Poverty Rates in Recent Years

In a recent commentary in the Washington Times, Alan Reynolds says:

No economist who hopes to avoid professional ridicule would try to deny that consumption is a better measure of long-term living standards than the most widely cited income distribution figures, which do not even add transfer payments or subtract taxes.

It's clear why the administration's defenders are pushing this point. Here's a graph of income and consumption based measures of poverty taken from a recent article from the Minneapolis Fed on measuring poverty:

The green line is income based poverty and it has been increasing since 2000. The consumption based measure shows more progress and that's why it is being pushed on some editorial pages. But even with the consumption based measure, poverty is little changed between 1998 and 2003 and the total decline since 1998 has been less than 1%. Thus, while the consumption based measure does not show the increase in the poverty rate that income based measures show, it is still evident that progress has stalled in recent years as compared to the decline from 1993 through 1998.

As Paul Krugman notes in comparing the change in poverty in the U.S. and in Britain:

And Britain’s poverty rate, if measured American-style — that is, in terms of a fixed poverty line, not a moving target that rises as the nation grows richer — has been cut in half since Labor came to power in 1997.

For the same time period, and using the best case consumption based measure, the rate has only fallen by a little over a percentage point over the same time period in the U.S. (see graph). Thus, while it's easy to see why the administration prefers the consumption based measure, even using this measure the U.S. has not done as well as Britain has over the same time period. As Paul Krugman also notes, this is partly due to a difference in the priorities of the two administrations.

I want to defend my colleagues against the claim made by Reynolds that they will face ridicule if they question Reynold's preferred consumption based measure of poverty.

Actually, I'll let who economists who work in this area speak for themselves. This is from the article containing the graph shown above. See if you think these economists ought to receive the "professional ridicule" Reynolds says they deserve rather than the respect accorded to colleagues engaged in serious research on important issues:

Poor by what standard?, FedGazette, Minneapolis Fed: ...Not foolproof Add it all up, and a different pattern emerges regarding poverty. A 2003 Census report on material well-being noted, “As many (studies) show, the levels of poverty and inequality tend to decrease using consumption-based figures, in comparison with income-based measures.”

Recent studies have reinforced that notion. In a 2006 working paper for the NBER, economists Bruce Meyer (University of Chicago) and James Sullivan (Notre Dame) pointed out that the official poverty rate “suggests that poverty has changed very little over the past three decades,” rising with recessions and then subsequently falling. In contrast, “Consumption-based poverty rates often indicate large declines, even in recent years when income-based poverty rates have risen” (see chart).

Responding to questions via e-mail, Sullivan said that consumption “is a more consistent measuring stick over time and that it is a better measure of the well-being of the worse off.” He added, “Over the past three decades, consumption poverty tells a more optimistic story than does income poverty ... suggesting we are winning the war on poverty.”

Some economists prefer to look at consumption because it is less volatile than income on an annual basis for most households. People smooth their consumption based on long-term income expectations. Such a phenomenon is readily apparent among those who lose a job. While their income might plummet, consumption tends to fall much less dramatically. Such households tend to either dip into savings or take on additional debt with the expectation that higher income will return in due time.

All this is not to say that consumption wins the best-measuring-stick debate hands down, even among advocates. Sullivan, for example, acknowledged “some important practical concerns with switching to consumption,” including the fact that consumption surveys are much smaller in scale than income surveys, making it difficult to analyze local patterns because of sampling problems.

The consumption model has other blind spots. For example, it can only measure total costs; it has no ability to distinguish the quality of purchases or the utility of different types of purchases to a household. For example, a 2005 working paper by Thomas Deleire of Michigan State and Helen Levy of the University of Michigan found that higher expenditures among single-mother households during the 1990s “can be explained by a shift from food at home to food away from home.” While that is positive in some senses—less work cooking at home and more food “leisure”—an alternative explanation is that more meals were eaten outside the home out of necessity and at higher cost to the household budget, as more single mothers worked, either voluntarily or because of changes to the welfare system in the 1990s. Better off? Hard to say for sure.

