Income brackets and the RECESSION

1)  Where is the recession that was the focus of so much media scrutiny?  Must be in media purgatory with the coverage of the Iraq war and the recent information that calls global warming into question...

2)  I think the information re: income statistics is important to keep in mind as the election nears.  A lot of arguments are going to be based on statistics like these - we should be mindful of what, exactly, we can infer from these statistics (and, perhaps more importantly, what we cannot infer)

The Imitators: Part II
Thomas Sowell
Wednesday, June 25, 2008

It must be a bitter disappointment to those in the media and in politics who have been dying to use the word "recession" that, for the second quarter in a row, there has been no downturn in the economy, though growth has been slow.

Alarmists have been reduced to quoting other alarmists on the supposedly impending recession but that is still not the real thing.

The definition of a "recession" is very clear and straightforward: Two consecutive quarters of negative growth. We have not yet had one consecutive quarter of negative growth.

The fault-finding brigades of critics of the American economy and society are among the reasons why there is so much talk about how we ought to do things that are being done in Europe.

We need to understand America first, before we start imitating Europe.

The American economy produces the largest output in the world-- more than Japan, Germany, and Great Britain combined.

Measured by purchasing power, output per capita in the United States is the highest of any large nation.

There are some very small places like Luxembourg or the Cayman Islands with higher purchasing power per capita but, as Professor Benjamin M. Friedman of Harvard put it, places like Luxembourg are "technically countries but are more like large suburbs." Luxembourg's total population is about the same as that of Long Beach, California. Wal-Mart has more employees than the total population of Luxembourg.

Some other small places like the Cayman Islands are tax havens that attract the wealth of people who are not really Cayman Islanders.

Among countries at all comparable to the United States in size or population, none has achieved as high an output per capita. New Jersey produces more than Egypt. California produces more than Canada or Mexico.

Desperate efforts to depict all the prosperity and progress in the United States as being monopolized by "the rich" have led to all kinds of statistical mumbo jumbo, such as comparing the changing ratios between statistical categories over time and ignoring the fact that most of the people in those categories move from one category to another over the years.

Studies that follow given individuals over time show the exact opposite of what is being said in the mainstream media and in politics. That is, most of the working people in the bottom fifth of the income distribution rise into the top half, and the rate of increase of their incomes is greater than that of most of the people initially in the top fifth. Those individuals in the top one percent, as of a given time, actually have an absolute decline in income over time. As they drop out of the top one percent, they are replaced by others, so the statistical category can be doing great, while the flesh-and-blood people who pass in and out of that category are by no means gaining on those further down the income distribution.

None of this is rocket science. But most people in politics, in the media and in academia still insist on using statistics based on the fate of abstract categories over time-- households, families, income brackets-- even when other statistics, based on following specific individuals over time, are available.

Households and families vary in size from group to group and are generally declining in size over time, but an individual always means one person. Income per household or family can be stagnant, or even declining, while income per person is rising.

That has in fact been a general pattern in recent decades, which may be why the nay-sayers are forever citing household and family income statistics, while ignoring statistics on income per person.

Amid a general undermining of American economic performance, it is hardly surprising that so many people think we should imitate what the Europeans are doing-- whether in the economy, in foreign policy or in other areas.

We can always learn particular things from other countries, whether in Europe, in Asia or elsewhere. But imitating Europeans when they are not doing as well as Americans makes no sense.