Re: US consumption
On Mar 6, 2007, at 11:38 AM, James Heartfield wrote:
Doug, fsometimes you surprise me.
It is hardly a revelation that productivity increases in services =
are less easy to come by than in goods. But how can you honestly say that =
cheaper goods do not increase the basket of consumer goods people can buy. =
You say Cox and Alm’s research is shoddy (which would appear to be a =
euphemism for Texan if I read you right). But you do not say it is wrong. If it =
is wrong, perhaps you could explain why. Perhaps you could show that there =
have been no productivity increases in telegraphy, agriculture, and so on? =
That would be interesting indeed.
Let me try once more: the real hourly wage is the nominal wage of =
average worker deflated by the consumer price index. The CPI is an =
index designed to reflect the market basket of average households, =
40% goods, 60% services. In other words, the index does the work of =
assembling the market basket. It’s not perfect, but it’s good enough. =
And it shows a decline in purchasing power of the average wage since =
the 1973 peak.
Cox and Alm made no effort to pick representative goods; they picked =
the goods that would make their case. Yes, the cost of making a phone =
call has dropped like a rock, but telecoms are about 2% of total =
consumer spending. The costs of education (3% of spending) and =
medical care (6%) have been increasing rapidly. Those don’t appear in =
the table.
I’ve written at some length (in LBO #84) on the deviousness of C&A’s =
mobility work. Here’s an excerpt:
Inventing bootstraps. The right=92s sacred text on mobility is W. =
Michael Cox and Richard Alm’s essay “By Our Own Bootstraps,” =
published in the Federal Reserve Bank of Dallas’ 1995 annual =
report. While the class position of Fed research may not be to =
everyone’s liking, it’s usually rigorous and informative. Cox and =
Alm’s stuff isn’t. It was a study designed to make a point, and it =
stacked all the numbers its way.
Mobility studies are very sensitive to definitions, time scales, =
and data quality. Honest researchers slice the data several ways to =
see how robust the findings are; not Cox and Alm. They used all the =
sensitivities to their own advantage. They’re out to prove that =
America is “the land of opportunity,” the incomplete sentence that =
serves as their opening line. “Opportunity pervades our folklore,” =
and folklore pervades their economics. They say that of the bottom =
quintile (fifth) of income earners in 1975, just 5% were still =
there in 1991; 60% were in the top two quintiles They stack their =
results in several ways. By making individuals, not households, the =
focus of their analysis =97 which they say is standard practice, =
though it isn’t =97 subjects as young as 16 qualified. So the lower =
ranks were swelled by teenagers who contributed vastly to mobility =
just by growing up. To compare incomes over time, they used changes =
in real (inflation-adjusted) incomes over time, rather than =
comparing them to prevailing averages of each moment =97 that is, =
they measured changes in absolute rather than relative incomes. =
While absolute changes matter some, most people judge their status =
and well-being against the rest of society, not against an ancient =
base fixed by a statistician. Peter Gottschalk’s reworking of the =
numbers massively deflates their claims. Cox and Alm found that =
just 2% of those in 1975’s bottom quintile remained there in 1991; =
by Gottschalk’s calculation, 36% were. And instead of 39% ending up =
in the richest quintile, just 20% did. With relative measures =97 =
which Cox and Alm don’t use, of course =97 43% of 1975’s bottom =
quintile would have remained there in 1991, and just 11% would have =
hit the top.