Sullivan and others also point out that income poverty has simple longevity on its side. “I think it is well understood that there are flaws in the official measure of poverty,” Sullivan said. “(But) we have been using the current measure for about 40 years, so we have a nice time series that is generally understood.” A 2005 article in the BLS's Monthly Labor Review noted that most studies of well-being are based on income data “partly because of history and also partly because of habit. Income data are accessible, comparable over time, and of high quality.” International comparisons are possible only through income because other measures like consumption are simply unavailable in most other countries.

Austin Nichols, a research associate at the Urban Institute, a nonpartisan economic and social policy research organization, has authored several recent reports on poverty trends. “I think a lot of folks use the official poverty line for the sake of convenience and comparability,” Nichols said via e-mail. That might sound like faint praise, but Nichols said that “convenience and comparability is not to be scoffed at.” Any new measure would not likely offer a view of poverty dating back to the 1960s and could have “equivalent or greater problems. ... At least the official poverty measure is understood by most people, as are some of its limitations.”

In the end, everything is relative. Not even researchers within the same organization agree on the best way to measure poverty. Gregory Acs is a senior research associate at the Urban Institute. Along with his counterpart Nichols, he has considerable experience with both poverty trends and the definition-measurement issue.

Acs and Austin tend to disagree over the utility of consumption-based poverty measures. According to Acs, “Ultimately, consumption is a better measure of well-being than income, but I think it is harder to measure, and income is not a bad proxy for consumption.” But Nichols responded, “I disagree that consumption is a better measure of well-being,” in part because researchers don't know how much consumption is financed by unsustainable borrowing. He added that consumption measures “have just as many problems as income-based measures.”

This scholarly head butting illustrates the general difficulty of pinning down who is poor and who is not. Said Acs, “I think Austin and I agree that there are pros and cons to all the poverty approaches,” both income and consumption.

The existing measure has stuck because “we have the most experience measuring income ... (and) researchers and policymakers are by now quite aware of its limitations,” according to Acs. “We want poverty to be an absolute measure of deprivation, and I think that's asking too much of any single statistic.”

However you measure it, we can do better.

Comments

[anne]

http://www.nytimes.com/2006/12/12/opinion/12tue2.html?ex=1323579600&en=f5dd4ceb951b887a&ei=5090&partner=rssuserland&emc=rss

December 12, 2006

Consumption Gap

Conservative economists often argue that wage stagnation and income inequality are not as big a threat to Americans' standard of living as they've been made out to be. In their view, how much one buys — rather than how much one makes — is a better measure of economic well-being.

In a recent article in The National Review, researchers at the American Enterprise Institute asserted just that, saying that when you look at how much the middle class is consuming, they're "even doing better than the upper crust."

Why make a fuss over other grim economic statistics if everyone manages to keep buying things?

Here's why. The assertion — that the middle class has out-consumed the "upper crust" during the Bush years — is false, the result of rosy assumptions that turned out to be wrong.

Researchers at two other think tanks, the Center on Budget and Policy Priorities and the Economic Policy Institute, reworked the figures, including newly available spending data for 2005. There is no dispute among the various researchers over the new findings. Over all, consumption is growing. But the growth is unbalanced, consistent with the wide disparity in wages and income that has characterized the Bush years.

Consumer spending by low-income households is way down since 2001. Over the same period, spending by high-income Americans has been robust, supported, in part, by generous tax cuts. In 2005, the top 20 percent of households made 39 percent of all consumer expenditures, the highest share since the government started keeping track in 1984.

The information on middle-income households is mixed, with some data showing a decline in their spending during the Bush era and some showing an increase. But there is no question that spending by the middle class has been weaker in the current economic expansion than in previous recoveries....

