."
"Delong, the walking caricature of Smug and Stuid [sic]..."
Tino,
Can't you make your points without the usual insults?
Posted by: Murphy at Jul 25, 2007 4:23:51 PM
“If you look at the actual data you see that all those gains occurred in the 1990s and that 2000 was the peak year. The real income of the bottom fifth has fallen every years since 2000”
First of all that is not true, the average real income of the bottom fifth went up 2004-2005 (last year reported by US census).
http://www.census.gov/hhes/www/income/histinc/h03ar.html
Secondly it is not strange that the incomes fell from the 2000 level. That was not a “normal” year, it was the height on an booming, probably overheated economy.
When you have steady growth combined with business cycle variations this is exactly what you will see, income below the peak (until we reach the next peak), but above what it was before the expansion.
In addition, you have three factors leading to a likely fall in incomes: unprecedented immigration of low-skilled labourers (note that this will decrease income through the composition effect alone), smaller households sizes and gas taking a 2-3% chunk out of household income. This is most likely a temporary effect, as new output gets out and people switch from oil. But it goes far to explain why income is not rising faster.
Example: When I make crude calculations of the increase of total employee compensations from q1 2004 to q1 2007 I get 2% real increase with urban wage earner CPI, but 4,7% increase for all goods except energy.
Posted by: Tino at Jul 25, 2007 4:54:14 PM