[anne]

Notice the interesting similarity of construction:

Alan Reynolds -

"No economist who hopes to avoid professional ridicule would try to deny that consumption is a better measure of long-term living standards than the most widely cited income distribution figures, which do not even add transfer payments or subtract taxes."

http://maxspeak.org/mt/archives/002703.html

Greg Mankiw -

"Here is a question that I would ask any politician: If you could set your ideal policy to help the poor, wouldn't you prefer to expand the EITC [earned income tax credit] and abolish the minimum wage? Any politician that fails to answer "yes" is either misinformed or engaging in demagoguery."

Ah, yes....

[anne]

http://maxspeak.org/mt/archives/002703.html

November 28, 2006

The Economic Thought of the Morally & Intellectually Superior N. Gregory Mankiw
By Max Sawicky

Among the misinformed or demagogic are these 650 economists, including five Nobel prize winners, the latter a distinction that has thus far eluded Professor Mankiw....

[anne]

"No economist who hopes to avoid professional ridicule would...."

When last we came on the claim for consumption, we were shown that while a rich person would spend $40,000 a year, a poor person would spend $40,000 / 6.5 or $6154. So, obviously the poor are rich having $154 for the year after, say, rent and utilities to spend on, well, everything else. Huh?

"No economist who hopes...."

[Don Lloyd]

Mark,

You should note that the form of graph shown, having a truncated, linear vertical axis, is about the most distorting form of graph possible. Visibly equal slopes at different vertical heights are not comparable. A falling straight line would be an accelerating rate of percentage decline, not a constant one.

Why anyone would expect to find an ever falling rate of poverty in the face of significant immigration is inexplicable. Even without immigration, the fall has to level off unless your measure of poverty can be negative.

Regards, Don

[Winslow R.]

One has to wonder if U.S. borrowing 'income' from the future to finance current consumption eventually leads to a burst of wage inflation as politically it becomes necessary to shift income to debtors but the cashflow transfer can no longer be finessed through lower interest rates as they approach the zero bound.

For guidance I am waiting for Japanese government deficits to spill over into wage inflation allowing their interest rates to rise above the bottom. Doesn't seem to be happening near as quickly as expected. Getting the 'trickles' to come down on the areas needing watering seems to be beyond current political frameworks in both the U.S. and Japan. The postal system in Japan and Goldman Sachs, at least here in the U.S seem to have an inordinate amount of control over the fire hose.

[Mark Thoma]

The source for the graph from the Minneapolis Fed article shown above is an NBER paper by Bruce Meyer (University of Chicago) and James Sullivan (Notre Dame), "Three Decades of Consumption and Income Poverty."

[anne]

Interestingly enough, there can be economic growth and poverty can be lessened with population growth or even with, say, immigration. Interestingly enough, say. We could, say, have all sorts of poverty reducting programs, We could, say, have health care insurance for 47 million Americans with no health care insurance, say, just to begin....

[evagrius]

Has Mr. Reynolds ever "hung out" at a welfare office where people are applying for Food Stams and other aid?
Has he, or his ideological colleagues, ever "hung out" in a poor neighborhood?

I'm always fascinated by those doing research on poverty in the comfort of their well appointed offices.

From FRAC, ( Food Research and Action Center);

In September 2006 food stamp participation at 26,195,449 persons was up over the month by 62,551 people. The overall caseload for September 2006 was more than 1.2 million persons lower than the prior September, when many Hurricane Katrina victims received disaster food stamp benefits. Still, September 2006 participation levels were more than 8.3 million persons higher than in August 2001. Nonetheless, the Program still is missing nearly four in ten eligible people. At a time when more than 35 million people in the US face a constant struggle against hunger, continuing to strengthen the reach of the Food Stamp Program is vital.

Food Stamp Program growth in recent years reflects continuing wage stagnation, state actions to improve access, the effects of the 2002 food stamp reauthorization implementation, and disaster relief. In late 2005 caseloads grew significantly to serve victims affected by Hurricanes Katrina, Rita and Wilma, but largely have returned to pre-disaster relief levels.

Food Stamp Participation
5-Year Change
(Data as of November 24, 2006)
State/Territory September
2001 September
2006 5-Year
% Change
Massachusetts 222,519 445,381 100.2%
Delaware 32,880 64,892 97.4%
Iowa 131,568 232,024 76.4%
Michigan 678,313 1,176,547 73.5%
Texas 1,423,448 2,452,296 72.3%
Washington 315,442 533,198 69.0%
Missouri 484,746 812,074 67.5%
North Carolina 528,658 872,978 65.1%
Arizona 329,895 537,007 62.8%
Colorado 158,223 253,166 60.0%
Ohio 667,234 1,065,764 59.7%
Tennessee 540,492 862,270 59.5%
Oklahoma 273,838 433,839 58.4%
South Carolina 342,776 541,323 57.9%
Georgia 601,319 946,852 57.5%
Utah 80,159 125,208 56.2%
Wisconsin 239,022 372,447 55.8%
Indiana 371,496 577,610 55.5%
New Hampshire 37,269 57,071 53.1%
Maine 104,868 159,521 52.1%
New Mexico 160,697 241,160 50.1%
Virginia 339,479 507,703 49.6%
Pennsylvania 748,027 1,097,949 46.8%
Nebraska 81,862 119,750 46.3%
Maryland 212,097 309,960 46.1%
Nevada 80,706 117,286 45.3%
Arkansas 266,264 385,228 44.7%
Illinois 860,150 1,241,259 44.3%
Alaska 38,994 56,164 44.0%
Kansas 129,863 184,110 41.8%
Idaho 60,642 85,379 40.8%
Kentucky 420,206 591,340 40.7%
Oregon 315,791 432,443 36.9%
New York 1,303,549 1,781,387 36.7%
Connecticut 158,347 211,537 33.6%
Mississippi 313,933 414,636 32.1%
New Jersey 311,258 408,917 31.4%
Montana 61,122 80,111 31.1%
Minnesota 205,387 267,442 30.2%
South Dakota 45,135 58,752 30.2%
Alabama 420,191 545,721 29.9%
Florida 933,099 1,208,053 29.5%
Vermont 38,451 48,197 25.3%
District of Columbia 74,112 90,068 21.5%
California 1,669,229 2,006,461 20.2%
West Virginia 224,112 267,536 19.4%
Louisiana 548,540 645,636 17.7%
North Dakota 38,340 41,501 8.2%
Wyoming 21,477 22,941 6.8%
Rhode Island 71,160 73,966 3.9%
Hawaii 105,911 89,368 -15.6%
TOTAL 17,858,172 26,195,449 46.7%

Don't tell me that with an increase of 46.7% since 2001of Food Stamp recipients that poverty is decreasing!

Eligibility

Eligibility for the Food Stamp Program is based on financial and non-financial factors. The application process includes completing and filing an application form, being interviewed, and verifying facts crucial to determining eligibility. With certain exceptions, a household that meets the eligibility requirements is qualified to receive benefits. Legal immigrants who are children or disabled can now get food stamps, as can legal immigrants who have legally resided in the United States for at least 5 years. Other legal immigrants and any undocumented immigrants are ineligible for food stamp benefits. Also, many able-bodied, childless, unemployed adults have time limits on their receipt of food stamp benefits.

A household is defined as a person or a group of people living together, but not necessarily related, who purchase and prepare food together. Households, except those with elderly or disabled members, must have gross incomes below 130 percent of the poverty line. All households must have net incomes below 100 percent of poverty to be eligible. Most households may have up to $2,000 in countable resources (e.g., checking/savings account, cash, stocks/bonds). Households with at least one household member who is disabled or age 60 or older may have up to $3,000 in resources. Currently, program benefits provide an average of nearly 90 cents a meal per person.

Can Alan Reynolds and his collegues explain the increase in Food Stamp recipients over the last five years?

I would really like to see the explanation, especially as it relates to consumption.

[anne]

The complaints of the consumption crowd are that programs such as free school lunches on food stamps increase the well being of lower income households but the increase in well being is not properly accounted for by sconomists worried about income inequality. So, a person may have a higher income than easily recorded. Similar rationales extend to health care, for emergency care should always be available for those who are in need though lacking insurance. We could then argue that a person who has no health care insurance really has implicit insurance since care is fortunately available.

Nonetheless, there is pronounced and increasing wealth and income inequality and increasing inequality is threatening the political-economic heritage we would prefer to think we are always aproaching. Those who play with data on well-being are nonetheless arguing that increasing inequality is a problem but they deny there is increasing inequality.

[evagrius]

Regarding consumption as a measure of poverty- I suppose Scrooge would be considered poor by these economists.
After all, I seem to remember that he did not consume much, ( nor supported his employee Bob Cratchitt's consumption ).
This was before he was visited by the three Economists Spirits of Christmas, past, present and future, of course.

[ken melvin]

"But it would be partisan nonsense ..." Indeed. Indeed. CATO and AEI serve as propaganda arms of the right wing and the administration. Bruce Meyer and James Sullivan offer an outstanding rebuttal. Food at Safeway has gone up 20% this year, rent has gone up a ton each year, ... Kinda like including the sale of existing homes in the GDP.

The pattern of throwing up smoke screens defines Bush’s career. The unemployment claim (http://angrybear.blogspot.com/2006/12/disappearing-americans-and-illegal.html ) , education, … all the way back. Now, … in Iraq.

[howard]

alan reynolds is a bs artist, not a serious analyst, who likes to claim that anyone who disagrees with him must suffer from some psychological distemper of some sort.

greg mankiw used to be (i'm told) a legitimate economist, but after his years in the bush administration, he is now a propaganda tool.

it is no surprise that they both share similar thoughts....

[save_the_rustbelt]

Did we ever determine, does Reynolds have more than a bachelors degree?

The center-right press in Ohio has been describing poverty here as "skyrocketing." This may not be a typical state, but that sure as hell should embarass the Bush administration - if anything would embarass Bush besides his daughters.

[evagrius]

save_the_rustbelt

The figures from above re; Ohio first figure 2001, second figure 2006, next percent increase.

Ohio 667,234 1,065,764 59.7%

Yes. I would say that the Food Stamp enrollment figures are "skyrocketing".

[Ken Houghton]

Reynolds: "No economist who hopes to avoid professional ridicule"

English translation: I will ridicule economists who present the facts, and I will do so professionally.

[Bruce Wilder]

Could an increased volatility of income explain a divergence between income and consumption measures?

The shift in income distribution has been associated with (and, in part, accomplished thru) a shift in risk.

So, yeah, food and clothing are cheaper than ever before, but people at the bottom are made to shed claims to personal security. We have check cashing palaces offering payday loans, credit cards charging truly usurious rates, a health care system that bankrupts those who get sick, disappearing pensions and health insurance, etc. etc.

[john c. halasz]

Isn't consumption measured sheerly in nominal prices and gross aggregates? Don't the poor generally face higher relative prices for lower quality goods than middle class people? Rents, for example, have been increasing as a share of income, since efforts to provide for an adequate stock of affordable housing have long since been in decline; prices in inner city grocery stores are usually much higher and quality and selection lower than in suburban locations; costs of loans and banking service tend to be much higher, if available, for the poor than for middle class customers; transportation costs, consisting of the maintenance of old beaters and declining mass transit, increasingly come under strain as jobs are outsourced to suburban locations; health care is scarcely of the same quality and intensity for the poor as the middle class, though I'd think the bottom quintile is probably better covered than the next quintile. It seems to me that such matters can be empirically studied, but not just by sitting in an office and toting up aggregate numbers based on nominal prices. Rather you'd have to hit the streets and develop more qualitative, sociological surveys that would capture all the different ins and outs and variances in the matter,- (which would, of course, imply a more expensive investment in studying the issue). But what I don't think one would find in such an effort is that the opportunity and cost structures and life chances are conmensurably the same for the poor as for the middle, let alone upper middle, classes and vary only with respect to aggregate quantities. Framing the matter that way already assumes (ideologically?) that social well-being is simply equivalent to market distributions, which reflect equal opportunities. And I, at least, find it strange to live in a country that defines civic life primarily, if not solely, through participation in common consumption.

[calmo]

Following Ken H
Reynolds: "No economist who hopes to avoid professional ridicule"
English translation: I will ridicule economists who present the facts, and I will do so professionally. And we see how infectious this remark from a possibly mere BA economist with 35+ scornful years of experience, really is.
Following john c who I believe is near the point of breaking through the Green Zone on Poverty with this:
Rather you'd have to hit the streets and develop more qualitative, sociological surveys that would capture all the different ins and outs and variances in the matter, Yes, those sociology studies about them, those poor blokes, those dumpster divers and car-dwellers...seems a long way from the economic numbers purporting to identify them, their plight and their future prospects.
But getting back to the respectably poor, those who file income tax reports because they need to achieve their depression quotient for the year, does the official measure which shows steady improvement from 2000 show anything more than this rising core-Poor or is it as jc suggests, the worse of 2 bad measures, neither of which reflects the poverty we see on the streets?

[pgl]

The Wirtz piece was truly fair and balanced. I choose to highlight a comment from Austin Nichols as his critique of the Reynolds permanent income hypothesis argument is a lot like mine. As I state over at Angrybear, no one (especially Alan Reynolds) should professionally ridicule Austin Nichols. Or maybe Alan Reynolds is unaware of the growing inequality of wealth.

[Bruce Webb]

Thank you eva:
"Regarding consumption as a measure of poverty- I suppose Scrooge would be considered poor by these economists."

Yes where are the Georgists when we need them. "I have cut my consumption to the bone. I am still using the Louis XIV chairs my great-grandma brought back from Europe, the same Spode, the same flatware, the same Daimler, and lord knows the thoroughbreds subsist literally on hay and grain. We haven't bought a new yacht since my Dad laid down the keel on the 85'one in 1978. If the servants, the stablehands, the vet, the yacht staff weren't demanding so much in wages you would see that I am hardly consuming anything at all (oh the couture bill? that's different - you have to keep up appearances in our rare visits to town".

There is a pretty blatant attempt here to shift the emphasis from use to consumption. Which is the key to the estate tax, in a lot of cases what the rich are trying to do is not to protect untaxed income, some if not all of that income was taxed prior to purchase of the use items, it is to keep the value of the use item from being taxed.

In crasser terms a Louis XIV chaise-lounge in the hand is worth more than some modern art furniture piece in the bush. That their use value may be the same is not the point, the new purchase is exposed to consumption tax the retained purchase is not.

[calmo]

Crasser terms,Bruce?
You mean like this:
I suppose that Rembrandt on the wall is an investment, but that Thing (beeautiful black velvet picture of skimpily clad woman) covering up that hole in the wall from the baseball bat, is real consumption, in lieu of a drywall repair.

[evagrius]

calmo ;

Hey, those velvet paintings of Elvis are an investment. Just wait!

[peter]

Aside from the general merits of consumption vs. income, is there a hypothesis about the split in recent years between the two measures. I think someone above wondered if it was a PIH thing. That looks consistent with the split you see in 1990-1991 where income inequality rises and consumption inequality also rises but by less. Any takers?

[pgl]

Peter - I linked to the literature a while back. Follow my post today, which links to my earlier Angrybear post. You are right - PIH was part of the story but it would seem that wealth inequality has grown dramatically, which tells me a very different story from the PIH that Reynolds has been pushing. In my view - Reynolds is relying on one particular theory without carefully checking data such as the over time behavior of the dispersion of wealth.

[evagrius]

Love the acronyms- PIH ( Public Information on Health?
Housing, etc?).

Not all who read here are cognizant of all the acronyms and jargon.

Permanent Income Hypothesis- nice ring. What does it mean?

Who has "permanent income"?

[pgl]

Permanent Income Hypothesis is the same as the Life Cycle Model. Folks presumably smooth their consumption even as income varies by saving or dissaving. Consumption is supposedly based on lifetime income. So goes the Reynolds explanation of these inequality measures. You see if you consume more than you currently earn - it does not mean you are trashing your retirement wealth. Rather it's that you know you'll have high income later. Excuse me if I do not believe Reynolds's sunny view of those reported as being below the poverty line - as they are not typically part of Bill Gates's yacht club.

[evagrius]

Permanent Income is then part of the set of Bill Gates, a rather small subset of the population.
I wonder if Mr. Reynolds belongs to that set. Perhaps he has guaranteed lifetime employment.

Love the phrase , "smooth their consumption". Sounds like a nice dessert.

[James Killus]

It's worth noting that the first major salvo in the great "tax revolt" occurred in California, via Proposition 13, which greatly restricted property taxes. Property taxes are the most common form of wealth tax in this country.

The use of expenditure as a surrogate for consumption is, as several have noted here, another shell in the find-the-pea game. In practically any examination of consumption, low income individuals and families pay more for any given consumption item than do high income families, with the possible exception of automobiles, where used vehicles wind up being more cost effective. Of course, automobiles are a consumption of those a few rungs up the ladder; the bottom poor ride mass transit, and wind up paying more on a per mile basis than do those with higher incomes.

[zinc]

When I was in college, I was fortunate enough to land a summer and weekend job with a great company, Safeway. I was a member of the teamsters and therefore was entitled to $ 11.00 per hour (1978 and, if I worked all the holidays, 2.5 X). My father was an over the road driver and the chief union negotiator for the teamster local. Interestingly enough, I got the job on my own. Being called up by a buddy for a lump job he was to hungover to do ! Being a 230 pound strong guard and the son of a teamster, I unloaded 105000 lbs of watermelons, 1X1, by myself ( with the help of the warehousemen) and was hired, contract, on the spot that eventually worked into a regular job with this wonderful company.

My father joined up in 1941, won two silvers, a bronze, and a purple heart for being shot in the face and continuing to drive his tank as part of the 7th army, stopping to load wounded. He survived and raised 7 engineers, a corporate CEO, two VP, and we analytical types.

I worked with a night hostler who's daughter and 5 month old granddauter were run over and killed in the crosswalk during a high speed police chase for pot possesion.

Now what were we talking about. Oh yea, family level wages.

[evagrius]

Boy $11.00/ hr was a lot back then. Good union!

[zinc]

The teamsters are a good Union. The problem is not the union. The problem is the view of the US government that all unions (circa Ronald Rayguns) are bad for the country. If you remember correctly, inflation was raging, producers were raising prices as fast as they could, and the unions were demanding COLA's. The SOB's finally made Union a dirty word.

The idea that everyday people have to carry the burden of price competition on their backs is horseshit. We need to renew our affiliation with the doctrine of living wages and negotiation between labor and industry. Why should the wealthy reap the benefits of the culture won by the every day people. The profit margins are at record highs.

Screw them.

[evagrius]

zinc;

You almost sound like a Wobbly.

[Alan Reynolds]

"No economist who hopes to avoid professional ridicule would try to deny that consumption is a better measure of long-term living standards than the most widely cited income distribution figures, which do not even add transfer payments or subtract taxes."

That comment clearly does not assert that consumption is necessarily a better measure than "disposable income" -- which counts transfer payments like Social Security and the refundable EITC as what they are (income) and also takes into account that people cannot spend income that has been sent to the IRS or Social Security system.

So, I asked someone, anyone, to name any economist -- just one -- who cares (and dares) to assert that pretax, pretransfer income is a better measure of relative living standards than consumption.

I'm still waiting.

[piglet]

Alan, I posted this remark already in the other thread, regarding measuring inequality. Since you seem to follow the discussion here, would you care to comment?

We have discussed the question of consumption inequality in another thread. It is very problematic to take consumption as a measure of economic well-being for several reasons:

- Despite overall low inflation, there have been strong inflationary trends in several areas, including health care, energy, tuition, rent. These rising costs affect the lower and lower middle class and even the upper middle class far more severely than they affect the rich. Consumption growth at the bottom may simply reflect the higher cost of these goods and services without added benefit.
- Some of the lower and middle class consumption is credit-financed.
- The rich spend a lower proportion of their money on consumption than do the poor. They can use much of their money to buy political and economic power instead of buying groceries and gas.

For these reasons, the trend (or lack thereof) in consumption inequality need not reflect the general trend towards a more unequal distribution of economic well-being.
The same is true for consumption-based poverty measures. Deleire and Levy point to an important aspect that I forgot to mention. Part of increasing consumption figures merely represents a shift from unpaid home-based services to paid services, esp. eating at fast food restaurants instead of preparing food at home. This is not "more consumption", only more monetary expense for the same consumption (often at a lower quality).

I think for this discussion, it is indispensable to get a measure of how inflation rates differ for different income groups. Economists don't seem too eager to address this question.

[Alan Reynolds]

I am asked to comment on the claim that "health care, energy, tuition, rent . . . affect the lower and lower middle class and even the upper middle class far more severely than they affect the rich."

The poor are covered by Medicaid and emergency rooms, so they rarely face out of pocket expenses. Gasoline costs hurt those who commute by car, but most of the bottom fifth don't work, even part time. For those who don't have housing allowances or public housing, rent is definitely a big problem. Otherwise, this claim simply says the CPI and PCE deflators are biased against nearly everyone (the middle class) -- a very difficult claim to defend.

All of this still skirts the issue. The Minneapolis Fed study shows that consumption among the bottom fifth is nearly always double what we think their income is. There are many reasons, including private transfers (from dad) as well as government (very few studies count the refundable EITC as income, or in-kind aid like Medicaid, food stamps and housing allowances).

The Census Bureau has 14 "experimental" measures of income which include transfer payments and exclude taxes. That is, they approximate disposable income. They also include realized capital gains, which I believe should be counted separately or not at all (most gains are not realized, and most realized gains are hidden inside IRAs and 401k plans).

I'm just saying that measures of relative well-being (distribution) cannot sensibly ignore either my family's Social Security checks or our taxes. Disposable income wouldn't do ignore such additions and subtractions, and neither would consumption.

Yes, consumption is the better measure of permanent income because people can draw down assets if income is temporarily low. But I don't believe I have even mentioned permanent income lately, except in one of the last two chapters of my book.

[Movie Guy]

Alan Reynolds - "Yes, consumption is the better measure of permanent income because people can draw down assets if income is temporarily low."

How do you account for credit purchases, whether the source of such credit is credit card debt, home equity loans, or other debt instrument sources? And, yes, I am more interested in your opinions regarding the second and third quintiles.

[Alan Reynolds]

Movie Guy asks, "How do you account for credit purchases, whether the source of such credit is credit card debt, home equity loans, or other debt instrument sources? And, yes, I am more interested in your opinions regarding the second and third quintiles."

People cannot consume more over time by using credit. On the contrary, they consume less by the amount of interest paid. People with chronic low income have little access to credit, but it makes sense for others to borrow for investment (education and homes included) and for temporary difficulties. It also makes sense for governments to borrow for investment and during hard times.

Measures that focus on the top 1-10% or the ratio of top 10% income to bottom 10% income, tell us nothing about what is happening to distribution within the other 80-99%. That is why economists developed summary measures of the whole distribution, such as Gini coefficients. You can find the most relevant Gini measures in the Census study I posted before, and in the April 2005 Monthly Labor Review http://www.bls.gov/opub/mlr/2005/04/art2abs.htm